The advance of Wall Street’s banking giants into the UK financial services sector took another big step today when JP Morgan Chase announced it had bought the digital wealth manager and so-called ‘robo advice’ firm Nutmeg.
The move comes ahead of the expected UK launch of JP Morgan’s new digital bank, Chase, later this year.
It follows the launch in Britain by Goldman Sachs, three years ago, of its digital savings bank Marcus.
This proved so successful, attracting more than half a million customers, that Goldman briefly had to stop accepting new customers last year in order to prevent Marcus falling foul of the UK’s ring-fencing rules.
Goldman has, recently, been reported as planning to take Marcus – named after the bank’s founder, Marcus Goldman – further into the wealth management field itself, with plans to open a second UK office in Birmingham.
Des McDaid, the head of Marcus UK, told Reuters last month: “We are pivoting more into an investment and wealth provider rather than a full-service digital bank.”
So this move from JP Morgan, the biggest bank in the United States, parks its tanks firmly on its rival’s lawn.
Nutmeg, which was founded in 2012, has gone on to establish itself as one of the foremost players in the digital wealth management field.
It has garnered more than 140,000 customers and now has more than £3.5bn worth of assets under management.
Sanoke Viswanathan, chief executive of international consumer at JP Morgan, said: “We are building Chase in the UK from scratch using the very latest technology and putting the customer’s experience at the heart of our offering, principles that Nutmeg shares with us.
“We look forward to positioning their award winning products alongside our own, and continuing to support their innovative work in retail wealth management.”
He said that Nutmeg customers would be unaffected but said that, over time, “Nutmeg and JPMorgan Chase will work together to integrate their products and teams and create an even better customer experience”.
The two businesses already had some connections as Nutmeg’s platform allows its customers to invest in exchange traded funds (ETFs) that are run by JP Morgan’s asset management arm.
Neil Alexander, chief executive of Nutmeg, said: “Nutmeg’s customers can expect the same level of transparency, convenience and service that helped make us a leading digital wealth manager in the UK.
“This new chapter in our story will see Nutmeg’s customers benefit from a wider range of products and services in the future and allow us to expand into new markets.”
JP Morgan said that no decision had yet been taken on whether the Nutmeg brand would eventually disappear, promising “a considered decision on brand choice over time”, adding that Nutmeg was “a great brand and enjoys strong consumer awareness”.
Marcus had previously been working with Nutmeg with a view to launching a stocks and shares Individual Savings Account (ISA) ahead of the 2020 ISA season.
However, in January last year, Marcus shelved the idea and said it was more likely to be launching a cash ISA product first.
Ironically, one of the beneficiaries of the sale – for which no price has been mentioned – is Goldman itself, as it owns 10% of Nutmeg.
A further 10% is owned by Schroders, the FTSE-100 fund management giant, while other investors include the Hong Kong-based financial advisory firm Convoy.
Nutmeg’s other major shareholder is Balderton Capital, Europe’s biggest backer of early stage companies, which has been an investor since 2014.
Balderton, which earlier this week launched a $680m ‘early growth’ fund to back what it hopes will become future European tech giants, is well-known for backing a host of successful UK tech companies including the digital bank Revolut and the peer-to-peer lender Zopa.
It was also an early backer of Depop, the fashion marketplace app, which was earlier this month snapped up for $1.6bn by the US e-commerce player Etsy.
That deal sparked fresh commentary about the way in which UK tech companies too often agree to takeovers rather than building themselves to a size where they could challenge some of the big Silicon Valley players.
It is likely that the takeover of Nutmeg will arouse similar concerns.
Nutmeg, along with the likes of Revolut, Monzo and Starling Bank, regularly features in lists of the UK’s leading fintech companies.
So too does Wise, formerly known as Transferwise, which today confirmed plans to come to the London Stock Exchange in what will be the UK’s first ‘direct listing’ – the method in which other vaunted tech companies such as Roblox, Palantir, Slack and Spotify have listed on US stock exchanges.
Wall Street’s big names have tried to encroach on the UK financial services sector in the past – unsuccessfully.
Morgan Stanley launched a credit card in the UK at the end of 1999, in what was seen at the time as throwing down the gauntlet to Barclaycard, bulking up its position some six years later when it bought the Goldfish credit card business from Lloyds TSB in a £1bn deal.
It offloaded the entire business to Barclays for just £35m in February 2008 as it sought to simplify the business in response to tougher market conditions in what later blew up into the global financial crisis.
Three years later, Citi, another of Wall Street’s big names, announced it had sold the Egg credit card business – bought in 2007 from Prudential – to Barclays.
These moves from Goldman and JP Morgan, though, feel as if they could be longer-lasting.
The acquisition of Nutmeg by the latter also signals that competition in the so-called robo advice sector – where a client’s money is invested automatically, with minimal human involvement, according to preferences that they have set out in a questionnaire – is going to get tougher.
A number of big names flocked to the sector, including those that backed Nutmeg, but there have also been a number of high-profile casualties.
Investec closed its robo advice business, Click & Invest, in April 2019 after two years of losses.
Moola, which was founded in 2015 by the financial journalist Gemma Godfrey, closed its doors in January last year just months after being bought by the advisory firm JLT Employment Benefits.
And Tiller Investments, which had been launched in June 2018 by former hedge fund managers Ian Cadby and Jonathan Wauton, closed in October 2019.
Several big name players remain in the sector, however, including Moneyfarm, a pan-European business backed by the German insurance giant Allianz and Wealthify, which was taken over by the UK insurer Aviva last year.
Yet the sector has proved a tough one in which to make consistent profits.
Nutmeg’s takeover by the deep-pocketed JP Morgan means that is likely to remain the case.