It’s easy to spot one way Nutmeg is keeping costs low. The online wealth management startup’s bare bones offices in south London are a world away from the polished wood and shiny glass up the river in the City.
Nutmeg is the creation of Nick Hungerford, formerly of Barclays and Brewin Dolphin. It’s one of many firms that’s trying to ‘disrupt’ an established industry by using technology to strip away all the ‘unnecessary’ costs. In this case it’s going up against Hungerford’s former employers and their ilk in the wealth management business.
The concept is certainly a compelling one. ‘An expertly managed portfolio was once the preserve of the few,’ Nutmeg’s website declares. ‘We believe it should be available to all.’ Customers can sign up in minutes with a minimum deposit of £1,000 and are charged an annual fee of 1% or less (depending on how much you pay in).
Hungerford came up with the idea after peers on his MBA course asked him for help managing their finances. ‘I didn’t do that, because that’s the quickest way to lose friends,’ he tells MT. ‘But what I did think was, this is crazy: there must be hundreds of people out there, thousands, millions, who want the posh investment service but don’t want to pay the extortionate fees.’
So he teamed up with co-founder and CTO William Todd and built an online alternative. As well as cutting the cost of investing, Nutmeg aims to attract consumers by speaking in a language they understand.
‘Humans don’t always want to save in the way that the financial industry wants to talk to them,’ Hungerford says. ‘Historically you asked, "Are you low, medium or high risk?". I don’t know about you, but it’s bloody hard to know at any one time whether I’m feeling low, medium or high risk.’
Nutmeg still asks you to rate your risk appetite on a scale of 1 to 10, but its platform is built around ‘goals’ – like saving for a house deposit, big purchase or a particularly sized pension pot. It gives customers a projection of how it expects their fund to grow (or not) depending on what happens in the future.
There are lots of gory financial details, but in a nut(meg)shell, customers’ cash is mainly invested in ‘exchange traded funds’, or ETFs, a type of collective investment vehicle that allows investors to easily gain exposure to illiquid or complex asset classes. Nutmeg is slightly different to a lot of so-called 'robo-advisers' in that its investment decisions are made by humans, but the idea is that its economies of scale can be used to keep the cost of making those decisions down.
Nutmeg gives customers a projection of how it expects their portfolio to perform
Companies House records show the business turned over just £635,281 in 2014, but Hungerford says the business is growing fast, and its headcount has doubled to 80 in the 12 months since.
It made a pre-tax loss of almost £5.3m in 2014. That would be fatal for a firm of Nutmeg’s size if it didn’t have some serious investor backing. In the same year it raised a pretty hefty $33m (£23m, on top of an earlier $5.3m funding round) from six investors including Carphone Warehouse founder Charles Dunstone, the big-name US venture capitalist Tim Draper and the asset management giant Schroders (which is perhaps keen to avoid being disrupted itself).
Getting to that point wasn’t easy though. Back in 2010 Hungerford’s idea was rejected by the first 45 investors he pitched to. ‘You look back with a combination of morose - because you tried and it was ridiculous - and rose-tinted glasses that it was, you know, a learning experience and was always destined to be ok,’ he says. So what kept him going?
‘I really understood that there was a massive need for this service and that we were doing something great for customers and I think that drives you. I could never start a business that required the effort of Nutmeg if it wasn’t for a "good cause" because when you get out of bed every morning you’ve got to really love what you do.’
Hungerford says that start-up capital has been easier to come by in more recent years, thanks to the rise of crowdfunding and a favourable economic situation. ‘But I’m an investment manager and I know economic circumstances can change very quickly. I also know that unless crowdfunding starts producing results then people are going to see through it.’
Another change he has witnessed since starting the company is a ‘remarkable’ shift in British attitudes towards starting a business. ‘I’ve taken such a ribbing from my friends over in the US about how no one [in the UK] starts businesses, how we’re all super-conservative,’ he says. ‘I think we’re now in a situation where the shoe is completely on the other foot. It’s easier to start a business here, it’s easier to hire here, the tax rules are better here. And I think I’m in a position to be laughing at them somewhat.’
With Britain’s ‘ISA season’ on the way soon, Nutmeg’s focus is on scaling up. ‘The plan is to grow very, very fast,’ Hungerford says. ‘We’re going to be doing more marketing, we’ve got a bigger team to cope with more volume, we’ve got bit product stuff coming out in the next couple of months, which we’re very excited about. If it doesn’t work then my head will be on the block.’
So have Nutmeg and its fellow digital wealth managers made the old guard sit up and take notice? It would appear so. Just this week American outfit Invesco acquired a so-called ‘robo-adviser’ called Jemstep, and Blackrock acquired a similar company called FutureAdvisor last year.
‘They’re all very suspicious and curious as well,’ says Hungerford. ‘Over the last three years that suspicion has moved to curiosity and frankly, many of them are supportive.
‘Their belief and mine, to an extent, is that for very high net-worths there will always be a place for the old-fashioned style. Obviously my task is to make sure we have 99% of the market.’