Bringing more rapid change to wealth management is financial technology.
Unlike the slow pace of social media adoption in wealth management, the financial services industry is rapidly embracing financial technologies, that solve everyday problems, such as mobile trading; commodities markets; peer-to-peer lending and crowdfunding; risk and compliance; security and privacy and digital wallets. Fintechs innovate in a way wealth managers cannot.
There are several parallels with social media:
Global investments, in Fintech, have more than tripled to USD3 billion in 2013 from USD930 million in 2008. For example, California-based InvestCloud delivers collaborative cloud-based securities solutions. Their platform targets the wealth management industry, seamlessly integrating its scalable and swappable applications with other technologies, applications and processes via existing infrastructure.
Wealth advisors have strongly influenced client decisions – with few questions asked. Wealth advisors generally work as enablers, helping to provide access to investments, professional guidance and, hopefully, peace of mind for their clients. As technology helps eliminate the need for middlemen, investors who are accustomed to connecting directly with unfiltered investment advice will demand an even higher level of service for an even lower price point if and when they ultimately seek out investment help. Early-adopter consumers are gravitating toward ‘robo advisor’ sites, such as Financial Engines, Wealthfront, Nutmeg, and Betterment, among other online wealth advisory firms. These firms employ traditional algorithm-based portfolio management to create low-cost online portfolios that appeal to tech-savvy investors, with minimal involvement by a human advisor. Wealth management is no longer reserved for the wealthy. By applying ‘customer-friendly’ technologies, robo advisors reach an under-served segment of younger and smaller investors who are largely ignored by traditional wealth firms. As such, robo advisors are well positioned to win their share of the anticipated wealth transfer to Millennials from their Baby Boomer parents.
Their recent growth is impressive (estimated at USD5 billion in assets under management); however this is barely a fraction of the USD18 trillion retail investment market. Most adopters of robo advisors are younger and enjoy the ability to do their own research; they want to be informed and to be in control; and feel more self-confident online than their Baby Boomer parents.