The Future of the WealthTech Ecosystem

As per the ‘Global Wealth Report, 2022’ by Credit Suisse, global wealth touched $463.6 trillion at the end of 2021, with 62.5 million millionaires worldwide. As per the forecast, global wealth is expected to increase by $169 trillion by 2026. Credit Suisse also forecasts global wealth per adult to exceed $100,000 by 2024.

Fintech innovations and advancements are significantly shaping the future of the wealth management industry by revolutionizing traditional practices and introducing many tech-driven solutions. WealthTech is the future of wealth management. Despite all the challenges, wealth management has exciting growth opportunities. 

Let us explore the future trends that are going to shape the future landscape of the Wealth management industry:

• Large-scale adoption of cloud technologies

Many wealth management companies have been slow in adopting cloud-based technologies due to migration cost concerns. However, factors like the adoption of FinTech innovations in wealth management, demand for data protection measures, corporate agility, etc., drive the demand for cloud technologies in the WealthTech space. 

Cloud technologies offer various benefits to the industry. Here are some of them:

Cloud technologies can help wealth management companies scale without the need to invest in significant infrastructure for a large volume of data analysis to store and manage data efficiently. Cloud technology-based tools can help wealth advisors get access to client data and collaborate from anywhere.

Overall, cloud technologies empower wealth management companies to streamline operations, offer superior client experience, and adapt to the ever-evolving financial services landscape. Considering these benefits, many wealth management companies are drifting towards cloud-based wealth solutions. The industry may see large-scale adoption of such technologies in the future.

For example, BridgeFT, a WealthTech company that aims to provide a next-generation digital experience, offers cloud-based, API-first, WealthTech-as-a-service infrastructure for data, analytics, and applications.

• ESG (Environmental, Social, and Governance) investing

ESG investing is a growing trend in the WealthTech space. Investors are shifting towards more sustainable and socially responsible investment practices. This ESG investing trend in the WealthTech space has many reasons. Some of them are:

• Young investors are increasingly conscious of environmental and social issues. ESG investing allows them to invest in products that fit their values. 
• In ESG investing, wealth managers can identify the potential risks and opportunities related to investment performance. This can lead to better risk management.
• Focus on long-term sustainability is one of the critical drivers for the rising demand for ESG wealth solutions. 
• ESG investing can also mitigate legal and reputational risks by offering greater transparency.
• ESG investing mainly focuses on sectors that are driving growth and innovation such as technology, renewable energy, and healthcare. This can result in better portfolio performance.
• Many global initiatives are driving attention to ESG investing—for example, climate change initiatives.

Growing ESG considerations will likely drive further FinTech innovations in wealth management, leading to industry expansion. ESG investing or the WealthTech companies that provide ESG solutions heavily rely on advanced technologies like artificial intelligence and extensive data analysis. Wealth management companies use ESG software programs for ESG data analysis. 

As per the recent industry report by Insight Partners, the value of the Investor ESG Software market stood at $627.85 million in 2022. It is projected to grow at a compound annual growth rate of 18.3% to reach a value of $2,340.13 million by 2030. Some key players in the investor ESG software market are Refinitiv, Conservice ESG, and FactSet. 

• Quantum computing

Quantum computing, which is in its nascent stage, has the potential to revolutionize the WealthTech space through enhanced computational abilities. As the technology advances, integration of quantum computing in the operations can help WealthTech companies in the following ways:

• Quantum computers can process a vast number of possibilities simultaneously and create complex financial modelling efficiently.
• It can help in risk assessment and accurate prediction of market trends
• The large-scale portfolio optimization ability of quantum computing can result in improved portfolio management strategies.
• Quantum computing can detect fraud, detect patterns, and recognize trends.

However, there are technical and cost-related challenges in quantum computing. With technological advancements, quantum computing can grow faster to revolutionize wealth management and financial services.

As per the report by Deloitte, the spending by the financial services industry on quantum computing is valued at $80 million in 2022. And it is expected to grow 233X to $19 billion by 2032. 

• NFT (Non-fungible tokens) and Crypto – integration of blockchain

NFTs (Non-fungible tokens) and Cryptocurrencies are significantly emerging as a new trend in the WealthTech space. 

• Non-fungible tokens can help diversify wealth as they represent the unique digital ownership of assets like collectables, artworks, virtual real estate, etc. They allow investors to buy a portion of high-value assets, which can democratize wealth management offerings. As per the BCC Research report, the global NFT market is expected to grow at a compound annual growth rate of 27.3% to reach $125.6 billion by 2027. 

• Cryptocurrencies can enable cross-border transactions without traditional banking systems making it accessible to the underbanked population. They offer diversification and hedging against traditional market fluctuations. Despite regulatory considerations, cryptocurrencies are the foundation of decentralized finance. As per the report by Grand View Research, the global cryptocurrency market, which is valued at $4.67 billion in 2022, is expected to grow at a compound annual growth rate of 12.5%. 

As the WealthTech industry evolves, both these trends have the potential to reshape the WealthTech space by providing various investment opportunities through the integration of blockchain technology. 

• Digital assets

With the FinTech innovations in wealth management, digital assets are gaining traction for various reasons. As digital assets are traded on a blockchain-based platform, they can offer liquidity and diversification and simplify the wealth management space with new tools and methods. 

As per the reports by Global News Wire, the global digital asset management market is worth $ 3,8 billion in 2021. And it is expected to grow at a compound annual growth rate of 10.3% to reach $11.4 billion by 2032. 

Though there are challenges related to regulations, security, and volatility, the digital assets management market can evolve with technological advancements. Here is how digital assets can help WealthTech companies:

• Cross-border wealth management

Adopting FinTech innovations in wealth management has enhanced global connectivity with digital platforms, mobile applications, digital tools for real-time currency conversion, reporting and compliance tools and many other digital solutions. These technological advancements enhance cross-border wealth management, which is now emerging as a new trend in the WealthTech space. Here is how cross-border wealth management is gaining prominence:

• Along with diversifying investments in different assets from different markets, It streamlines the management of diverse portfolio holdings.
• Cross-border wealth management gives access to a wide range of unique opportunities from different markets worldwide.
• The strategy can help preserve wealth and optimize the portfolio with tax-efficient planning to invest in cross-border markets.
• Blockchain and smart contracts offered by cross-border wealth management have enhanced efficiency, transparency, and security. 

Conclusion

With new emerging and cross-border solutions, the future of the WealthTech ecosystem holds endless opportunities driven by technological advancements and innovations to meet customers’ changing needs. Along with growing FinTech innovations, changing customer expectations would play a vital role in the evolution of WealthTechs in the future. WealthTech companies need to strike the right balance between innovations and compliance while delivering exceptional wealth solutions to their customers to thrive in the competitive industry.