Impact of FinTech Innovations on Traditional Wealth Management
Innovations in the fintech space are shaping the wealth management sector’s future. As per the survey by Deloitte, in 2020, FinTechs active in the wealth management industry increased nearly 300% within a short span of three years, disrupting the traditional wealth management process and industry structures.
Unprecedented growth in the FinTech business is the main driving force for the rapidly rising WealthTech startups gaining momentum. As WealthTechs are reshaping the investing landscape, it is crucial to understand the impact on wealth managers and investors, how it differs from traditional wealth management in terms of process, and how it is a game changer for the industry.
The wealth management sector has been resistant to technological changes for many years with its core focus on a ‘trust-based’ human advisory business model. However, the sector is now embracing digital transformation in the last few years due to certain key drivers. Understanding what is causing the major transformation is important before knowing its impact.
Transformation drivers in the wealth management sector
It is vital to understand how changing customer dynamics, high digital expectations, new technological advancements, internal industry challenges, and competition are driving the transformation of traditional wealth management businesses.
- Changing customer dynamics
Traditional wealth management companies were typically serving the customer base which is the wealthier and older generation. This was one of the reasons for wealth managers to stay reluctant in adopting the new technologies. However, now the customer dynamics are changing.
- The older generation clients are comfortably adopting the new technology and the convenience it offers.
- New wealthier customers are young and tech-savvy.
- Wealth transfer brings in radical transformation.
With the wealth transition from Baby Boomers to Millennials and Gen Zs, wealth managers must adopt advanced technologies quickly to serve the digital-savvy next-generation customers.
- Rising client expectations
Today, everything is just a click away! This automatically changes customer expectations. With fintech evolutions, wealth clients are also increasingly expecting more customized, personalized, transparent, and integrated wealth management services.
- Technological disruptions
Technological advancements play a major role in transforming the traditional wealth management business. Here are some of the technologies that play a crucial role in this monumental shift:
- Conversational AI (Artificial Intelligence) based chatbots have eased the process of customer onboarding, document collection, and verification and guiding the clients. This increased the scalability to engage more customers.
- Robotic process automation (RPA) helped in speeding up the process by automating routine manual work.
- Predictive analytics gives great insight to wealth managers and help them identify the potential investment opportunities and future risks for their client.
- Cognitive technologies and machine learning are a boon to the wealth management industry that can give a 360-degree view of customer wealth.
- Competition
The emergence of WealthTech startups and the participation of big players from the technology industry in the financial services space has increased competition for traditional wealth managers.
For example, Google, Amazon, and Apple are already intensifying the competition in the financial services industry. CB Insights ‘The Big Tech in Fin Tech Report’ gives a clear view of the competition.
- Investor shift
In a traditional wealth management business, wealth managers actively manage the portfolio by accessing more products than the asset owners. With the introduction of passive investing strategies, investments like Exchange Traded Funds, Index Funds, thematic investing, etc., there is a shift in investor preference. WealthTech innovations are empowering investors and accelerating the transition of power to them.
These key drivers play a significant role in redefining the wealth management business model and providing an omnichannel experience to advisors and investors.
Impact on traditional wealth management
Digital innovations in financial services challenge traditional wealth management. Here are some of the significant implications for the wealth management business:
- Digital tools
Digital tools help wealth managers to build strong long-term relationships with customers along with creating sustainable investing strategies for them. Digital tools take a customer-centric approach to foster collaboration and offer transparency and tailored solutions. Here are some of the top digital tools transforming the wealth management space.
- Robo advisors
Robo advisors are disrupting the traditional human-to-human model of wealth management in several ways by providing automated algorithm-based investment management services at lower costs. A growing number of robo-advisors is democratizing the wealth management landscape.
Examples of some of the top robo-advisors in the world are Betterment, Personal Capital, and Wealthfront. Here are some of the important benefits offered by robo-advisory services.
- Collaboration of FinTech and traditional wealth management companies
Traditional wealth management companies that are more responsive to change are collaborating with the FinTechs to maintain a competitive advantage by offering the best of both worlds. Hybrid wealth services are the new trend that is reshaping the wealth management space.
Impact on wealth managers and clients
The emergence of WealthTechs is highly impacting wealth managers and clients by providing various unique benefits. Let us look at the positive impacts of WealthTechs.
- Personalized investment portfolio
WealthTech startups leverage advanced technologies to create investment portfolios tailored to investors’ needs, goals, and preferences making the wealth services more efficient and accessible.
- Automated investment management
WealthTechs use robotic automation processes to streamline the investment management process. Robo advisors can make investment decisions, manage risk and rebalance their portfolios without manual intervention. Automation in the wealth management space leads to reduced cost and higher efficiency as compared to traditional methods of wealth management.
- Tech-based deep insights
Wealth managers can get deep insights into market trends, risk management, investing strategies, etc. using digital tools and advanced technologies. These tech-based deep insights are powered by artificial intelligence, advanced algorithms, big data, and predictive analytics.
- Effective risk management
Digital innovations like artificial intelligence, predictive models, and machine learning in the wealth management space can help wealth managers and investors to assess and manage risk effectively. Digital tools offered by the WealthTech companies help in mitigating the risk by quickly analyzing real-time information and historic data.
- Streamlined process
WealthTech companies enhance each aspect of wealth management by leveraging technologies that streamline the process. Technology can automate routine work, provide access to real-time portfolios and connect wealth managers and clients digitally. The streamlined process leads to enhanced customer satisfaction and efficient wealth management operations.
- Real-time communication
Real-time communication tools incorporated by FinTech innovations in wealth management are enhancing the collaboration of clients and wealth managers. This includes video conferencing, conversational AI or chatbots, file sharing, etc. This makes the whole wealth management process highly efficient and effective by bringing wealth managers and clients on the same page.
- Higher growth potential
FinTech innovations are offering higher growth potential for the wealth management industry. Digital tools can help in multiple ways such as to identify investment opportunities, data-driven insights to make rational decisions, and optimization of portfolio by efficient risk management.
Conclusion
Change is never easy! The transformational journey is challenging for traditional wealth management companies. However, planning to face the challenges by adopting better tools, and new business models can unlock plenty of opportunities for every player in the wealth management landscape.
FinTech innovations and WealthTech startups ate reshaping how financial services and wealth management services are delivered. The wealth management industry is now evolving from its traditional roots. And, this evolution focuses on improving customer experience, enhancing efficiency, and future growth of the industry.
