In 2021, JPMorgan executives were considering taking a stake in digital wealth manager Nutmeg. But there was a problem — rival Goldman Sachs was already a shareholder and the pair could not come up with an agreement that would allow JPMorgan the flexibility to plug Nutmeg into its nascent UK consumer banking arm.
“There’s no love lost between Goldman Sachs and JPMorgan,” says a banker who worked on the deal. “They couldn’t envisage a situation sitting alongside [each other].”
So JPMorgan bought the whole thing. The Wall Street bank entered the battle for the lucrative wealth manager for the mass affluent when it acquired 100% of the digital investment platform for a reported $700m.
That landmark deal is now complete, and the two businesses are being pushed ever-closer together. But amid a number of executive departures, ailing profitability, and strategic headwinds, questions are being asked as to whether the rationale for the full takeover still holds up.
Laying the foundations
The market could have seen the deal coming when it was unveiled in June 2021. JPMorgan had already flagged its intention to launch its Chase retail bank in the UK. It hired Nutmeg’s chief investment officer Shaun Port, who joined in 2019 as a managing director and JPMorgan Asset Management already powered Nutmeg’s Smart Alpha portfolios.
Schroders, which had held a stake in Nutmeg since 2014, ended up picking Lloyds as a partner for its own push into the wealth space, and sold down its shareholding thereafter, according to a person familiar with the matter. Goldman Sachs, another early investor, had gone it alone to launch its Marcus digital savings brand in the UK.
That left few suitors with enough interest and deep enough pockets for a full takeover, and JPMorgan has been on an acquisition spree over the past couple of years.
Before the JPMorgan deal, Nutmeg was initially just considering a capital raise to expand, according to the banker. A personal familiar with JPMorgan said Goldman’s existing involvement was not a material factor in the eventual outcome.
JPMorgan said the deal would help put some firepower behind Chase, cementing a push away from relying on volatile investment banking revenue and into the mass affluent sector.
Chase UK has amassed £15bn in assets and 1.6 million customers since its launch in September 2021. There has been some progress on integration; Nutmeg’s investment products are now in the Chase app, and in February, Chase offered customers who hadn’t used Nutmeg before a free £100 if they deposited £1,000 with the wealth manager before the tax year was out.
Now it is officially known as Nutmeg, a JPMorgan company. Its colour scheme is black instead of green. RSM resigned as Nutmeg’s auditor on 31 July, and has been replaced by JPMorgan’s group auditors, PwC, according to an RSM spokesperson.
JPMorgan advised itself on the takeover with Freshfields Bruckhaus Deringer acting on the legal side, while Arma Partners and Taylor Wessing advised Nutmeg.
READ JPMorgan’s Nutmeg boss on the future of wealth management
But pushing into the consumer banking and robo-advice markets is not straightforward, and Wall Street players that have strayed on to Main Street have often got burned. Goldman Sachs, for example, has sunk billions into the space with little reward, adding to growing pressure on chief executive David Solomon.
For all the noise, Nutmeg still has only around £5bn in assets. Compared with the UK’s largest in-person wealth manager, St James’s Place, which has £150bn, it remains a minnow.
“What have they done in that two years?” says the head of a fintech consultancy. It was an “insane” price tag, they add.
“Seriously? How do you make that stack up over any time period? Unless there’s a huge tech stack I’ve not seen that did amazing things, what did they buy? What’s the return on their investment?”
Change at the top
Before his death in July from bone cancer, Nutmeg founder Nick Hungerford built up an enviable reputation in the market. He understood the traditional wealth management world through his time at Barclays and Brewin Dolphin, but also had a clear entrepreneurial streak that helped bring the Nutmeg brand to prominence.
“They did a great job of building an identifiable brand,” says a banker familiar with the firm. “I would argue it had more differentiation than, say, a Monzo did. It was the only cool wealth manager that was around.”
However, under JPMorgan, the marketing blitz of yesteryear appears to be a shadow of Nutmeg’s earlier, independent days.
“What was so fascinating was that Nutmeg was this really cool thing,” says a lawyer that has worked with a number of wealth management clients. “It has suddenly become this much more clean, corporate thing.”
But as Nutmeg has become more like JPMorgan, a number of key executives have headed for the door.
