Robo-advisor Moneyfarm expects profitability by 2019

BI Intelligence

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Digital wealth management firm Moneyfarm launched in Italy in 2015, and expanded into the UK in February of the next year.

The company offers its services directly to consumers, and partners with other companies — including Allianz, Revolut, and Uber — to provide its savings products to their employees as a benefit. Moneyfarm has now published its results for 2016, which give some indication of whether this business model is working for the company.

Here are some of the highlights from Moneyfarm's results:

• Assets under management (AUM) reached £260 million ($342 million). This makes Moneyfarm the UK's third-largest automated investment fintech, trailing only Nutmeg with £600 million ($789 million) in AUM, and Scalable Capital with £271 million ($356 million). Most of the company's AUM is from its Italian clients, according to CEO Paolo Galvani, though the UK is accounting for a larger proportion as its operations there expand. The company has acquired over 10,000 customers in the UK since its launch there, outstripping its acquisition rate in Italy, so it's AUM looks likely to keep growing.
• Moneyfarm took an operational loss of £6.4 million ($8.4 million), on revenue of £168,000 ($221,000). This is 433% wider than its £1.2 million ($1.6 million) loss a year earlier. However, revenue increased 98% from £85,000 ($112,000) in 2015. Galvani said the losses were in line with the company's expectations, and reiterated that it remains in the growth phase. Moneyfarm spent £2 million ($2.6 million) on marketing and £1.8 million ($2.4 million) on salaries in 2016, indicating it's indeed still at the scaling stage.
• Moneyfarm expects to achieve profitability by 2019. Galvani told Business Insider that, since Moneyfarm makes revenue by charging fees on assets, it would need £1 billion ($1.3 billion) in AUM to reach £6 million ($8 million) in revenue and effectively cover operational costs, thereby approaching profitability. Based on the company's current growth rate, Galvani expects this to happen by 2019.

Moneyfarm's focus on the gig economy could be what it needs to achieve its profitability goal. Other digital wealth managers have also begun offering their services as employee benefits, but most have partnered with legacy companies. By contrast, Moneyfarm is pursuing the untapped gig economy as part of its strategy, where few workers are considered officially employed, meaning they don't get products like pensions automatically provided by their employers. Given how many people worldwide work for companies like Uber, Moneyfarm's potential market in this space is enormous. Moreover, Moneyfarm and Uber are working hard on providing financial education to consumers, which is likely to boost uptake of its products even further. As such, Moneyfarm stands a fair chance of being in the black by 2019.

Startups with robo-advisor products are failing to live up to their initial promise.

As solutions proliferate and consumer adoption remains slower than expected, many firms are re-examining and updating their strategies to survive. 

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has put together a detailed report on the evolution of robo-advising that scopes the current market for robo-advisors, providing an updated forecast through 2022. In addition, it explains the different types of robo-advisors emerging, details how startups and incumbents are working to ensure the success of their products, and outlines what will happen to the market over the next 12 months.

Here are some of the key takeaways from the report:

• BI Intelligence forecasts that robo-advisors — investment products that include any element of automation — will manage around $1 trillion by 2020, and around $4.6 trillion by 2022. 
• Startups offering robo-advisors are struggling to acquire AUM due to overcrowding in the global robo-advisory market and lower than expected customer uptake. 
• Incumbents are rolling out their own robo-advisor products, a trend we expect to pick up in the period to 2022. 
• North America remains the leading robo-advisory market, but we expect Asia to catch up and outpace the region in terms of AUM managed by robo-advisors in the period to 2022. 
• There will be a winnowing of the startup robo-advisory market as only a few firms remain stand-alone, while incumbents looking to launch their own products will profit from purchasing the technology of startups that have fallen by the wayside, at low cost. 

 In full, the report:

• Provides a forecast for the volume of assets robo-advisors will manage by 2022.
• Outlines the current robo-advisory landscape.
• Explains how startups with robo-advisor products are evolving their business strategies. 
• Provides an outlook for the future of the robo-advising industry. 

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