Some robo-advisers accounts show big losses. Is it safe to use these companies?
07 January 2022
Question by Marc
Wealthsimple is closing down next month.
In their latest company accounts (year ending 2020) they state that are no longer a company of going concern!
They held a board meeting in June to approve the exit of the business and in August signed a binding sale and purchase agreement in exchange for £1,000,000 or a percentage of assigned cash value of clients transferred.
Moneyfarm's and Nutmeg's accounts also show big losses.
Is it still safe to use these companies?
Answered by Dennis Hall
Moneyfarm and Nutmeg both started in 2011, and are among the largest online wealth managers in UK/Europe. However, neither has made a profit yet. It's not unusual for tech companies to operate for lengthy periods burning cash faster than they are making it.
They have both had backers with deep pockets, and last year JP Morgan purchased the entire share capital of Nutmeg for an undisclosed sum, whilst Moneyfarm’s main backers have provided £96Million of funding between them. This should keep the lights on for a while as they attract additional customer assets to eventually turn a regular and recurring profit.
In the meantime customers are protected because their assets are ringfenced from the company’s assets should anything happens to Nutmeg or Moneyfarm. It is possible that JP Morgan could choose to close Nutmeg, or Moneyfarm fail to raise new backing, and we would expect to see an orderly wind down of operations in this scenario.
In that case the possible downside for customers is maybe a change in ownership, or temporary difficulty accessing their funds, or having to set up new accounts with another provider. However, be assured that customer assets will not be used to offset company losses. The risk sits with their backers/shareholders, not you.
Answered by
Dennis Hall
Chartered Financial Planner
I’ve only ever had two careers, Royal Marines Commando and Financial Planner. The physical requirements between the two roles are a world apart, but what I learned in the Marines about high standards, ethical behaviour and purposefully serving others has served me well as a financial planner.
