The founders of robot-advisers started their business in the belief that they could revolutionize the world of private banking. Today, one after another is seeking cover under the umbrella of a bank – Swiss pioneer True Wealth being the latest victim.
True Wealth opened shop at the end of 2014 as the first independent online asset manager in Switzerland with high hopes. Thanks to the promised wealth management services at discount prices True Wealth hoped to generate assets under management at a rapid pace.
Felix Niederer, the company's founder and CEO, fueled expectations, saying that his company would have 1 billion francs in assets by the end of 2017.
Harsh Reality
The reality proved to be much harder than expected. The robo-adviser currently manages 41 million francs from 880 clients, Niederer told finews.ch. The average customer invested 50,000 francs, a comparatively high figure. Niederer says that there are no clients whose departure would endanger the company due to the sheer size of his investment.
True Wealth has been able to increase the assets this year – from 24 million francs at the end of last year. But reaching 1 billion by the end of next year seems ambitious to say the least – and therefore also the aspired for break-even.
Peanuts
The company hasn't published any other figures, but with a flat fee of 0.5 percent, the company is generating revenue of 200,000. Which is far from being enough to make a living. In reality, True Wealth thus has failed as an independent fintech company. The level of assets and the pace of growth after two years are far from being enough to reach the targets it aspired to.
Instead, the company has found a savior: Basellandschaftliche Kantonalbank (BLKB) has joined Niederer and his joint-founder Oliver Herren as an investor. The partners didn't say how much money BLKB promised to invest – but without the bank's decision, True Wealth would likely have disappeared.
Hype? Hype.
Convincing customers to entrust their money to a fully-automated wealth management is tough – as shows the example of Nutmeg, the much hyped-about digital asset manager.
Feted by the media in the U.K. as the future of wealth management and helped by the charisma of Nick Hungerford, its boss, Nutmeg still omitted to say how much money it has generated.
Cash Burn
With good reason, it seems: according to a report by «Wealth Manager», Nutmeg accumulated about 400 million pounds since the start of the business in 2011. The company, which currently has some 80 employees, has burned about 50 million pounds of the money invested so far, according to sources in the industry. Hungerford left the firm in May.
Nutmeg's track record comes as a sobering experience for investors such as Daniel Aegerter or Schroders. In truth, Nutmeg has also failed. To make it a viable business, the company would have to boast at least 5 billion pounds in assets under management.
Candidate to Be Bought
Investors will get edgy faced with the sheer numbers and it is questionable how much longer they will support the company. It is therefore likely that Nutmeg will be taken over by another company eager to invest in the robo-adviser business.
A string of robo-advisers have already been swallowed. Blockrock has taken over FutureAdvisor, Goldman Sachs bought HonestDollar and Invesco took Jemstep under its wings.
Critical Mass
To survive in this business, robo-advisers have to reach the critical mass within a reasonably short time span. Investors tend to give up after about five years. Two companies from the U.S. currently seem to have a good chance of survival: Wealthfront and Betterment.
Wealthfront has 83,000 customers and $3.5 billion, Betterment has 176,500 clients with $5.1 billion, according to a recent report by the «Wall Street Journal» (behind pay-wall).
