How Fintech Affects Wealth Management. All You Need to Know About WealthTech
Many industries that used to be known for their lack of flexibility, plenty of paperwork, time-consuming procedures, and other traditional characteristics have been revamped by the use of modern digital financial solutions. The wealth management industry is a classic example of one of them.
In this article, we will show you how the digital transformation of financial services and the use of modern fintech tools are impacting the wealth management industry worldwide.
WealthTech: Shaping the Future of the Market for Wealth Management
WealthTech is a sub-sector within the fintech industry that leverages technologies such as big data and artificial intelligence (AI) to enhance wealth management and financial advisory services. This approach aims to automate processes, improve data analytics and provide innovative solutions.
In 2021, the global WealthTech market size was valued at approximately $5 billion and is expected to grow at a compound annual growth rate (CAGR) of 14.8% over the next decade, reaching an estimated $19 billion by 2031. This growth is driven by the increasing demand for big data management and predictive analytics. Additionally, advancements in financial data analytics, portfolio rebalancing, machine learning and AI are also contributing to the expansion of the WealthTech market.
However, the WealthTech market is also facing challenges, particularly in the areas of privacy and security. As more customer data is shared across various platforms, the risk of identity theft and cyber fraud increases. WealthTech companies must implement robust security measures to protect sensitive customer information and comply with regulatory requirements.
Over the past few years, the wealth management market has had to adapt to significant changes. They include stringent regulations and high-performance standards; changing customer preferences (especially since the COVID-19 pandemic); greater expectations; rising inflation and increased concerns for cost reduction across the globe; and more competition from fintech startups. This development has continued to both disrupt and transform the business models for investment, savings, and wealth management.
Examples of How Fintech is Transforming Wealth Management
Below are examples of the various ways in which financial technology is transforming the market for wealth management.
Enhanced digital experience for clients
Through the development of apps for the management of wealth, fintech has enabled millions of people to find financial advisors without going through stressful processes. Nowadays, it is not necessary to consult a person to get started with wealth management. As a user, you can download an app on your smartphone or personal computer, create a digital account in less than 5 minutes, navigate through the features available to you, and start investing from the comfort of your room.
Improved collaboration and productivity for advisors
Advisors and relationship managers can now use digital channels for communication to provide face-to-face support to their clients through virtual meetings. With devices such as tablets, smartphones, laptops, and desktop computers enabling access to the internet and the use of smart apps, remote portfolio reviews, investment proposals, and other real-time actions are commonplace.
Artificial intelligence and Robo-advisors
The introduction of special tools powered by artificial intelligence challenges yet improves wealth management advisors' ability to do their jobs better. Enriched with features for predictive analytics and other super functions, robo-advisors use algorithms to make investment decisions that meet the needs and risk objectives of clients. In that way, they take on several roles as human advisors.
Digital platforms for Robo-retirement planning
Retirement planning platforms are a subcategory of robo-advisors. They focus more on helping people make smart investment decisions that concern their withdrawal from active work lives. Similar to robo-advisors, these tools, apps, or platforms use algorithms to analyse the goals and risk profiles of wealth management clients and offer them suitable recommendations. However, all robo-advisors have limitations, so some situations are better left to human advisors, especially when the investor’s direct input is required to arrive at an informed choice.
Reduction of cost
Operating cost reduction is a key factor that influences several trends in fintech. It also accounts for why we have fintech unicorns, online-based payment service providers, safer apps, neobanks, and all sorts of modern wealth management platforms today.
On the one hand, customers are demanding cheaper fees, low-cost administrative procedures, remote operations for convenience, and free services. Financial technology companies, on the other hand, are looking for ways to reduce their costs while maintaining client satisfaction.
As a matter of fact, many wealth management firms that offer robo-advisors aim to reduce overhead costs. Without the need for a large workforce that includes human financial advisors, companies can avoid spending so much money on office space, chairs, desks, salaries, and other welfare benefits every year.
More self-investing and micro-investing
Self-investing refers to being able to independently take decisions about your investment. In wealth management, fintech has enabled people with basic knowledge of digital or mobile technology to invest their money without the need to consult a human financial advisor. They only need to create an account with any of the best apps for investment and wealth management to get started.
In addition to self-investing, WealthTech has promoted micro-investing. Millions of people who would not have been able to invest in certain top companies now buy fractions of their shares and other non-stock investment instruments with small amounts of money, say, €10 or less.
Top 8 Fintech-based Wealth Management Solutions
Our discussion of how fintech affects wealth management will be incomplete if we do not show you some examples of notable solutions you can choose from. So, below are our top picks for the best fintech-based solutions for wealth management. We acknowledge them as some of the results of bank-fintech partnerships.
1. Mint
Mint is a personal finance app that makes managing money simple. In terms of wealth management, it offers micro-investing, retirement, brokerage, and alternative investment options through its partners. This app is ideal for those that want to invest themselves (self-investing) or use a robo-advisor (a hands-off approach).
