In a recent post we highlighted the surge of robo-advisors in the wealth management industry. In this arena, a new player – Scalable Capital – came into the fintech limelight in April 2016 with a €7m funding round.
Following the fundraise, Manuela (Ella) Rabener, CMO & Co-Founder UK at Scalable Capital, answered our questions about herself, robo-advising, the company, and future plans.
FinSMEs: Hi Ella, firstly, can you tell us a bit more about you?
Ella: I’m the CMO of Scalable Capital, an online wealth manager, and part of its UK-based founding team. I previously spent 7.5 years working with McKinsey & Company in New York, Cologne, Munich, and Dubai and then spent 3 years in Moscow as the founder & CEO of online shopping club Westwing.ru. The reason why I’m now working to build Scalable Capital is that it’s exactly the kind of service I would have wished existed during my times as a consultant: intelligent investing made convenient, transparent and low-cost. A service smart people can use that don’t have a lot of time, yet don’t want to be ripped off.
FinSMEs: Is Robo Advising the next big think in fintech? Why?
Ella: When you look at the major deficiency in the way the wealth management industry operates I think it’s pretty clear that robo-advising is the ‘next big thing’. Digital investment managers are able to deliver customers a better product at a better price. Additionally, the market opportunity is huge. Citi estimated that digital investment managers and robo advisers would manage $4.7 trillion in a decade’s time. It’s clearly a fast-growing segment of the market and we’re excited to be part of it.
FinSMEs: Which is the real opportunity?
Ella: On average, the services of most wealth managers cost more than 2.5% a year of customers’ assets. In addition, four out of five active equity funds in Europe failed to beat their benchmark over the past five years. This cross section between high fees, poor performance, and huge minimum investment criteria – on average the minimum is £800k+ – creates a massive opportunity for digital investment managers.
While robo advisers have more attractive fees and lower minimums it’s still important to look at how they invest. Many robos offer similar investment processes based on theories going back to the 1950s and the commonly accepted idea that risk and return are correlated – more risk, more return. However there are periods of time where we experience excess volatility in the markets. During these times the typical risk-return relationship breaks down, so taking on more risk is no longer rewarded.
This is where Scalable steps in. By taking advantage of these observations in the market, we make forward looking risk projections with the aim of catching the “early warning signals” of these periods of excess risk, so that we can dynamically adjust client portfolios and try to avoid these times of high risk and negative return. We think there’s a huge opportunity for someone to offer investors a radically different way of investing – one which uses technology at it’s core – and that is what we are doing.
FinSMEs: Let’s speak about Scalable Capital. How does it work?
Ella: We automate the investment process through our proprietary risk management technology. The tech is data-driven and reflects the latest insights of empirical capital markets research. Our approach is based on the fundamental principle that if the market goes up today, it’s a 50-50 chance that it goes up tomorrow. There is no correlation. Conversely, if the market moves a lot today, there’s a more than 50-50 chance that it will move a lot again tomorrow. Our product isn’t based on guessing the direction of the market – it’s based on data-driven predictions of market risk. These predictions let us scale risk exposure up or down in our clients’ portfolios to keep precisely in line with their risk appetite.
FinSMEs: Where are you in terms of growth?
Ella: We’re a team of 35. Our product is currently live in Germany and will be live very soon in the UK.
FinSMEs: Scalable Capital recently raised €7m in funding. How are you using the funds?
Ella: At the moment, we’re looking to reach more customers through marketing and looking to constantly improve our service. Our client list is growing, but we want to tell as many people as possible about how different our approach is. We’re also looking at the possibility of expanding into other markets, but that’s slightly further down the road.
FinSMEs: future plans?
Ella: We will be launching our UK product to clients at the beginning of June so that is our focus for the near future. We’ll continue to build our customer base as well as continuing fund raising and beyond that we hope to launch our service across all of Europe.