finews.asia asks one-time Goldman Sachs partner and founder of Netwealth, Charlotte Ransom, why any wealth manager shies away from being called a «Robo Advisor».
«Most of our clients have never heard of the term Robo Advisor,» says Charlotte Ransom, founder and CEO of Netwealth, a London-based firm variously referred to as «an online wealth manager» or «fintech» or «challenger bank», depending on which article you are reading.
The intense media attention would be highly unusual for a startup, were it not for Ransom’s high-profile career in the City and the pedigree of investors her business has attracted – Jupiter Fund Management vice-chairman Edward Bonham Carter, Leonteq co-founder Michael Hartweg, Santander vice-chairman Bruce Carnegie-Brown amongst others, with Merryn Somerset Webb, «Financial Times» columnist and editor-in-chief of «MoneyWeek» thrown in as a non-executive director for good measure.
No Algorithms – No Redemptions
Like Ransom, I am dismissive of the R-word when describing Netwealth. There are no algorithms at play and Netwealth’s head of portfolio management, Ian Barnes, is very much a human.
By the same logic, both fintech firm and challenger bank, fall short – advice, rather than technology, is what the business has been built around. «Technology is an enabler that makes the advice more enjoyable,» Ransom says but advice, and the quality of it on offer at Netwealth, is what she is betting will be a differentiator in what is a rapidly crowding market.
She may well be on the money. Ransom claims to have escaped the last quarter of 2018, admittedly the «most brutal» one since the firm’s inception in 2016, without a single account closure. «A significant portion of clients topped up their accounts,» she says.
High Headcount Costs – No Client Advisors
The average portfolio size at Networth is 400,000 British pounds or $518,000 (most Robo-advisory models are underpinned on average portfolios of 20,000 pounds or $26,000 and personnel costs are the largest area of investment for the business.
This is surprising, revolutionary even because it puts none of this money is being spent on expensive bankers. «We have no sales people or client advisors who are out proactively looking for business,» says Ransom, who appears slightly bewildered by the concept despite her years at first J.P. Morgan and then Goldman Sachs.
Ending up with a Cookie-Cutter Service
«Most of our client acquisition is from referrals,» she explains. The team at Networth is split almost evenly between its technology and advice experts. Outsourced technology irks Ransom more than expensive bankers do apparently.
«We are never going to outsource that,» she says. «We are managing people’s money and if you outsource any part of that you can end up with a cookie-cutter service.»
Breakout Rather Than Breakeven
«If we just wanted to focus on breaking even above anything else, it would be a valid discussion,» Ransom says when asked how long the business will take to scale up to the estimated two to three billion pounds breakeven. «But we are in growth mode,» she insists, «so perhaps talking about break even is not always relevant.»
There are other parameters, however, that may be just as telling. At 400,000 pounds average portfolio sizes at Netwealth are aligned with the industry average for wealth managers in the U.K. despite a minimum ask of 30,000 pounds at Netwealth compared to 250,000 pounds at competitors.
Competing with the Biggest Wealth Managers
This is a point of pride for Ransom. «Less than 10 percent of our clients sign up for the minimum,» she says «and those that do only have 50,000 pounds in liquid assets».
Does this imply the breakout wealth management model she has built is a success? «We are building something designed to compete with the biggest wealth manager in the U.K.,» she says, «and since that is where most of our clients are coming to us from, we are on the right track.»
