Former hedge fund manager Alan Miller, who now runs wealth management firm SCM Direct, has today ripped apart robo-adviser Nutmeg in his latest blog post.
He denounced the company's escalating losses, which hit £9.38m in 2016, and calculated that the accounts Nutmeg manages for its customers earn nowhere near enough even to pay staff.
Based on its recently reported costs and number of accounts managed, Miller found Nutmeg's salary costs work out at £214 per account. However, Nutmeg only charges between £108 and £180 for a £24,000 account, which is the average size.
“One of the central issues with the UK fintech models I have seen is their reliance on smaller accounts,” said Miller.
He added that Nutmeg was not alone – Moneyfarm reported losses of £6.4m on turnover of £168,000 last year, although its chairman was confident that “we'll be turning a profit within two years”.
Nutmeg declined to comment on Miller's criticisms, but its chief executive Martin Stead said in the 2016 company reports: “We are on a mission to democratise wealth management, by providing a great value, high-quality investment service to all investors. We have set out to build a big business and we are on track with our business plan, with committed backers.”
Nutmeg most recently raised £12m in a series D round in December last year, which was led by Taiwan's Taipei Fubon Bank and supported by UK venture investor Balderton Capital.
But in its latest accounts, the company said it “may require further cash injections to continue to develop and market its product offering and to build its customer base and its assets under management”.
“This means that despite Nutmeg raising £42m in 2016 and £71m to date, it may need more money!” wrote Miller.
Nutmeg, which holds an 80 per cent market share of the robo-advice market, according to data provider Boring Money, has said it will keep investing in its products and services.
Its assets under management reached more than £900m at the end of June 2017, up from the £600m at the end of 2016, which Miller based his calculations on.