Making sense of the Moola deal. Or trying to.

Last week we heard news of the latest, though undoubtedly not the last, acquisition of a sprightly young fintech by a cash-and-customer-rich sugar daddy – this time the fintech being robo-adviser Moola, and the daddy being benefits firm JLT.  The stated rationale, which you’ve probably deduced from the identities of the firms, is that everyone’ll win from the introduction of Moola onto JLT’s Benpal (terrible name!) benefits platform. Employees get a new savings and investment option, Moola gets a cheap source of lots of new customers, JLT gets an incremental business stream and I suppose if I was being cynical I’d say that if employees can be steered into Moola rather than increasing their pension contributions, employers might get a welcome reduction in their contribution-matching bill.

What’s not at all clear to me is whether all this is going to work, and if so on what kind of scale.  It comes down – as it has in quite a few other recent blogs – to the question about the level of appetite that exists out there among the public at large for simple, accessible, fairly low-cost investment schemes.  As my regular reader knows very well, I’ve always been massively sceptical about this – and my scepticism hits new heights in the context of an employee benefits platform, where the option most people really should take. increasing their pension contributions, is right there under their noses alongside the non-pension option.

What I think the acquisition does tell us is that up to now, Moola has been struggling to recruit customers at an affordable cost.  (In fact, we knew this already, partly because all robo-advisers are struggling to recruit customers at affordable cost, but also because Moola rather gave the game away with a desperate-looking promotion back in the Spring, offering new investors a whopping 10% cashback after a year.  Canny investment hobbyists immediately took to the message boards encouraging each other to buy in for exactly 366 days and then promptly walk away to grab the best offer on the market in Spring 2019.)  But whether appearing as an option on JLT’s Benpal platform will really change their customer acquisition prospects can’t yet be clear.

Wearing my ever-present sceptical hat, I’d say those prospects aren’t great.  As for whether the parties to the deal would agree with me, I don’t suppose we’ll ever know – or at least, not unless or until JLT chooses to tell us what they paid.

Asset management: the race to be different is on

Over the years, there have been few easier ways to make money than asset management.  It’s not just at the rocket-science, hedge fund end of the market:  for decades, a combination of high and opaque charges, unaware and largely inert customers, uncritical and often conflicted intermediaries and an absence of serious external scrutiny kept the most vanilla of fund managers (of whom there are many) well supplied with six-figure bonuses and top-of-the-range Mercs and Range Rovers.

Perhaps more importantly, these same factors have also combined to keep the market ridiculously overcrowded and undifferentiated.  When you can still make a ton of money running small funds that are exactly the same as everyone else’s and perform no better or indeed rather worse, there are few if any pressures to make the industry more competitive.

Now, though, that’s all changing in the retail market at least, and the active fund management industry is feeling the first stirrings of panic.  Among a long list of things all happening at once, the three most important are:
1.  The somewhat slow-motion effects of the Retail Distribution Review (RDR), implemented in January 2014, which eliminated intermediaries’ financial incentive to recommend high-cost actively managed funds.
2.  The ever-growing body of irrefutable evidence that, not least because of their indefensibly high charges, the very large majority of active funds underperform their low-cost passively-managed counterparts.
3.  The shamefully-belated new effort by the regulator to tackle the industry’s bad practices and help consumers get a better deal.

Over the next few years, the combination of these and other factors will change the industry in many ways.  But the one that most interests me is now clearly apparent:  pretty much all big and reasonably businesslike firms are feeling the need to ask themselves the question:  “What makes us different, a) from each other and b) from passive firms who charge 85% less than we do?”

For most, this is a horribly difficult question to answer, or at least to answer well.  (The troubling answer “Absolutely nothing” is readily available).  A few firms do already own, or in some cases partially own some kind of differentiating idea, and they’re much more strongly placed.  But most really don’t, and it’ll be fascinating to watch them grappling with the issue.

The key issue, it seems to me, will be to do with the balance of power between the marketers and the fund managers.  As I’ve often written in this blog, hitherto this has resided about 98% with the fund managers and 2% with the marketers, whose job is confined to producing the brochures and the sales aids and even then the fund managers tell them what colours they want them to be.

But in the evolving new world in which marketing assets like a differentiated positioning, a strong brand and a convincing value proposition are suddenly absolutely mission-critical, this long-established balance of power isn’t going to work any more.  A bit like star chefs newly-dependent for their survival on their pot-scourers, or airline pilots humiliatingly subservient to the cabin crew, an awful lot of pride-swallowing is going to be necessary.  At the moment, I really wouldn’t like to say whether I think they have it in them.