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Wealthtech Nutmeg Doubles Down With Goldman's Investment For Global Expansion

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POST WRITTEN BY
Nick Hungerford, Founder Nutmeg
This article is more than 5 years old.

U.K. wealthtech Nutmeg recently completed a funding round of $58 million for global expansion co-led by Goldman Sachs. The move will likely see Goldman position Nutmeg alongside its retail savings platform Marcus.

Schroders, the 200 year old UK asset manager was an early investor in Nutmeg. Last year, Blackrock took a stake in the Anglo-German robo Scalabeable Capital to help it expand, following an investment in U.S. robo FutureAdvisor, which is selling B2B solutions to legacy wealth managers.

Traditional financial institutions and especially legacy banks are spending billions on technology and innovation to deliver digital solutions to better appeal to consumers, at the same time as driving down costs.

Banks like JPMorgan and Wells Fargo have been working on their own robo solutions with Wells launching ThinkAdvisor. These along with startup robos in the U.S. like Wealthfront and Betterment are all competing with legacy asset managers like Vanguard, Fidelity and Charles Schwab all of whom have launched their own robo platforms.

One of the big focus areas in on the main prize - a new segment of digitally savy generation x to y millenial consumers positioned to inherit wealth over the next decade from the most successful generation of wealth accumulators in history, the baby boomers - their parents and grandparents.

Nutmeg was founded by Nick Hungerford, a former Barclays banker and Sanford University post-graduate who saw the early opportunities in wealthtech. Nick now sits on the board of Nutmeg, overseeing his creation and resides in Singapore where he is busy in the community with a number of exciting projects.

An early mover and visionary in the fintech space, Nick was a co-founder of Innovate Finance, the U.K.'s not-for-profit fintech members association, and a fellow board member during my tenure as CEO in the halcyon days of our member growth and fintech ecosystem building.

I sat down with Nick to talk about what attracted Goldman to Nutmeg, the strengths of Nutmeg’s offering, the future of the wealth management sector, and what's going on in the Singapore fintech community.

Lawrence Wintermeyer: What attracted Goldman Sachs to invest in Nutmeg in this latest round?

Nick Hungerford: I believe there are three primary reasons: first, they see the potential of Nutmeg as a stand-alone business and the opportunity for financial return as a shareholder. Second, the opportunity for partnership development and the chance that Nutmeg can be rocket fuel for the Goldman strategy to move more into the retail market. Third, shared insights and vision: Nutmeg can learn a lot from Goldman and hopefully, Goldman will learn a bit from us. The learnings aren’t just about financial products and investing, for example, Goldman has a huge number of amazing engineers Nutmeg can learn tech skills from. We can discuss culture and customer insights etc.

Wintermeyer: With $1.5 billion in assets under management, Nutmeg has become a scale wealthech player, what are the new global markets on the roadmap,  will we see Nutmeg entering the US market?

Hungerford: First of all Nutmeg will focus on consolidating our dominant position in the UK and scaling into Asia. After that, and on a selective basis, we will look to Europe and the US. Our partnerships with Goldman, Fubon and Convoy set us up well for international expansion.

Wintermeyer: The client proposition and user engagement platform in Nutmeg is recognized for standing out in a crowded marketplace, what’s in the secret sauce that attracts and retains customers to the platform?

Hungerford: Funnily enough given the recent Goldman announcement, I said in 2012 that I wanted customers of Nutmeg to feel like they were walking into Goldman Sachs’ Private Bank when they became customers of Nutmeg. It’s a simple ethos to overly commit to giving our clients great service – more than that, great care – when they work with us. It’s about sharing their experiences, for example feeling the pain when markets fall, by being customers ourselves. There are lots of technical answers to this question as well: we try and learn more about our customers all of the time to provide them with a personalized experience and so on. But the real secret lies in the care and concern that we have to ensure no Nutmeg customer feels anything other than we are doing all we can for them.

Wintermeyer: Consumers have moved from actively managed funds to passive funds and ETFs in large scale in the West, and we are seeing a rise in “algos” for systematic investment management and all of these trends are leading to lower costs for investors.  What is Nutmeg's underlying investment management strategy?

Hungerford: Our belief is that investors should focus on asset allocation to determine the risk reward balance (or target) and then implement that strategy using the lowest cost methodology possible. Clearly, this has to be low cost within reason and we need to factor in liquidity of securities, etc. Time and again cost have been shown to be critical drivers of returns.

Wintermeyer: 2018 saw greater volatility emerge in most asset classes with the equity markets underperforming the previous years’ bull run. How will the wealthtech challengers survive a downturn and poor performance in the equity markets?

Hungerford: I don’t think all wealthtech or fintech companies will survive a prolonged downturn. There are circa 550 “Nutmegs” around the world now and it’s hard to see how they can all compete when customer acquisition costs mean that payback is not instant. I think we will see two or three major players in each region emerge.

Wintermeyer: A number of successful challenger wealthtechs including Nutmeg now have legacy wealth managers as shareholders. How challenging is the future market for legacy wealth managers? Is investment in wealthtech challengers part of a strategy for incumbents to meet those future challenges?

Hungerford: I think it’s a smart strategy for them! I happen to think – and this is not a view shared by all of my wealthtech peers – that there is still a place, and lots to learn, from incumbent wealth managers. Many of them offer a great service to their clients, they have moments of innovation brilliance and there excellent leaders in some companies. That said, they have aging client bases and must adapt to changing digital times. Nutmeg can’t get complacent: as the oldest digital wealth manager people will be calling us legacy soon!

Wintermeyer: What is the story behind why you started Nutmeg and what were the early days of the journey like?

Hungerford: I don’t want to think about it! I was moving between friends houses in California, then the same in London before my sister and her now husband took me in. I was constantly getting rejected by investors who said that there was no way regulators would allow wealth management to be done without a face to face relationship. And of course, I wasn’t earning any money! The passion was there because I had friends and family who wanted to be doing more with their money than just putting it in a zero percent deposit account. And I’d worked in wealth management and knew that investing was eminently scalable.

Wintermeyer: You moved from a tier one banker to Nutmeg founder and entrepreneur CEO, to Nutmeg board member and now venture capitalist. How has this journey been for you and what are some of your biggest lessons learned?

Hungerford: My two biggest lessons would be first, humility. It’s definitely something I lacked in banking because you have such smart, amazing people around you that you don’t realize you are being carried along and start to believe your own hype. There is none of that in entrepreneurship, whereas a founder you are resupplying the toilet roll and constantly getting told your idea sucks. Second, loyalty. The shareholders who give you money at the start deserve huge credit. And I’m so grateful to them. They will get first dibs on future businesses I start!

Wintermeyer: You are now based in Singapore,  what is your outlook for the fintech in Asia, and how key is the Singapore hub to the development of the fintech ecosystem in South Asia?

Hungerford: Fintech here is taking off, with tremendous learning from overseas facilitating startups and of course some amazing companies in China that I think are some years ahead of anything in the U.S. or U.K. There are amazing possibilities for entrepreneurs here. However, there are structural issues – particularly in South East Asia – where the lack of passporting between countries means that there are small markets to go after.

With some more cooperation between regulators and governments, I can see South East Asia becoming possibly the world’s leading fintech hub. Singapore is leading the way and has a regulator challenging the FCA for the title of world’s most progressive. They need more countries around to follow their lead. For fintech enterprises outside of Asia it’s critical they keep one eye on what’s happening here if they don’t want to be left behind.

Nick Hungerford is a former banker and the founder of Nutmeg and is passionate about improving the availability and usability of financial products and services, financial literacy and the role of technology and innovation within the finance sector.