Tiller Invest is now the latest of the new breed of digital investment, wealth and asset managers to close it’s doors.
So, does this mean that clients don’t really want digital-only wealth management and is there an actual gap in the market for it?
There is one common theme that pops up when we discuss the latest trend for digital wealth managers and that is that they don’t think they will survive because they don’t think they can achieve scale quickly enough.
In most financial services, fee plateau at some point, then there is a race to the bottom and the firm with the biggest pockets wins. But is wealth management slightly different?
Wealth management firms and asset managers are built on big accounts. They generally cater to wealthy families who have account balances of at least £200k minimum. They will then look to charge about 0.5% for running that money. So at an absolute minimum aim to make around £1,000 per client per year. All established firms think that new wealth management businesses, like Nutmeg, that focus on small accounts won’t be around for long. But then they would, wouldn’t they?
New savings apps, such as MoneyBox, charge roughly the same fees, but their clients only add in small amounts of money. The Moneybox app works by rounding up every purchase to a pound and then putting the balance into an Investment ISA or savings account. On 0.5% they will earn £20 a year per client, but that’s is people do by some miracle have such bizarre spending patterns that they save £4,000. The minimum commission of £12 a year per customer set’s their benchmark. But you have to ask yourself if the most you will earn from your clients is £12 a year and you have an open banking infrastructure, development team and marketing to support is it a sustainable business?
After all, saving is easy and you should probably be more focussed on paying off your credit card than rounding up cappuccino purchases.
Also, the bigger the amount, the more you need to feel like “someone” is looking after your money rather than “something”. Yes, Woodford has been a sh!t and lost lots of people money, but the majority of wealth management firms have a slow and steady, money is boring, tuck it away and forget about it approach.
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