LFP073 – The Second Wave of Digital Wealth Managers with Adam French co-founder Scalable Capital

Investment management – despite its known deficiencies – has been least disrupted perhaps so far by “Fintech”. The first wave of I.M. Fintechs (pre- & up to 2015) promised “democratisation” but have made relatively little headway. The awfully named “roboadvisers” are neither robo nor advisers but are ludicrously hyped.

There’s also the rather challenging question of what is there to be disrupted if ETFs (see LFP058) can be bought for roughly zero commission and have minimal fees.

Against this background I was delighted to come across Adam French – he and two other ex-Goldman Sachs colleagues launched Scalable Capital in both the UK and Germany a little over a year ago, and, as befits their background, really know of what they speak. They also have the advantage of befitting from V1.0 of the great “digitalisation of wealth management” experiment and can better design V2.0. They claim to be Europe’s fastest growing “online wealth manager” with around 4,000 clients, £150m of assets under management, and have a tie-up with ultra-blue-chip Siemens to power their employee benefits platform in Germany.

Topics discussed include: 

  • deconstructing the “democratisation” of wealth management
  • sausages (?!)
  • Adam’s career journey
  • who authorised Scalable’s hubs faster – the UK’s FCA or Germany’s BaFin…? One was twice as fast as the other 😉
  • fund management’s long term problem of high fees and subtracted value
  • nevertheless AUM worldwide are around $100trn – a phenomenal number
  • in the UK private wealth management accounts for ~£1trn – this is multiplied many-fold once one includes pension funds et al
  • in the developed world perhaps only 1% of folks use private wealth managers – something for the very very wealthy only
  • hidden standardisation even when you have a private wealth manager – perhaps you will be bucketed into one of five standard model portfolios – giving the appearance of tailor-made whilst actually being off the peg
  • only when you get to £5m+ will you really get a fully bespoke service
  • why the first wave of digital wealth managers didn’t make as much progress as expected :
    1. power of incumbents;
    2. the original wave was trying to target the mass market too much (who don’t have a wealth management problem but have other financial problems (see eg LFP072 with Squirrel)
  • “it’s really hard to get to scale by targeting the mass market” (&cf unit trusts through to EFTs in this context which “democratised” a long time ago)
  • “investment management isn’t a viral product”
  • the service element and real personalisation (a key factor in the second wave) one can achieve with technology
  • services vs products
  • one of the reasons the term roboadvisers makes marginally more sense in the US is that there “advisers” can manage money (and “planners” give what we call “advice”)
  • a deep dive into what risk is and how to communicate it – and deconstructions of these concepts in the way they are generally used
  • the overwhelming choice on fund comparison sites and the poor way in which folks who DIY tend to choose funds
  • a case study of a chap who due to poor portfolio construction lost half his life savings
  • is or was digital wealth managers just “putting lipstick on a pig”? Just changing the customer journey but with exactly the same mentality of investment management (one of n model portfolios with plenty of human input)
  • modern portfolio theory as ancient
  • how the second wave can go further than old fashioned approaches
  • £10k minimum investment at Scalable
  • risk tolerances and pain thresholds
  • PSD2 and providing real financial plans for clients (rather than wrapped-up product selling) and perhaps leading to V3.0
  • CGT in re
  • where Scalable have been and where they are going
  • the number of incumbents who have come to Scalable to have B2B conversations

And much much more 🙂

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