Moneyfarm has rehashed its admin fee structure – favouring modest savers with less than £12,000 to invest but ramping up costs for those with larger sums.
The robo-adviser’s zero fee admin charge band has increased from £10,000 to £12,000 under the new model, but those with larger amounts between £12,001 and £20,000 now pay 0.7 per cent – that’s 0.1 percentage points more than they used to.
The levy remains the same at 0.6 per cent for sums between £20,001 and £100,000 and 0.4 per cent above £500,000 to £1 million.
The loss posted by some well known robo-advisers illustrates the challenges that low-cost automated investment services face in creating a businesses which actually generates cash
Previously, individuals investing between £100,001 and £1m through the robo-adviser were charged 0.4 per cent in admin fees to do so.
The band has now been split into two. Those investing £100,001 to £500,000 have to foot admin charges of 0.5 per cent – an increase of 0.1 percentage points from before. Sums over £1million are levied at 0.4 per cent.
How are the robo-advisers faring?
News of the price revision comes just two months after Moneyfarm posted a loss of £6.3million from an income of just £168,000 in 2016. However, as an early stage business that is investing lots of money into marketing itself to grow customers, this is understandable.
The firm said the changes have been made with a ‘broader suite of services in mind’ as it revealed plans to launch a Self-invested personal pension to tap into the popular Sipp market.
‘Our new pricing structure will bring Moneyfarm in line with other robo-advisers in the market, whilst remaining much more affordable than the more traditional, wealth managers,’ said Giovanni Daprà, co-founder and chief executive officer of Moneyfarm.
What is a robo-adviser?
Most services involve some form of goal setting and risk-profiling, with the findings then used to build a portfolio for the investor, which is then managed by the online service.
The term robo-advice is somewhat of a misnomer as none of the proposition offers the full-fat advice you’d receive from a flesh and blood adviser – although some offer simplified advice.
Initially the preserve of fintech start-up firms, more established financial services providers are either launching robo-advice offerings or acquiring smaller specialist firms for a stake in the crowded market.
> Read our guide to the UK’s robo-advisers and what they offer
However, questions have been raised over whether robo-advisers – also known as online wealth managers – can crack the tough UK investing market and become profitable in the same way giants such as Hargreaves Lansdown are.
Moneyfarm is a relatively new business – launching in the UK in 2016, having been established in Italy four years before – so losses aren’t altogether unexpected.
The sheer cost of attracting customers means many start-ups are not expected to turn a profit for years.
Losses at Nutmeg, the most established and arguably Britain’s best known robo-adviser, have underlined the challenges that low-cost investment management services face in creating a businesses that actually generates cash.
The firm’s latest financial figures revealed a loss of £9.3million in 2016 – up from £8.9million the year before and £5.28million in 2014. It marked the fourth year of growing losses for the company.
Yet robo advisers have been tipped by both the Financial Conduct Authority and the Treasury to be to a solution to the so-called ‘advice gap’, which has seen many consumers priced out from the traditional advice route with a flesh and blood adviser.
Alan Miller, co-founder of a rival traditional investment management firm SCM Direct, said while robo-advisers are a good idea, they often struggle to generate money.
He added: ‘Our view generally is that many of these so called robo-advisers and the financiers backing these businesses appear to be financially insane.’
‘The two fundamental problems are they concentrate on smaller investors but it costs many multiples of the fees earned from these clients to attract them via digital or other advertising campaigns. And their operations are incredibly inefficient with very low levels of automation, thereby requiring a substantial number of employees to cope with admin and client inquiries.’
This raises a wider issue: will people be willing to invest through a company if it is not profitable.
‘I suppose the answer is that depends on the overall trust for the company and the individuals,’ said Miller.
‘For example, Uber lost $708m in the first three months of this year, and Amazon took nearly 20 years to make money.
‘However, their clients are buying a product that is to be delivered or used just for a few days rather than over many years.
‘It is important that a robo-adviser company has a sustainable business model but they seem to have financial projections based on future growth that is about as likely to be achieved as an individual winning the lottery in a rollover.’
One potential path that the industry may take is to see a series of online wealth managers bought out by existing financial firms. Many big name fund managers and investment firms have bought stakes in robo-advisers, backing them in funding rounds, and Wealthify recently had a majority stake bought by Aviva.
Holly MacKay, founder and chief executive officer of Boring Money believes robo-advice will become mainstream and the new way in which many customers access investments.
‘However the bigger brands will either acquire the start-ups or deliver them in-house,’ she says.
‘I don’t see room for many of the newer brands to flourish as standalone brands and businesses.’