MoneyFarm may appear the quintessential tech start-up: it has the requisite open plan office in a fashionable part of town, jeans-clad, tie-free millennials on ball chairs, and the obligatory office ping-pong table.
In denim himself, chief executive Giovanni Daprà does nothing to ruffle that impression, looking every inch a young Silicon roundabout iconoclast. It is hard to bridge the conceptual gap between him and the classically well-fed and pin-striped private client manager.
But even so, he still faces the same issues of how to gain client trust as the Mayfair counterparts he is doing his best to disrupt.
Five years ago, he and fellow MoneyFarm co-founder Paolo Galvani looked at the wealth management industry and saw what Daprà describes as a huge opportunity.
‘The business model hasn’t changed in tens, and almost hundreds of years, in terms of wealth management,’ says Daprà. Nobody really applied technology and simple UX [user experience design] to deliver a very strong financial solution for the customer.’
Starting in his native Italy, Daprà set about trying to build a business that incorporated both of these ideas. MoneyFarm was born. Fast-forward four-years and the firm has become the leading robo-adviser in Italy, with over 60,000 users, and has set its sights on the UK market.
‘We always had the idea to develop a pan-European business. We started in Italy because it was the market we knew best,’ explains Daprà.
The company arrived in the UK in February last year, having secured around £11 million in venture capital and approval from the Financial Conduct Authority (FCA).
In addition to finding itself scrapping for market share in a suddenly hyper-crowded and competitive market, the biggest challenge for the UK business as it approaches its first birthday has been building client trust.
‘I think that one of the big challenges is that people are very conservative with their money, and rightly so. So when it comes to innovation and money management, those two worlds do not really work together because you don’t want to be the guinea pig with your money,’ says Daprà.
From a low starting point, the company nonetheless says it has achieved double-digit asset growth, which Daprà admits is probably close to its full potential.
The firm received a further capital injection in late September when Allianz Ventures bought a minority stake in the business. Like many online investment managers, MoneyFarm is coy about revealing its current assets under management and the level it needs to reach to achieve profitability. However, Daprà says Allianz’s backing, plus the recent uptick in inflows, offers clients assurance that it is a trusted counterparty for their money.
‘It is really something that takes time and effort, developing a relationship. It doesn’t make sense for me to ask for some money in the first 30 seconds that I have met you. We tend to see that on average it take at least 30 to 60 days for customers to get to know us better.’
One way Daprà is tackling this problem of client engagement is keeping an open mind about how the firm communicates with – and reaches potential – clients.
‘We have to create a dialogue with the customer wherever this might be – on Facebook messenger, it might be on the phone, it might be by email, or through our app.’
Daprà explains that it is all about tapping into services that have already been adopted by the client. This then leads to a more accessible and simple way of communicating.
‘MoneyFarm is a hybrid model. We have automated the advice component but there is still a strong human support element and the asset allocation decisions are actually made by a team, so it’s not an algorithm that is managing your money. We are agnostic in the sense of how we talk to the customer, as long as we can talk in a scalable way.’
Daprà believes tech-based companies such as MoneyFarm have an advantage over traditional wealth firms thanks to a greater facility to see the potential applications of new tools plus, as digital natives, they are able to exploit a home advantage.
‘Our competitive advantage is that we are small and lean and that we have the right technology around us that we can move faster and adopt things that work faster than everybody else.’
He cites one particular piece of leading-edge development which he believes will put early adopters’ years ahead of the competition.
‘The role that artificial intelligence (AI) will play is going to be critical in the next few years. The development of that technology has become much more accessible and could be applied to what we do.’
‘We have seen the initial bits of financial advice done through artificial intelligence. [It provides] the ability to solve complex problems at scale, in a way that satisfies the level of service to a high degree without having to charge a lot of money for it. It is going to be very important.’
It is not just the cost-saving element of AI that Daprà finds appealing, but its potential to optimise client engagement and broaden the scope of the business, without having to aggressively increase the number of employees. This idea of scalability is very important to robo-advice firms because of the sheer numbers of clients needed to become profitable.
In regards to robo-advice as a whole, Daprà thinks incumbents in the wealth management industry have only just begun to recognise the scale of the challenge it poses in the last nine to 12 months.
‘In the last four years people didn’t really want to hear about it. We tried to engage but there was no interest. Today it is a completely different proposition.’
This is critical for a young business such as MoneyFarm because it institutionalises their business model and confers legitimacy, which in turn lead to client trust, he says.
‘Everybody now understands that this [robo-advice] is the best model to serve a certain segment of customers, with the right costs and with the right level of service. We have been very lucky to start really early, and that has given us a breath of experience in creating a business around robo advice. Which very few people have.
‘I don’t think that is easily replicated, starting something today is completely different from what it was like starting something five years ago.’
Having said that, Daprà thinks there is plenty of the robo-pie to go around and the sector will not necessarily need to be thinned to a handful of dominant providers in order to find market equilibrium.
‘We are talking about a market in the UK that we estimate to be about £25 billion. There is going to be a leader, yes, but is there going to be space for more than one company? Definitely. The £25 billion is the combination of people with digital expertise the right demographics and the right sort of money.’
He points out any business can be profitable with even just a 10% share of £25 billion. But Moneyfarm has its sights on a somewhat larger pot.
‘There is a £9 trillion pension gap in the UK and it is a huge issue for all of us that needs to be solved and I think we have the right expertise, the platform and the scalability to solve that. If I see MoneyFarm in five years, I want to become the leading digital wealth management service in Europe.’