This fintech firm, robo-adviser Netwealth, is aiming to steal the dinner off wealth managers’ plates by targeting the super-rich
For well-off individuals looking to outsource the day-to-day investment of their pounds, wealth managers have long looked like the best option.
Yet for an industry driven by huge amounts of money and used by professionals ranging from entrepreneurs to technology titans, there has been surprisingly little innovation. For high-net-worth investors, using a wealth manager is rather like throwing money into a black hole – they have little idea of where it goes, or what amount is reaped in fees by the manager.
But the whisper of increased transparency – prompted by new regulation, a government focus on boosting the savings culture, and pushes from the financial watchdog – has begun to thread its way through the wood-panelled wealth managers’ offices.
Advising the super-rich
While a number of technology-enabled firms such as Nutmeg have sprung up to serve average retail investors, Netwealth is aiming to steal business from London’s most prominent and luxurious advisers to the super-rich.
Read more: Rise of the robo-advisers? Online wealth manager Nutmeg breaks through £1bn in assets under management
“We’re trying to displace a significant portion of the assets under discretionary management in the UK,” Netwealth’s chief executive Charlotte Ransom told City A.M. “Our ambition is to manage tens of billions.”
It might seem that high-net-worth investors are unlikely to turn from the trusted wealth managers of Mayfair and the City.
They may want a touch of the luxury – the complementary lunch at a high-end restaurant, the ability to forget about their cash in the knowledge that it’s in safe hands.
Soho-based Netwealth, however, has a different philosophy. It believes that busy professionals want to be able to see on-demand how their investments are performing, use online tools to predict how their wealth may grow, and draw down sums near-instantly to pay chunky outgoings such as school fees. Despite the technology drive, all investment decisions are still made by humans and real advisers are always on hand for clients.
It isn’t just Netwealth which thinks that investors should be able to demand these services.
New regulation which kicked in this January – the second Markets in Financial Instruments Directive, or Mifid II – requires that wealth managers disclose to clients the exact amount they are charging in fees, and the fees charged by the underlying funds they invest in.
Several surveys have shown firms are nowhere near ready to reveal this amount of information.
“To put in place an automated way of being able to address all those different line items, and then being able to reduce them in the same way for every single client across all the portfolios, is difficult,” said Ransom.
Read more: Robo Advice is here to stay, now let’s clear up the confusion
But as the Financial Conduct Authority begins to turn the spotlight on firms, and investors realise they have the right to know more about their money, Ransom thinks these new rules will “absolutely be a catalyst for people to move their money” to more innovative wealth managers.
Cutting the costs
As well as clarity, Netwealth’s technology also allows the firm to charge around a third of the cost of a traditional wealth manager – despite having a big-name team from firms such as Schroders and UBS.
With this ambitious core group, Netwealth has so far proved its mettle.
Its highest risk portfolio has returned 33 per cent since its 2016 inception, compared to a target of inflation plus four per cent. And with an aim to become cash flow positive in five years while continuing to grow, Netwealth is certainly a name to watch.
Read more: Wealth manager Netwealth raises £10m in second funding round