WealthTech players employ advanced analytics to offer digital solutions to transform traditional wealth management and investment management services. Traditionally, the technical expertise of financial advisors has been the key differentiating factor for wealth managers. However, with improved usage of big data and the emergence of sophisticated AI and ML models in evaluating investment opportunities, optimizing portfolios, and mitigating associated risks, both quantitative, as well as fundamental asset managers, are increasingly relying on technology for investment decision-making.
The increasing influence of technology in this space is apparent by both the steady funding into this space and the growing number of WealthTech startups. In 2018, WealthTech was the fourth-best funded FinTech segment in India, with investments of approximately USD 122 million across 23 deals. Even globally, there has been an upward trend in the amount of capital raised by WealthTech startups in recent years. In the first quarter of 2019 alone, global WealthTech startups raised approximately USD 845.1 million, an increase of almost 80% over the Q4 2018 figure.
Democratising investment advisory
Traditionally, specialized investment advisory services were the preserve of only high net worth individuals. However, the emergence of tech-enabled wealth managers has made it possible to deliver highly specialized investment advisory services targeting the mass segments.
Hybrid models with a human touch
As the demand for Robo-advisory and technology-driven wealth and portfolio management tools grows, financial institutions are investing significant money and effort to integrate these offerings with their existing workforce. The hybrid model is meant to provide a level of comfort not seen before that uses only digital services while still catering to rising consumer interest in WealthTech.
AI-powered Robo-advisors can analyze web data, including social media data, to analyze the real-time sentiments of people, thus providing insights into optimal asset allocation strategies. For instance, with a combination of big data analytics and AI, live data from various social media outlets is being collected. It is analyzed to help traders anticipate movement in a company’s stock price.
Payment players moving into the systematic investment plan (SIP) space
Digital wallet companies in India are now moving into the wealth management space with small-value SIPs (systematic investment plan), starting as low as INR 100. The USP of these offerings is the easy integration with customers’ payment wallets and the near-zero fees or commission.
Life-stage/event/ goal-based investment advisory
Some of the WealthTechs today are gamifying the process of investment product selection by providing the customer with a pre-defined life-stage or event-based investment option which can be used to achieve the desired financial goals. This helps in simplifying the complexities traditionally associated with choosing the components of a portfolio of financial products and helps customers focus only on the objective of their investments.
As the number of high-net-worth individuals (HNWIs) in India grows, so does their need for advisory in wealth management. Between 2011 and 2017, the number of HNWIs has been steadily growing at a CAGR of 18.67%. This growth is expected to continue over the next few years, with the total HNWI wealth likely to reach around USD 3 trillion by 2025, creating a huge opportunity for the WealthTech players.
Moreover, the requirement for wealth management today is not limited to HNWIs, but also includes the mass segments. This is supported by the target set by the Association of Mutual Funds in India (AMFI) to grow the industry’s assets under management (AUM) by approximately five times to INR 95 lakh crore (USD 1.47 trillion) and the number of investor accounts by more than thrice to 130 million by 2025. This would call for WealthTech players to step up to sustain this surge in retail investors looking to invest money in equity and mutual funds.