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16 January 2018

First socially responsible robo-advisor launches, with millennial money in its sights

Wealthsimple bets on ethical credentials in the race to attract young investors

By Will Dunn

Robo-advisers are growing fast. The UK’s leading online investment manager, Nutmeg, more than doubled its customers to over 45,000 investors last year while increasing its assets under management to over £1bn. But growing even faster is the trend for millennials to switch banks – Monzo, the UK’s top challenger bank, attracted over 400,000 new customers last year. These financially fickle youngsters spent over £1bn on Monzo’s distinctive luminous-orange cards last year, including more than £66m on entertainment and almost £7m on Pret a Manger.  

Canadian robo-advisor Wealthsimple hopes to join these two trends. Like Nutmeg, Monzo and others it offers a design-forward app and no physical branches. But Wealthsimple is the first of this kind of investor to offer an SRI (socially responsible investing) portfolio that matches the kinds of investments made with the kinds of social and political concerns likely to appeal to the young – environmental issues, fair employment and corporate governance. These “ESG” criteria do not explicitly rule out investments in tobacco or arms companies, but Wealthsimple’s CEO told CityAM that companies in these fields would be actively screened out.

Initial take-up of the new investments among the young could be reduced by the fact that a minimum investment of £5,000 is required. But in the long run, it could be that more managers will follow Wealthsimple’s lead. The UK Sustainable Investment and Finance Association (UKSIF) found that sustainable investment is attractive to the young, with more than half of millennials telling UKSIF they would prefer an investment that was free of fossil fuels. It may also offer security – a review of over 200 studies by Oxford University established a positive link between strong ESG policies and operational performance.

With new regulations such as the PSD2 directive (explained here) allowing further progress on data-driven “open banking”, it has become much easier for people to ditch the old guard. Younger, more technologically adept customers may well lead the way.

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