Investec has become the second asset manager in less than a year to close its online robo-advisory investment service after admitting appetite was too “low”, writing off more than £20m in operating losses and software costs.
The London-listed group said it had decided to “discontinue” Click and Invest, the lower cost digital service it launched two years ago in a bid to appeal to clients with smaller portfolios. It warned that “the appetite for investment services such as ours remains low and the market itself is growing at a much slower rate than expected”. The move follows UBS’ decision to shutter its own automated online service in August last year — also just two years after it launched — after the Swiss bank acknowledged that the “near-term potential” of the scheme, designed to lure younger investors to the bank, was “limited”.
In its annual results on Thursday, Investec said it had shut down its online service to “manage costs and manage capital effectively”. The company revealed that Click and Invest had notched up operating losses of £12.8m in its last financial year, down from £13.5m a year previously, as well as a £6m write-off in relation to software. “The group remains committed to developing its digital initiatives and will look to incorporate the technology into its offering,” it said. Click and Invest was designed to appeal to customers with less to spend on financial advice than their traditional clients.
But it tended to be more expensive than rival robo-advice services such as Nutmeg due to the fact it used actively managed funds instead of cheap passive ones. In January, Investec reduced its minimum investment amount for the new service to £2,500, down from £10,000, in a bid to lure more investors amid sluggish demand. Mike Barrett, managing director at consultancy the Lang Cat said: “Not many people have this specific need.” Robo-advisers such as Nutmeg have struggled to generate profits from even large customer bases due to the tighter margins on such services compared with traditional financial advice, and have also found some customers unwilling to go purely digital.
Both Nutmeg and Scalable Capital have introduced face-to-face and phone consultations with financial advisers in the past two years after realising many customers wanted a human touch. Charlotte Ransom, chief executive at Netwealth, a service that offers both online wealth management and face-to-face advice said: “Wealth management incumbents should be focusing less on chasing the mass retail market through unproven models such as ‘robo advice’, and instead direct their attention to better serving their current clients.
“This starts with providing a service that both retains the human elements and encompasses the extraordinary benefits of today’s technology.” Investec clients will now have to move their investments elsewhere over the next 90 days by selling them and withdrawing money in cash or transferring to another provider. On Thursday Investec also announced that the planned spin-off of its asset management business was scheduled for the second half of this year. It originally had hoped to finalise the deal before the summer.
Source: Financial Times – Kate Beioley