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June 21, 2021

Old guard JPMorgan Chase takes over digital disruptor Nutmeg

By GlobalData Financial

As a result of the COVID-19 pandemic, the digital transformation of the wealth management industry has picked up pace. Now it has gone up a gear. Old guard JPMorgan Chase announced its approximately £700m acquisition of Nutmeg – the UK’s largest robo-adviser by assets under management (£3.5bn+) – to bolster its upcoming digital bank.

As robo-advisers grow their market share and cement themselves in the industry they can no longer be ignored. This move highlights a broader trend of traditional players buying or partnering with upstart robo-advisers rather than trying to develop in-house offerings.

As per GlobalData’s 2020 Global Wealth Managers Survey, the lion’s share of UK wealth managers believe digital platforms created by start-ups provide a better experience than traditional players.

In addition, 66% of UK wealth managers agree that traditional players will continue losing market share to robo-advisers. JPMorgan Chase is addressing both threats by bringing Nutmeg under its wing. It now owns the most well-known UK robo-adviser according to our UK Financial Advice Analytics: Channel Preferences, which will boost the value of its upcoming digital bank proposition. This is a strong strategic move given rising demand for automated investment services. JPMorgan Chase will be able to respond to changing demand patterns rapidly by bringing Nutmeg’s digital expertise in-house. The deal is a victory for the bank’s goal to create a truly holistic, digital financial services brand in JPMorgan Chase UK.

Nutmeg already provides a multi-faceted service. Going beyond its core digital investment products, insurance and pension products are also available – as is the option to talk to a human adviser. Now, a missing piece of the Nutmeg puzzle will be made available for JPMorgan Chase UK customers as the service will also offer current accounts.

This deal is not the first time the two have done business. In November 2020, Nutmeg added to its list of products via a collaboration with J.P. Morgan Asset Management on the Smart Alpha portfolio. For customers who want choice, the new digital bank is expected to satisfy this need. Nutmeg claims the acquisition will lead to continued development of its products and services.

This acquisition will allow JPMorgan Chase to tap into the digitally savvy demographic that Nutmeg caters to. Yet JPMorgan Chase is not necessarily a well-known or used bank among the masses in the UK, so attracting such individuals via Nutmeg will be an obstacle to overcome. Indeed, this was a hurdle UBS could not clear, which saw the group close its UK robo-advice service just over a year after launch. And this announcement could ruffle some feathers. Nutmeg’s customers who are standalone robo-adviser enthusiasts and old guard critic may turn their heads, as this acquisition empowers unwanted consolidation of the new school by the old school..

Robo-advice holds a relatively small market share in the UK, with just 3.4% of retail investors preferring to use this channel to arrange investments according to our 2020 Banking and Payments Survey. But its growth has been substantial, and in an increasingly digital-centric world this trend will only continue. It’s a clever move by JPMorgan Chase to enter the robo-advice space by snapping up the biggest player in the UK market. However, success will be determined by how well a brand largely associated with the elites can relate and cater to the digital-savvy (and keen to be wealthy) demographic from the masses to the mass affluent.

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Verdict deals analysis methodology

This analysis considers only announced and completed deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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