JP Morgan’s acquisition of Nutmeg shows the way the advice landscape will move in the long-term, but all eyes will be on whether the investment bank can make a profit from the robo-adviser, experts have said.
While robo-advisers' client base remains very different from IFAs' own, Sam Turner, senior consultant at Altus Consulting, said the takeover spoke to a change in advice expectations.
“It speaks to this continued acknowledgement amongst the larger wealth managers that future generations of investors have very different expectations around the way that they consume services that they’re paying for,” he said.
He referenced the estimated £350bn that is due to pass down to the next generation within the next ten years, saying millennials had "very different expectations" around the way in which they consumed advice.
“They [advisers] are not going to get away with an annual meeting - people will expect to consume the service as and when they have advice needs and digital provides brands like JP Morgan with the opportunity to do that.”
He added the takeover was not surprising given the acquisition trends seen across the market, but noted it was still very difficult to make a profit in the robo-advice market.
“Nutmeg is a great example of that. In terms of Aum they are probably the largest in the UK but still continue to fail to achieve profitability and that’s something we’ve seen for quite some time.
“The reason for it is that you’ve got a small fee being taken as a percentage on a relatively small pot.”
Mike Barrett, director at the Lang Cat, said the service's lack of profitability made the deal interesting.
“If you start to look at [Nutmeg’s] financials, their accounts historically have shown that their cost base has been growing and the losses have been growing and they have been getting further away from profitability but clearly JPMorgan didn’t really worry about that.
“[JPMorgan] can perhaps be a little bit more accommodating of kind of short term losses as they start to build up scale. “
Ricky Chan, chartered financial planner at IFS Wealth & Pensions added it would be worth keeping tabs on how JPMorgan Chase develops the platform.
“Nutmeg has been around in the UK for around a decade and continued to make big losses – it’ll be interesting to see how JPMorgan can turn it around with their proposed challenger bank launch. This may be to target the 'millennial' clients of the future and secure a foothold in the UK.”
So what’s in it for JPMorgan Chase?
Holly Mackay, chief executive of Boring Money, said this was a trend she has been seeing with US banks.
“With Goldman Sachs reportedly launching a robo-adviser in the UK next year under the successful Marcus brand, there is an interesting push from US banks with strong wealth management arms into UK territory," she said.
“Clearly JPMorgan Chase will offer both a solid brand and, based on reports, a broader suite of digital banking products which should reduce average acquisition costs.
