Nutmeg's record growth should end its widening losses streak

The UK-based robo-advisor surpassed £3 billion ($3.85 billion) in assets under management (AUM) and 130,000 users, up from £2 billion ($2.56 billion) in AUM and 80,000 users in January 2020, per Finextra. Launched in 2012, Nutmeg builds and manages portfolios based on users’ risk profiles and also offers a pension product.

Nutmeg scored strategic partnerships to drive AUM growth over the past year, likely improving its margins.

• The robo-advisor partnered with household names like Yolt, JPMorgan, and Starling to boost user acquisition. In April, it integrated with three money management apps, including Yolt, to allow users to see their Nutmeg investments on these apps and to expose its services to new users via the Yolt marketplace. Nutmeg also launched a new range of portfolios managed by JPMorgan in November, likely making first-time investors more confident in Nutmeg thanks to its association with the global financial brand. Finally, it integrated with Starling’s in-app marketplace in December, gaining exposure to 2 million users.
• The resulting increase in AUM should reverse its year-on-year deepening losses. Nutmeg reported a loss of £21.2 million ($27.1 million) in 2019, the eighth year in a row that its losses widened. Robo-advisors conventionally struggle with customer acquisition costs, but with the partnerships easing its user growth, Nutmeg was able to increase its revenue by 66%. Its growing AUM also heralds a shift toward profitability: It’s estimated that robo-advisors that charge a fee of 0.45% or higher, as Nutmeg does, need to reach between $3.5 billion and $5.3 billion in AUM to break even.

To reach the necessary AUM to break even, we expect Nutmeg to double down on its open banking capabilities to enable automatic transfers to its investment accounts. Despite Nutmeg’s AUM milestone, it still faces tough competition ahead since UK consumers have access to a range of robo-advisors, including Moneybox and Wealthsimple. In addition, personal finance management apps like Plum and Chip are also adding robo-advisory offerings. These players could slow Nutmeg’s AUM growth and, in turn, its ability to break even. To stand out, Nutmeg could use open banking to remove friction from the process of users funding their investment accounts. In July, it rolled out open banking-powered payments, enabling users to initiate bank transfers via the Nutmeg app to fund their investment accounts. The open banking capability could be expanded to let users automatically transfer funds from their bank accounts to Nutmeg based on a threshold they set in the robo-advisory app. In the US, for instance, Wealthfront users can set the feature to transfer excess cash between in-app accounts.