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Editor’s Column: Is buying Nutmeg a nutty decision?

 

I have to confess that I scratched my head this week when I heard the news that JP Morgan Chase was buying the loss-making robo-adviser Nutmeg.

Has someone at JP Morgan gone a bit hazelnut, I thought? Why buy a loss-making business that on most accounts has under-performed since it was launched nearly 10 years ago?

And why buy into a sector, the robo-advice market, that most have already written off as failing to get off the launchpad.

On reflection, however, I think it could end up being a rather smart move in time – but perhaps not for obvious reasons. A study of the global wealth market published this week by Boston Consulting gives us some clues.

But first what has JP Morgan bought and why? Ostensibly it has acquired Nutmeg as a platform to launch into the mass savings market under the Chase brand. JP Morgan, by all accounts, is a little envious of the success of Marcus, the online savings bank launched by rival Goldman Sachs in the UK.

Nutmeg, one of the first of the robos, has built up a client base of 140,000 since launch and these could be just the right people to build a new mass-market wealth and savings business under the Chase name.

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So all well and good and JP Morgan, as one of the world’s largest investment managers, is not one to make rash investments. It has thought long and hard about Nutmeg before acquiring a business which may be unrecognisable in a year’s time.

The deal to buy Nutmeg is clearly a long-term investment. It’s a platform for future expansion and could be a very interesting play; one that Financial Planners should keep an eye on.

One clue about the future shape of the business came this week in an intriguing new report on global wealth by the highly respected Boston Consulting Group.

In a nutshell (apologies), Boston says the global wealth market unexpectedly grew in 2020 despite all the pandemic threw at it. In fact it not only grew by 8.3{d4ee6c39d3f4947aa08b0ac18d9d8b61a7295d521c90ad86a8a514771ea81e11} it hit a record amount invested at £178 trillion.

Boston is also bullish about the future of the wealth management sector globally, particularly two growing segments: retirees and what it calls savers and investors in the emerging “simple-need segment” (those with uncomplicated investment needs and financial wealth between £70,000 and £2.1m, the middle market if you like, without complex tax planning needs).

These “simple-need” investors are often overlooked by wealth managers despite owning trillions in financial assets respectively but are perfectly suited to simple-need providers offering guided savings and investments, the robo advisers in other words.

They may well be a new and emerging client segment below the traditional Financial Planning client base. They may also be younger and less experienced as investors but they have decent jobs and a bit of spare cash. They are ready to save and invest but they do not want to pay hefty financial advice fees, at least not yet.

So is buying Nutmeg a bit nutty? Unexpected yes but perfectly rational and it may one day bear fruit if simple-need savers turn out to be a major market.

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Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks. Follow @FPT_Kevin 

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