February saw another direct-to-consumer (D2C) platform announce its intention to shut down all UK operations. This time it was Exo Investing, nine months after Abrdn pulled out of a deal to acquire it.
Exo was launched in 2018 with a £16.5m backing. This latest robo-advice failure follows on the heels of Investec, UBS, Moola and others who, in recent years, have also decided it is not for them.
Trying to engage a consumer to contribute more than a cursory amount to test you is bloody hard
The attraction of robo-advice is clear considering its ability to streamline and remove friction from the advice process and, with it, costs. Robots are good at repetitive and tedious tasks with uniform inputs and outputs.
But what is less clear is how to deal with building scale that is profitable. There is no avoiding the fact the economic difficulties of robo-advice are significant. As Boring Money chief executive Holly Mackay told Money Marketing back in 2020: “It’s not a surprise. Trying to engage a consumer to invest, build a brand and actually get them to contribute more than a cursory amount to test you is bloody hard.”
Back in 2020, Nutmeg was proud to trumpet being the first robo-adviser to reach £2bn of assets. However, with 80,000 clients, that equated to just £25,000 per pot, reinforcing Mackay’s point.
Nutmeg was launched in 2012. Its accounts consistently revealed losses for the firm, reaching £18.6m in 2018. Assuming no cost increase, it would require at least £3bn of new assets to break even, adding credence to the saying “turnover is vanity, the profit is sanity”.
In the end, Nutmeg solved the problem of its raison d’etre. But the issue of how to build scale is also severely hampered by recent trends. Specifically, the shift from product sales to the focus on building a client’s financial plan—a movement Consumer Duty can only reinforce.
Advice is nuanced. This is the point investors in robo-advice ignore at their peril
Financial planning requires a great deal of skill on the part of the adviser. There is no one-size-fits-all solution. The process involves many different steps.
With investment planning, this means establishing the client’s time horizon, attitude to risk and capacity for loss, capital or income requirements, and any ethical considerations. Once all of this is known, you can compare these to the current arrangements and formulate an action plan.
Every client is different. Their attitudes and requirements are unique. As an adviser, you instinctively know and recognise this. Indeed, client financial intimacy is your huge advantage. Particularly when it comes to more significant sums, clients need to feel confident they are dealing with a knowledgeable adviser they can trust. Fortunately, for advisers, there is no app for that.
Advisers recognise advice is nuanced. This is the point investors in robo-advice solutions ignore at their peril. Customers will not trust an automated process with more significant sums and, as a result, I doubt we’ll see robo-advice move beyond simple process-driven transactions.
Robo-advice remains too much of a solution looking for a problem. As a pure end-to-end D2C solution, it is doomed to failure.
Nevertheless, as advisers, there is no room for complacency. Consumer Duty demands we continue to raise our game. Other digital touchpoints in our clients’ lives will influence how they think and we must embrace these trends to evolve our businesses.
The integration of advice with robo applications will be the driver for success. In other words, let technology take on simple tasks, automate them and use digital capabilities for support.
Tim Sargisson is former chief executive at Sandringham
