Canadian Robo-adviser Wealthsimple is leaving the UK market and is closing its operations here.
Why is Moneyfarm taking over Wealthsimple’s clients?
Wealthsimple is withdrawing from the UK Robo-advice market and will be transferring its 16,000 clients to rivals Moneyfarm, the Anglo Italian money manager.
However, the deal with Moneyfarm does not include any of Wealthsimple’s UK staff, technology or facilities.
Wealthsimple has some £272 million of assets under management in the UK whilst MoneyFarm has 68,000 customers and some £2.0 billion of assets under management.
The transfer of the Wealthsimple client base is scheduled to take place on the 28th of January and Moneyfarm will try to mirror Wealthsimple’s portfolios as much as possible.
Why has Wealthsimple taken this action?
Wealthsimple’s UK business had not managed to reach critical mass and was a loss-making enterprise, losing -£3.30 million in the year to the end of 2019.
On the face of it, the Robo-adviser business model sounds like a good one, in that it aims to disrupt an existing sector, that’s set in its ways, by using technology and artificial intelligence to reduce costs and headcount.
However, some costs within financial services are non-negotiable such as compliance and adherence to FCA regulation, and of course, in order to grow a client base, you will likely need to spend significant money on marketing and promotion.
Moneyfarm has benefited from having a common shareholder with Wealthsimple, in the shape of German insurance giant Allianz, which injected £59.00 million into the Canadian business in 2019. Moneyfarm is also loss-making and figures show that it lost £11.70 million in the financial year to the end of 2020.
Wealthsimple is retrenching to focus on its Canadian business which has scaled and now manages 15.00 billion Canadian dollars (£8.80 bln ), three-quarters of the way to its target of 20.0 billion of AUM.
Wealthsimple had previously sold off its Canadian advisory investment business to Toronto based Purpose Advisor Solutions, though as with the transfer of assets to Moneyfarm no financial terms for the deal were disclosed.
Does size matter in Robo-advice?
This is the latest deal in a sector that has been consolidating for the last 12 months or more. That consolidation has often been driven by necessity, however. as firms strive to find sufficient scale in terms of client assets and numbers to become viable.
A job that’s been made that much harder for survivors by incumbents either acquiring disruptors or starting their own businesses.
Earlier in the year, US giant JP Morgan Asset Management acquired Nutmeg, whilst Weathify was sold to Aviva in 2020.
In August this year, ABDN bought EXO Investing a Robo-adviser that had been backed by Rothschilds. ABDN of course has recently agreed to purchase Interactive Investor for £1.49 billion from US venture capital group JC Flowers.
Whilst fund management rivals M&G has partnered with Australia’s Ignition Advice to create its own Robo-advice platform.
At the Good Money Guide, we are all for competition and the use of new technology to drive down costs and increase choice for retail investors.
However, to date, Robo-advice and money management in the UK hasn’t been sufficiently differentiated to enable it to stand out in a crowded marketplace, full of low-cost solutions, and that likely needs to change before the sector will be able to stand on its own two feet.
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