2. Betterment
Betterment is an app that provides several tools for people to become better investors. It provides diversification through custom-built portfolios that include cryptocurrencies and low-cost exchange-traded funds (ETFs). With as little as $10, you can use Betterment to enjoy easy, personalised, and optimised investing.
3. Coconut
Self-employed people who need a simple app for accounting, tax compliance, and wealth management can aim to achieve their financial goals using Coconut. Whether you are a freelancer, digital nomad, or eBay seller, you can use this app to organise your personal and business finances. It integrates with many reputable and safe digital services for money and payments management, such as Monzo, Starling bank, Revolut, Tide, and Wise.
4. SoFi
SoFi is one of the best apps for everything involving money and wealth management. It offers a wide variety of products and services for beginners and experienced users of WealthTech platforms. They include personal loans, student loans, mortgages, banking, credit score insights, insurance, retirement accounts, auto loan refinancing, credit cards with cashback, fractional shares (stocks), cryptocurrency, initial public offering (IPO) investing, automated investing, active investing, small business financing, and insurance. Depending on your online trading preferences, you might be able to get up to $1,000 in stock after funding your new SoFi account.
5. Revolut
Revolut is another financial super app like SoFi. Its vast solutions encompass payments, cards, international money transfers, open banking, personal budgeting, and wealth management.
Starting from just $1, you can use the Revolut mobile app to invest in over 90 cryptocurrencies (including Bitcoin and Ether), shares of more than 1500 global companies, and commodities (precious metals, such as gold and silver).
6. Personal Capital
Anyone thinking of retiring with confidence or building their investments systematically should consider using Personal Capital as their digital wealth management platform. This WealthTech product comes with innovative features that will leave you satisfied with your investment goals. They include smart weighting through greater asset diversification, tax optimisation, intelligent rebalancing, and dynamic allocation of portfolios.
7. eToro
eToro is a powerful financial platform that promotes social investing. It provides a rich portfolio of assets for investment and enables investors to share ideas using one app. This wealth management tool allows you to buy Bitcoin, Ether, and more than 60 other cryptocurrencies; invest in fractional shares of your favourite stocks at 0% commission (no broker fee); and choose from a variety of ETFs.
8. Robinhood
One of the best apps to choose when it comes to commission-free stock trading and investing is Robinhood. After your first fee-free 30 days of using the app, this WealthTech solution offers 4% APY (annual percentage yield) on your idle cash for just $5 per month. Robinhood allows you to invest in stocks, cryptocurrency, and open individual retirement accounts (IRAs).
Evolution of Fintech-Wealth Management
The traditional financial advisory model in the wealth management industry has long been predicted to change in the future. This had been expected since the 1970s when there was no longer any regulation of commissions and discount brokers were created. The demand for a reduction in bureaucratic procedures and time-consuming administrative requirements increased.
In the 1980s and 1990s, the internet created an avenue for online trading to develop. This allowed for the introduction of online services to supplement in-person roles in the provision of wealth management services. Meanwhile, no-load mutual funds, which refer to the sale of commission-free shares, became commonplace.
The 2000s are an era that is bringing more ground-breaking changes to the wealth management industry worldwide. It was during this time that robo-advisors emerged in the market. The desire for human advisers to guide investors through complexity and achieve their goals has only grown in spite of all the financial services and technological advancements that may potentially put them to the test. Time and time again, advisors have demonstrated their ability to successfully adjust to these structural shifts. In reality, advisers were able to adapt to these developments by developing new business models that profit from commission and technological disruption.
FAQ
Fintech asset management refers to the application of modern financial technology in the provision of data-driven advice for investment decision-making. It focuses on the development and use of robo-advisors.
Fintech includes the provision of innovative services in various categories that include the following four basic areas: payments, digital lending, digital wealth management, and blockchain.
In contemporary wealth management, technology is used to provide efficient and more reliable services. It helps to create robo-advisors, enhance the digital experience of clients, promote remote collaboration and efficient service delivery by advisors, reduce cost, support self-investing, and encourage micro-investing.
Digital wealth management is a branch of fintech that focuses on creating efficient investment platforms for advisors and clients. It seeks ways to promote the use of robo-advisors and modern online platforms that use algorithms, artificial intelligence, and data analytics to offer reliable asset management advice.
Jump on the Wealth Management Bandwagon now!
Financial advisory services used to be available to only the rich. But today, thanks to robo-advisors and other WealthTech solutions, for little or no fee, everyone now has a chance to access reliable wealth management products and services. Moreover, with apps and digital platforms such as eToro, Revolut, SoFi, Coconut, Robinhood, Betterment, Personal Capital, and Mint, having a smartphone with internet access is enough to get started with automatic wealth management. Therefore, waste no further time, and start investing in stocks, digital currencies, commodities, and other assets today!
