Well-known robo-adviser Nutmeg has just introduced a pilot £350 financial advice service.
As we’ve mentioned before, robo-advice isn’t really advice. It’s more an online tool to help gauge the risk you’re comfortable taking then slot you into one of several investment portfolios, usually comprising exchange traded funds (ETFs).
Whilst simple, the idea is worthy (provided it’s cheap) and certainly represents a positive step forwards for those who otherwise wouldn’t invest or do so via their bank or an insurer.
The stumbling point is that many investors, particularly those with larger sums and/or less than straightforward affairs, require more help than can be achieved by a simple risk tool.
This is probably why Nutmeg’s average customer portfolio appears small and their business model is struggling; losses for the year ending 31 December 2017 were £12.4 million and exceed £41 million since inception in 2011.
Little surprise then that Nutmeg has decided to pilot a service that bolts on one-off financial advice for £350. It’s a logical next step for robo-advisers, as the so-called ‘bionic advice’ sweet spot is their existing investment management coupled with sensible, cost-effective financial planning advice and service.
On the surface Nutmeg’s announcement is great news. Too many people still pay far too much for financial advice, and to date we’ve felt rather alone in trying to break the mould (unlike Nutmeg we’re profitable!).
But look under the bonnet and Nutmeg’s new advice service will likely fall short unless you simply want to invest spare cash in to Nutmeg’s portfolios.
Whilst I’m sure there’ll be some demand for this, it precludes the larger part of the market: those seeking full financial planning help, e.g. reviewing existing pensions and investments, managing income, tax planning and making adjustments when circumstances change.
Speaking from our own experience, offering a full financial planning service has been key to building a successful remote advice business. We’ve prospered by focussing on working efficiently with modest margins, rather than limiting the scope of our advice and service.
I wish Nutmeg well and hope we also start to see a few ‘traditional’ advisers opting to slash charges and work remotely, as investors deserve a fairer deal. But I won’t hold my breath, the old school seem to have their heads firmly in the sand and will probably cling on to high initial fees and 1% annual fees for dear life...