Theirs was a short but eventful life. Born around 2010 or so, the likes of Betterment, FutureAdvisor, SigFig, Nutmeg in the UK and many others now too numerous to mention promised to disrupt the cosy world of investment advice by offering their millennial target audience a new way of managing their money on line.
The speed with which the dream that a little start up would change the investing world has been snuffed out by the empire (they are all now in the process of merging or being acquired before they run out of cash which VCs are now reluctant to provide) has been quite remarkable and there are many lessons to be learned.
Their demise when it came was swift and merciful and delivered by Vanguard who produced their own robo advice offering and raised many times more assets in just a few months than all the young and enthusiastic startups combined had managed over the prior five years. Charles Schwab, and as announced in the last few days UBS and others have followed to complete the job.
What went wrong?
Silicon Valley rule number 1 is that your solution must be ten times better than the service you seek to disrupt. In this case, they were never anyway near – their core product was the same old 60/40 stock and bond portfolio at just a little less cost than the legacy service providers – wrapped in a trendy website.
It costs more than all the Silicon Valley VCs have invested in their vineyards to establish a trusted financial services brand and the startups never really tried to gain our trust – hiding behind their unexplained “algorithms” and otherwise remaining far too opaque. Their lower fee model never provided a budget for traditional brand building and the hope that they would “go viral” never materialised.
Empire 1 – Robos 0 but it’s only half time. The VCs will just about get their money back rather than the 10 times return they were hoping for – but they will be back again if they find the right vision to back.
In the meantime, UK financial service companies continue to whip over £12 billion out of our investment accounts every year in fees and expenses for delivering risky market exposure which very few people actually want – now that’s a fat cat worth challenging again and again.
What investors do want is investment products with a predictable absolute return ahead of inflation and taxes around which they can plan for their family and retirement; and what they need is the tools to seek those investments out and the services to deliver them into their portfolios and retirement accounts. And, as a heads up, they don’t want to be ripped off by expensive fees and charges.
The next challenger will emerge from the liquid alternative investment sector with the right product at the right price and that is our mission here at the ITI Group. It promises to be an exciting second half. Reminds me of Leicester City and the VCs may yet get to attend a victory parade!