Should investors worry about Nutmeg losses?
Simplified investment service Nutmeg made a £9 million pre-tax loss in 2015, almost doubling its losses for the previous year.
The company is yet to make a profit, despite almost tripling its turnover to £1.7 million in 2015, from £635,000 in 2014.
The company attributed its losses to rising costs, having invested in its technology infrastructure and seeking permission to hold its clients’ money directly rather than paying another company to do it.
Its annual report states money invested through the site doubled, and its customers grew by 50%.
Martin Stead, Nutmeg’s chief executive said the business was on track with its plans, says: “As is natural for an early-stage company, we have been investing heavily to establish ourselves and our brand, in line with an ambitious business plan.
“Both customer numbers and assets under management have been increasing significantly over the past 18 months, and we’re currently tracking ahead of our targets for 2016.”
The company is well funded, with almost £10 million in the bank, according to its annual report, but should investors worry about platform losses generally? And how safe is your money when you hand it over to a broker or online investment service?
Investors’ money is strictly protected by UK regulations, so in theory if an investment platform were to go under, your money shouldn’t get lost in the failed business.
Abraham Okusanya of Finalytiq, a business that kicks the tyres of investment platforms on behalf of financial advisers, explains: ”There’s no worry that your assets are at risk – they’re not and are totally covered by requirement to segregate investors’ clients.”
However, there’s a more subtle risk, in that investors’ money might be inaccessible for a period, or that a new owner could come in with different intentions.
Mr Okusanya says: “The worst case scenario is that [a failing platform] will be sold to someone else, and the worry is that the new owner might have a different strategy of managing your investments, and might have other motives.
“So [for example] in America, asset managers could buy a platform, and use it as a way to funnel your funds into their own investments, rather than the best and cheapest ones. That’s the risk for investors – change of strategy, rather than losses of assets.”
Though all investment platforms in the UK should be regulated (you can check at FCA.org.uk), and the business’s track record is available for free at Companies House, checking whether an investment platform will be viable in the long term is extremely tricky.
Mr Okusanya adds: “Most investors wouldn’t understand what they’re looking at, and I don’t think it’s fair to expect investors to have the skill to make that judgement.
“I guess I’d go back to asking your provider for an independent assessment of their finances. The key is they’re independent. That should give you a bit of comfort for the stability of the provider.”
All limited liability companies registered in the UK are compelled by law to compile a report once a year on the company’s accounts and directors’ statements must be issued to shareholders and filed at Companies House. A report details a company’s activities throughout the preceding year and its contents will include chairman’s statement, auditor’s report and detailed financial information such as cash flow and balance sheet statements.