Got this email from them earlier.
I’m liking the app so far, as a set it and forget platform with no fees for a SIPP thought it was worth a shot.
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I’m personally really interested in what they do in the VCT, EIS, SEIS space, there’s so much that can be done here and the tax advantages are huge
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I was kind of disappointed with how little is there. No plans on what they’re raising for etc. as far as I could see.
I read it as continue developing the low fees model they’re already becoming known for and to build the alternative investment options (e.g. S/EIS funds, VCTs etc.)
Having been the angel investor for a few of these mass affluent startup wealth managers and knowing some of the people involved with Prosper personally - I can see why they adopted the strategy, but I am on the fence about whether they will eventually succeed.
Seeing them on this forum did make me reach out to a contact there to find out what their pitch is.
A few years ago, when VC funding was plentiful, there were a lot of this type of fintech started by experienced private bankers leaving big institutions but was not content with becoming an external asset manager. EAM was (and to some extent still is) almost a rite of passage for advisors with clients who follow them from bank to bank to eventually own the client relationships.
Most of those failed to gather enough AUM and recurring revenue, and eventually, as funding dries up, the regulatory capital threshold starts to bite. The overheads were significant - FCA doesn’t hand out custodian licenses easily, so they have to use other firms. They need to charge 0.5-0.6% pa (excluding fund/ETF fees) just to have 15 bips of gross revenue for themselves. The target customers with 250k-1mm to invest (and have not just gone for just ETFs) also want relationship managers - the acquisition was mostly done through hiring other bankers, so the breakeven point is extremely high.
I think Prosper is correct to target the “more money than Nutmeg” market rather than 250k-1mm range. The founder came from another fintech rather than private banking. They also seem to be more horizontally integrated - managed asset allocation funds (Nutmeg) + fund/ETF custody (Hargreaves Lansdown/ AJ Bell) + savings (Flagstone) + alternative (At best Moonfare, at worst crappy VCT/EIS funds distributors). However, they also seem to have entirely given up on getting ARR from the assets under management/custody.
Looking up Prosper on the FCA register, they can only control but not hold client assets and do not appear to have the ability to establish/wind down collective investment schemes. They will need to use an external custodian, and since they mentioned they have their own funds, they will need a UCTIS ManCo.
You can find custodians to hold shares for free if you agree that they can hypotheticate the positions. Much harder if your clients are holding mutual funds. UCTIS fund of funds/allocator funds are cheap to run but ManCo is extremely expensive.
Anyway interesting company whether they will make it or not likely depends on whether some of their investors can commit deep pockets to fund them every round.
They use the Seccl platform by Octopus, which (at least generally) charge a 0.08% custody fee. It’s why the raise is EIS eligible. Considering they also refund some ETF/Fund fees, I guess it could be ~0.2% cost to Prosper? The alternative investments is interesting, though others (Chip I think) have tried and failed.
Anyway, I have been using them and have been pleased with what I’ve used so far (the pension and ISA). If anything, I think having investment now that funding isn’t so plentiful means there is probably a decent plan for growth but that doesn’t mean I want to invest in them.
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