August 7, 2015
|By Consulting Group|
Being well brought-up and English, we at Black Swan Partners are reticent to blow our own trumpet. However, as our clients will confirm, we always call things as we see them, and last week’s FT advisor article by Peter Walker on ‘robo-advice’ assets in the US confirms what we wrote in section 3 of last year’s white paper on social investing . The biggest beneficiaries from changes in the investment management industry – be it robo-portfolios, low-cost investment management or social investing – will not be the disruptors themselves, but the first big, established brands able to replicate those innovations.
Leaving aside the fact that Vanguard’s Personal Advisor Service is, like Nutmeg in the UK, not in the least bit robotic, Walker’s article highlights that it attracted $11bn AUM between its launch in beta in 2013 and the end of June 2015, of which $4bn came since the full launch at the start of May 2015. Charles Schwab’s robo-advisor product (one that is actually robotic) attracted £3bn from 39,000 clients in its first 6 months. Both of these comfortably outpace the growth of Betterment and Wealthfront, operating since 2010 and 2011 respectively, which are each thought to have $2.5bn under management each. 
The reason why the old established names have attracted customers, and assets, so much faster than the original disruptors is that, when it comes to people’s life savings, their biggest priority is rarely how innovative a company is. It is rarely even how expensive it is. Instead, it is trust in the brand – have they heard of it, how long has it been around and what do their friends and families think of it?
That’s why, though we like Nutmeg, its easy to use platform and the way it has made professional investment management accessible to all, as it stands the biggest beneficiary of its approach is still likely to be whichever existing player replicates its service (or acquires it). Similarly, the most successful robo-advisor in the UK will not be a new entrant, but whichever operator gets its act together and launches one first.
The Nutmeg approach, with a human making the investment decisions, is best suited to a firm which issues its own passive funds or ETFs as Vanguard does, which can keep the cost of advice low and benefit from increased capital inflows – Vanguard charges 30 bps for its personal advisor service, as opposed to Nutmeg’s sliding scale from 90 bps down to 30 bps for those with £500k or more. (Vanguard’s service is only available for portfolios bigger than $50k). Fidelity is an obvious candidate in the UK, but Aviva, with its online platform and index tracker funds, could benefit in the same way.
Established, trusted operators who don’t issue their own collective investments are better off pursuing the robo-investing model. Hargreaves Lansdown is of course a candidate if it introduces lower cost options to its Portfolio+ service, but new investors, the type who benefit most from the low-cost, passive and easy investment model offered by Wealthfront and in particular Betterment, often prefer to begin investing with banks. Barclays Stockbrokers then, or Halifax Sharedealing, are perhaps best placed to benefit from robo-advising in the UK.