Neil Alexander, the CEO of Nutmeg at the time of the deal, left the business a year after it was signed. Sanjiv Somani, who led JPMorgan’s international consumer business in the UK, became Nutmeg’s new chief executive, then left a year later.
Somani declined to comment on his next role. Alexander is currently listed as interim chief executive of Elizabeth’s Smile, the charity set up by Hungerford before his death.
Alexander did not respond to a request for interview.
Culture shift
It is easy to imagine a culture clash between Nutmeg and JPMorgan. Nutmeg’s trendy Vauxhall headquarters reeked of startup. Everything from mugs and stationary to T-shirts and hats was branded with the firm’s distinctive dark green colouring.
Chase staff had the option of using that base when the digital bank first launched in the UK.
Nutmeg colleagues have been able to work from 25 Bank St – JPMC’s office in Canary Wharf – for the last two years. They will work from 25 Bank St solely from the start of 2024.
Staff at the two firms are now on the same benefits packages, according to a person close to the situation.
JPMorgan has not yet made a decision whether the Nutmeg name will eventually be phased out entirely, according to the person.
“The IT team at JPMorgan was blue-blood corporate,” says one of the bankers. “Nutmeg’s was entrepreneurial. Integration wasn’t simple.”
“Shortly after the transaction, one of the big bits of feedback was that Nutmeg was a bootstrapped startup losing money, but were very cautious and didn’t want to over-invest,” they added. “JPMorgan was much more open to trialling on a grander scale. That was a bit of a cultural shock to people.”
READ Nutmeg CEO steps down after JPMorgan takeover: ‘I am now taking some time out’
A number of Nutmeg staff praise the firm’s hybrid working culture on workplace reviews site Glassdoor, a contrast with JPMorgan, which has asked its senior bankers to be back in the office full-time, as chief executive Jamie Dimon is taking one of the hardest lines on remote work in the sector.
“How many people have smashed those [cultures] together successfully?” says the fintech consultancy head. “The number that comes to mind is zero.”
Pressure on profits
A bigger concern than senior departures and cultural frictions could be Nutmeg’s persistent losses.
In 2016 the firm made a £9m loss. By 2022, losses had reached nearly £30m.
Nutmeg has never produced estimates of when it will hit profitability, or projections for asset, client or revenue growth. In its early years, it kept asset, clients and revenue figures under wraps.
Speaking with Financial News last year, former CEO Alexander doubled down on its claims that the economies of scale make sense; if it continues to grow, unit costs will decrease to the point the financial equation turns green. Somani told FN previously that JPMorgan did not see Nutmeg separately from the main bank, and that growing in new markets takes time.
Nutmeg’s financial struggles mirror much of the wider digital wealth market; fellow robo-adviser OpenMoney is currently in financial distress, and has failed to pay staff wages.
Trading apps did indeed boom during the pandemic, a beneficiary of meme stock mania. But Nutmeg has been very clear that is not what it is offering. In fact, it has pushed further into personal financial advice in recent years, as opposed to individual stock selection services, in a bid to boost revenues.
That push has not been a resounding success. Head of advice Lisa Caplan lasted three years before moving on to Charles Stanley. Director of wealth services Laura Kingman also left to become Coutts’ head of financial planning. Neither responded to a request for interview.
At the time of writing, Nutmeg had 25 job vacancies advertised on its website. Three require the candidate to be a qualified financial adviser or working towards that goal.
Nutmeg declined to provide figures on asset flows or client numbers since the rebrand, or figures for its advice services specifically.
A JPMorgan Chase spokesperson said: “As the UK’s largest digital wealth manager, Nutmeg is a critical part of our strategy to offer consumers a comprehensive retail banking and wealth management service.
“In the two years since becoming part of JPMorgan Chase, the Nutmeg business has seen client numbers grow significantly, demand for its guidance, planning and financial advice services has increased, while it has continued to deliver a consistently high level of client service.”
However, one of the bankers that has worked with the firm said they remained optimistic about future prospects.
“You need a hook if you want to make money in the UK as a new entrant,” the banker said. “We landed on focussing on customer acquisition costs. [They were a] small faction of what wealth managers would have to spend, which was thousands. Nutmeg was like £150 or something.”
To contact the author of this story with feedback or news, email Justin Cash
