The flow of clients moving to online wealth management services from traditional banks could increase sharply as wealthy clients focus more on low fees and warm to online advice, the co-founder and CEO of British start-up Nutmeg said.
"We want you to feel like you're walking into Goldman Sachs with 10 million, even if you're logging on to Nutmeg with 1,000 pounds to invest," Nick Hungerford said at the Reuters Wealth Management Summit.
Nutmeg, founded in 2012, has 50,000 users and is one of a batch of firms sometimes dubbed "robo-advisers" threatening to shake up an industry long dominated by banks such as UBS (UBSG.VX), Credit Suisse (CSGN.VX) and Bank of America (BAC.N).
"I don't need to destroy one of them, I can just take 10 percent business off all of them," Hungerford said. "There are some fundamental differences between us and the old world and at the core of it is, whose money is it?"
He is not alone in thinking the industry is ripe for upheaval.
More than $4.7 trillion of revenues from traditional financial firms is at risk from online companies offering wealth management, loans, crowdfunding and payment products, and about $660 billion of that could migrate to the online innovators, analysts at Goldman Sachs (GS.N) said in a report in March.
Online wealth advisers say the appeal of private bankers offering costly face-to-face advice is fading and clients increasingly want convenient, simple online platforms and transparent, low fees.
Nutmeg charges an annual fee of between 0.3 percent and 1 percent depending on the size of investment, below typical wealth management fees. "Seeing them (banks) move from 1.35 percent to 0.25 percent is unimaginable," Hungerford said.
The prime target for online wealth advisers are younger, wealthy individuals, dubbed HENRYs, or high earning, not rich yet, who are underserved by banks or are happy to sidestep them.
"We're going to capture everyone before they become wealthy enough to be customers of these guys," said Hungerford at the Summit, held at the Reuters office in London.
Hungerford, 34, worked at Barclays (BARC.L) before studying at Stanford University in California, where he developed the idea of an online wealth advisor, encouraged by one of his professors, Google (GOOG.O) Chairman Eric Schmidt. Nutmeg was named after the once costly spice now available to everyone.
Nutmeg invests in a diversified portfolio tailored to client goals, such as for a pension, child's education or a wedding. It said its investment team monitors and rebalances portfolios and recommends clients use it for the "boring" or safe 80 percent of portfolios.
Hungerford said clients can meet Nutmeg's advisors face-to-face, but to date only nine had done so. He declined to say how many of its users had invested, or what its assets under management were.
U.S. robo-adviser Wealthfront, founded in 2008, has $2.4 billion in assets under management, a sum dwarfed by banks. UBS (UBSG.VX) for instance manages $2 trillion.
Nutmeg is loss-making but should be profitable in two to three years, Hungerford said.
Other online wealth advisors are emerging, such as Quirion in Germany, and Hungerford expects more competition in Britain, which should help drive growth across the sector.
Nutmeg has 70 staff and has raised $50 million in funding. Its backers include venture capital firms Balderton and Pentech Ventures and asset manager Schroders (SDR.L), as well as individuals Tim Draper, a U.S. venture capital investor, and Charles Dunstone, co-founder of Carphone Warehouse.
Hungerford declined comment on whether any banks had tried to buy the business. "Our investors don't need the cash, so they are very committed to a long journey and hopefully a very successful financial one," he said.