The words “wealth” and “tech” have come together to give rise to a new generation of financial technology companies that create digital solutions to transform the investment and asset management industry.
Wealthtech refers to the use of cutting-edge technologies such as artificial intelligence and Big Data, to provide an alternative to traditional wealth management firms.
Wealthtech companies are advancing the investment and wealth management profession and offer varied solutions and platforms ranging from full-service brokerage alternatives, automated and semi-automated robo-advisors, to self-service investment platforms, asset class specific marketplaces, and investing tools for both individual investors and advisors.
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.
Robo-advisors are digital platforms that offer financial advice or investment management online with moderate to minimal human intervention. The software utilizes algorithms to automatically select investments and build a diversified portfolio based on a client’s risk profile and objectives.
Robo-retirement platforms are digital platforms that manage a client’s retirement plan using algorithms set in place by robo-advisors. Robo-retirement services differ from human financial planners in that these platforms create retirement portfolio, allocates and manages assets, provides strategies and recommends plans generated by a computer.
Micro-investing platforms focus on allowing people to invest small amounts of money. The advantage of these firms is the possibility of generating savings little by little, without having to shell out large amounts of money. These providers typically charge a US$1 monthly subscription fee and do not charge a management fee to use the platform.
Digital brokers are online platforms and software tools that aims to facilitate access to stock market information and investment. Within the category, social trading has emerged as a successful model with platforms such as eToro making it possible for novice investors to follow and copy the trades of more experienced traders.
This category includes various types of services and software that provide comparison tools, research and access to a network of advice.
Portfolio management solutions are tools and platforms that help investors and financial advisors unify and manage their investment portfolios in a single platform. Companies in this category include Eigencat, a fintech startup supported by the University of Singapore (NUS), that offers an innovative multi-asset class portfolio analysis platform for wealth managers and individuals to manage the risk and performance parameters of their investments.
Financial services software
This category comprises companies providing specialized software that support adoption of digital wealth management and investing strategy. The B2B-focused category includes companies such as Plaid Technologies, a software intermediary that securely connects financial application users with their respective bank accounts.
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.
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.