And besides JPMorgan knows the Nutmeg business very well: both partnered together to launch a range of exchange-traded funds exclusively for Nutmeg's robo-adviser customers last year, while Shaun Port, Nutmeg's chief investment officer, left the company after seven years to join JPMorgan in 2019 as managing director.
Bussy adds: “A hybrid model has emerged as a clear favourite to succeed; the new venture will certainly have the cash to really hone in on whether it wishes to offer advice, guidance, DIY or a combination, to meet the needs of its customers, and whether advice-based algorithms rather than just human advisers will be a part of that future.”
When it comes to embedding the Nutmeg business into JPMorgan, Sergel Woldemichael, wealth management analyst at GlobalData, says as Nutmeg caters more to less affluent consumers, this will fit well with the target market of the digital bank.
“However, as Nutmeg falls under the JPMorgan brand, which is known for catering to the wealthy elites, the challenge will be remaining relatable to the less affluent and upholding Nutmeg’s reputation with this demographic,” he adds.
“We’re of course yet to see this play out but, as we know, Nutmeg is set to be part of JPM Chase's new digital bank that will be launching in the UK. The digital bank will be a one-stop shop for consumer finance, offering a range of products with Nutmeg’s service complementing the investment aspect.”
Meanwhile, Bussy says he expects that in the short term Nutmeg will be run as it is, but in the medium to longer term there are a range of questions that will need to be answered that will drive the success of the business, and the wider retail banking proposition. These questions will need to address the following:
- Systems integration: easy to say, more difficult to execute, but an absolute must do if the new venture really is to be greater than the sum of its parts.
- Culture and people: the start-up and the big American beast; will they fit together harmoniously, or will both get frustrated with the other after a period of stabilisation?
- Brand: will the Nutmeg label be kept in the long term or replaced with JPM or a new brand that appeals more directly to customers of the new digital operation?
Ian McKenna, founder of FTRC, says: “The question is how can you take Nutmeg to the next level – that’s the challenge. Even if [JPMorgan Chase] is not going to do it now... they will need to add something that is sophisticated in a market where the big boys are beginning to play, and this deal validates that."
While the acquisition of digital trading apps has become a popular trend, it has not been a success story for all, as some larger institutions have closed down their robo-advice businesses.
Bussy says the challenges concerning the cost of acquisition for these companies has been well reported: making it a double-whammy when you add into the equation the relatively low portfolio sizes and the low fees being charged.
These businesses need really deep pockets to survive, or very rich and patient investors/parents.
“In many cases time and money literally runs out,” Bussy adds. “Investec Click & Invest and UBS SmartWealth suffered the same challenges as others – lack of clients.
