Ian Cadby and Jonathan Wauton, co-founders of Tiller Investments, believe they have developed the next generation of digital wealth platform. It comes with the latest bio-matching technology, a range of managed portfolio options, and real-time reporting.
Motorbike fans Cadby and Wauton have been revving up publicity since they kick-started Tiller into action last year. They are focusing on a business to business (b2b) model for wealth managers and banks, which will help them achieve scale and profitability more quickly, they say. The platform is also available direct to retail customers (d2c) but the company is not currently advertising to them.
Tiller has no b2b customers yet, but the founders say they are talking to two of Europe’s top 15 financial institutions and have letters of intent from some smaller ones already.
However, given the already congested state of the digital platform – or robo-advice – market, and the fact that even well-established robo-advisers have struggled financially, what are their chances of success?
Cadby and Wauton have pedigree. They met in 1990 while working for a hedge fund and a derivatives broker respectively. Frustrated by the clunky technology of the time, they left to take up senior positions at hedge fund manager Liberty Ermitage, where they oversaw the development of state-of-the-art investment systems.
Ermitage proved popular quickly and the California government pension scheme Calpers, one of the largest in the world, ‘liked our portfolio construction systems so much they leased them from us,’ says Cadby.
‘After that we were swamped with demand from American and European pension schemes and grew assets under management to around $4 billion (£3.1 billion).’
They carried out a management buyout of Liberty Ermitage in 2006, then sold it in 2011 and took two years out to look for a new project. Cadby says the 2013 introduction of restricted advice, which allows advice on a limited range of products, created an exciting opportunity to start a robo adviser.
‘We tried using early robos and it struck us how backward and unambitious wealth management technology is,’ says Wauton. ‘For example, many robos are limited to using exchange-traded funds (ETFs). We wanted to add active funds and thematic investing. And the industry was crying out for state-of-the-art customer ID verification, anti-money laundering, and customer onboarding.’
Most robos target the millennials market, but the small amounts involved have made it hard to become profitable.
‘There is much less competition in the b2b market,’ says Wauton. ‘People thought no serious wealth firm would use robo and it was just for small portfolios. But that has changed in the last year or so.
'As the generations shift, [digital natives] are inheriting larger amounts. Wealth managers are waking up to that.’
Cadby (pictured below) adds that digital platforms are also increasingly important as pressures on managers’ margins increase.
‘Firms are struggling under new regulations such as Mifid II and GDPR and it's affecting their bottom line,’ he says. ‘Firms tell us the number of their unprofitable clients almost doubled in a year. They need systems to keep costs down and improve compliance by eradicating errors.’
Tiller has a modular design, so companies can select from the onboarding, reporting and investment management segments and customise and integrate it with their own offerings. Clearly most wealth managers will manage their own money, so Tiller is focusing on the onboarding and reporting modules in the b2b market.
‘Banks find reporting difficult, as they often rely on their administrator or custodian to provide it,’ says Cadby. ‘But administrators and custodians spend so little on reporting. We designed Tiller to be best-in-class at customer onboarding and reporting.’
Tiller uses real-time reporting generated through its own middle office systems rather than relying on a third party to provide data. It also offers an in-house risk factor engine, portfolio volatility analysis and customised reporting, including the ability to see which investments have contributed to performance.
‘In the old days, onboarding involved certifying a copy of your passport and utility bill with a notary and posting it in,’ Cadby says. ‘With our proprietary systems, we can onboard a client in 20 minutes using smart phone technology. The biometric technology is similar to that used by airport passport control.’
Tiller offers no hybrid or human advice element, though third-party wealth managers using the system can add their own.
Tiller’s automated advice covers only the portion of wealth that clients invest with Tiller, with a risk questionnaire and goal setting. It does not cover any of their other financial affairs, such as their mortgage, pension, or estate planning.
Some clever robos claim to offer retirement advice in 15 seconds that typically takes a human 15 hours, and are continuing to develop this with artificial intelligence. Should not Tiller include such features to be considered ‘next generation’?
Cadby and Wauton insist that their ‘end to end digital experience’ is the next generation. ‘We intend to push the boundaries even further over the coming months,’ they say.
Robo advisers are notorious for burning cash. Initially, Cadby and Wauton invested £2.7 million into Tiller and raised a further £9 million, mostly from individuals. In January, they announced a bid to raise a further £7 million, this time from strategic partners. So far, this has attracted over £2 million, they say.
‘There has been little marketing and advertising,’ says Cadby. ‘Instead, we are spending a lot on system design and build. With this second funding round, we want to triple the size of our technology and pre-sales [product specialist and adviser] teams.’
They forecast going into profit around Q1 2020. But Tiller’s real potential will be hard to judge until they start signing up customers.
‘Our business plan projects over £2 billion of assets under management (AUM) in our b2c service and £5 billion on our b2b within five years,’ says Cadby. ‘But we are six weeks away from one, perhaps two major brand names [adopting Tiller], plus seven or eight smaller firms. One of those deals could bring in £40 billion.’
Current AUM is not disclosed.
Wauton adds: ‘We are talking to some very large firms – our edge is that we are not technologists trying to understand wealth management. We have decades of experience in wealth management and talk their language.’
For its retail proposition, Tiller provides several managed portfolio options. The first is a portfolio of ETFs, but with active asset allocation. This charges 0.75% (0.58% for Tiller and 0.17% for dealing and custody). The second is an active-passive blend. The third starts with the blended portfolio but allows customers to add themes of their choice.
Themes range from US smaller companies or China growth to commodities, ageing populations, automation and robotics, and global water. The blended and themed portfolios charge 0.9% (0.75% for Tiller and 0.17% for dealing and custody).
Proprietary algorithms and qualitative decisions made by the monthly investment committee combine to guide strategy.
‘We started running money pre-launch in January 2018 and our first decision was to reduce equity risk manually,’ says Wauton.
‘We were quick to cut risk further in Q4 – and to put it back on in January. We are still cautious and slightly underweight equity.'
Over the 12 months to the end of April, the Tiller Balanced Strategy is up 4.86% compared with the ARC Sterling Balanced index average return of 4.21%.
One key holding is Polar Capital Global Insurance. ‘Finding ways to diversify portfolios is becoming harder,’ says Wauton. ‘Polar is a consistent performer and the dynamics of insurance are stable.’
Running a new fintech firm is rarely conducive to a good work-life balance.
‘You know you've been spending too much time at work when your own dog barks at you when you get home,’ jokes Cadby. ‘It's been emotional.’
‘Yes, it's been intense,’ adds Wauton. ‘Our families are based in Jersey, but we spend much of our time in Europe or London.’
But when they do get time off, it is time to hop on the bikes – one of several Ducatis for Cadby and a BMW hp4 for Wauton. ‘You don't need a motorcycle to work here, but it helps,’ says Wauton.