(Forbes) -- Robo-advisors, micro investment services, portfolio management tools—many consider wealthtech a real game changer. It has already transformed our financial industry and will continue to do so. How? You’re about to find out!
Wealthtech: A Definition
What is wealthtech? Wealthtech stands for wealth and technology and is one of the subsections of fintech. Just as fintech combines finance with technology to change the way we organize, spend, and receive our money both as individuals and as companies, wealthtech unites wealth and technology with the goal of providing digital solutions to enhance personal (and professional) wealth management and investing.
Services & Solutions
Robo-Advisors
The first thing that likely comes to most people’s mind when they hear the word wealthtech is robo-advisors. Robo-advisors are highly popular automated services that use algorithms and machine learning to offer investment advice and management to their users.
Thus, they not only consider investment opportunities, but they also respect a user’s goals, income, marital status, and risk aversion, among other factors.
Because artificial intelligence replaces human intervention almost entirely, costs for these kinds of services are reduced to a minimum. This has opened the door to the world of investment for people that can’t afford a financial advisor made of flesh and bones—the key to the success of robo-advisors, especially in the United States.
According to a research report from Business Insider Intelligence, robo-advisors ”will manage around $1 trillion by 2020, and around $4.6 trillion by 2022.” More than 200 robo-advisor companies are currently registered in the United States alone.
Examples: Wealthfront, Wealthsimple
Robo-Retirement
Unlike robo-advisors, robo-retirement involves wealth management services targeting retirement savings accounts, such as 401(k), 403(b), and IRA. The goal is to help individuals as well as small and midsize businesses to better manage their savings plans.
Example: RobustWealth
Digital Brokerage
These platforms and services allow retail investors and businesses to gain easy access to stock market information and investment opportunities, as well as some of those that would otherwise only be available to certified investors.
One popular format in digital brokerage is social investing, which lets you see the investments of people in your trading network that you follow, just as you follow people on Facebook.
Micro-investment
Micro-investment platforms allow their users to invest small amounts of money on a regular basis without having to pay a commission. The idea is to generate large savings over the years by making little regular investments that don't require monetary sacrifices.
By the way, most providers earn money by charging a small monthly subscription fee. Other than that, the platforms—they often come in the form of simple apps—are free to use.
Other Products & Services
Other products and services in wealth tech include general investment instruments; for example, gaining access to expert investor networks and centralizing portfolio management tools.
Example: InvestCloud
The Impact on Wealth Management and the Financial Advice Industry
Wealthtech has grown exponentially in recent years, and thus wealth management in particular and the financial industry, in general, have been consistently transformed. Platforms and solutions that use technologies like Big Data and Artificial Intelligence provide a real and often more cost-effective alternative to the services of traditional wealth management firms.
This is why many large companies that recognized the trend have created their own proprietary tools or have collaborated with fintech businesses to have them developed.
Still, especially for high-net-worth individuals (HNWIs), wealthtech without a human component is limited to those with a pronounced DIY attitude.
What seems to remain a very important success factor in the financial advisory business is personalization. People have emotions and insecurities that need to be addressed, a quality that no machine can yet provide.
At the same time, technical expertise alone is no longer enough for a financial advisor to attract new clients and bind existing ones. The key is to focus on what sets us apart as human beings from the technology and develop these particular skills.
Future Prospects
Considering the changes that wealthtech has introduced to the financial sector up to this point, we can certainly look forward to new and exciting innovations that the future has in store for us.
It’s plausible that wealthtech will eventually replace financial advisors. However, no one can say if or when this moment will arrive—it might be a couple of years from now, a decade, or even longer than that.
Therefore, let’s instead focus on what some of us can already see on the horizon.
First, data security must become the number one priority for wealthtech providers in order to prevent breaches.
Every company that misses out on this is likely to eventually become less relevant.
Predictive analytics technology is critical to wealthtech company survival because it helps to win insights into client behavior and their needs so they can improve services and products.
Several found that ”asset management firms with predictive analytics achieved an average 11% increase in the number of customers in the past twelve months.”
What’s more, cloud computing will remain a major trend in wealth technology because it provides for sustainable growth.
The dawn of blockchain technology has created new asset classes and will continue to do so. And lastly, quantum computing will help wealth managers deal with information overload and improve investment decision in the long term.
Wealthtech in Europe
Wealthtech does not stop at national borders—it's spreading everywhere. Europe has shown a steady increase in big wealthtech companies.
The graphic, published by INVYO, lists companies from 12 different European countries, with France, Germany, and Switzerland at the top. More than one-third offer robo-advisor services, and about one-fifth have wealthtech investment tools.
Conclusion
Wealthtech has transformed how advisors and consumers approach wealth management. It has brought new challenges, but also new opportunities to the market.
For wealthtech startups, this means coming up with fresh ideas to apply technology while focusing on data security, predictive analytics, and more. For financial advisors, it involves providing value that goes beyond the capability of algorithms.
