2019 U.S. Wealth Management Outlook: The Old Guard And Fintech Cozy Up

2019 U.S. Wealth Management Outlook: The Old Guard And Fintech Cozy Up

As part of the #FinovateLive series, April Rudin, Founder and CEO of The Rudin Group and global wealth marketing strategist, explores the current wealth management space, and why this year the industry looks set to merge closer with fintech, as incumbent players realise they need to embrace technology to meet demands of younger generations. 

The old guard wealth management industry and fintech have kept each other at arm’s length for years, claiming the other lacks the tools to meet current client needs. But in 2019, we expect they’ll put past differences aside and finally cozy up to each other.

“Partnerships” will be the buzzword for the new year as incumbent players realize they must embrace tech to meet the demands of their millennial clients, while so-called fintech players realize sometimes clients really do want the intimacy of a face-to-face meeting.

As proof of concept, look no further than Morgan Stanley’s recently announced bid to buy Solium Capital in a $900 million all-cash deal – its biggest acquisition since the financial crisis.

By snatching up the Canada-based employee stock plan administrator, which counts Hootsuite and Dropbox among its clients, Morgan Stanley hopes to facilitate a path to draw millennials into its wealth management practiceSolium, meanwhile, receives the backing of one of the largest banks in the United States.

We expect to see more of this in 2019 – whether it’s outright acquisitions of smaller players or strategic partnerships between incumbents and fintech players.

With the $30 trillion generational wealth transfer in its early innings, pure-play robo-advisers are finding that their algorithmic services aren’t enough to win over millennials on the brink of their asset accumulation years. A robo-adviser may be sufficient when a plan is in place, but fintech and artificial intelligence (AI) have yet to replicate the insights gleaned or the comfort level achieved through one-on-one conversations. This is especially true for young families balancing student loan payments, first homes, and education planning for young children.

Even my millennial son told me he was frustrated that robo-advisers kept being pushed on him when he really wanted a human adviser to help him navigate through the world of investments.

But it’s not just the robo-advisers that gain from partnering with incumbents. Traditional wealth managers also benefit by having their services buttressed by fintech players. It’s no longer an all-or-nothing dance between the two: Incumbents can leverage in-house technology to spend more time forging meaningful client relationships. What we’re seeing in 2019 is that an industry once known for its left-brained quantitative skills can now work the right side of its brain – all thanks to technology, ironically.

Clients will soon be benefiting from hybrid advice. While algorithms can quickly churn out portfolio options that advisers previously spent days crafting, advisers today can use the time saved to think more critically about their recommendations. Rather than prescribing financial advice, they can embrace a more holistic approach to determine what their clients want and how they feel about their portfolio and wealth.

But the expected partnerships in the wealth management industry don’t just apply to adviser-client dynamics. Total investable assets in North America are expected to grow by nearly 10%, to $28.8 trillion by 2021, according to a 2018 Ernst & Young study. And that wealth is not just concentrated in a mix of stocks and bonds. The era’s low interest rates have compelled households to allocate some of their wealth to alternative asset classes. For this reason, advisers need to know how to manage and analyze diverse holdings.

And as the wealth management industry continues to grow – both in terms of assets and clients from the wealth transfer – it will need to attract a young, engaged workforce to meet increasing and evolving demands. Analog solutions won’t cut it in a digitized world, especially when it comes to luring talent away from Silicon Valley. While many firms previously relied on a patchwork of legacy systems to conduct business, today’s younger workforce wants clean, reliable interfaces to complete their work.

We expect to see increased intergenerational team partnerships in the wealth management industry. After all, the “average” adviser is 55 – and perhaps thinking of their own retirement. We anticipate they will be leaning on their younger staffs and calling on their expertise. While advisers may have the years of experience, younger employees – and digital natives – will know new ways of reaching existing clients and prospects.

The room for partnerships in 2019 extends throughout the wealth management pipeline. From mergers between incumbent and fintech players to generationally diverse teams amid the wealth transfer, it’s clear we’re moving from conversation to commitment.

This article was originally published on CFA Institute, February 2019 >> 

Top Business-to-Business Wealth Tech Players

wealthtech4

If you’ve been following our series on wealth tech, you’ve seen our analysis of the industry as a whole, a review of the top trends, and an examination of B2C wealth tech players.

Our wealth tech coverage continues this week with a review of business-to-business (B2B) players in the wealth tech space. These are companies that cater directly to banks, advisors, or brokerages, instead of offering products or services directly to consumers. B2B wealth tech is a large category, so I’ve sub-divided it into four digestible groups and listed my top picks for each category. Since category sizes vary, the number of selections also varies.

Alternative investment services
These are platforms that help advisors connect clients with unconventional investment types, such as private equity, hedge funds, futures, real estate, etc.

Screen Shot 2017-01-19 at 11.44.57 AMEquityZen’s EZ Institutional lets advisors give clients access to a diverse asset class

Technology for advisors and brokerages
These are tools available via API, SDK, or web interface to help advisors compete with robo advisors by allowing them to invest with less bias, increase client communication, scale operations, find new clients, and more.

Screen Shot 2017-01-19 at 11.40.41 AMTrizic offers advisors their own digital tools to compete with robo advisors

Non-U.S. B2B investment and advisor technology
Similar to the above category, these companies offer tools for advisors outside of the U.S.

Screen Shot 2017-01-19 at 11.30.52 AMmeetInvest helps advisors invest like world-renowned market experts

News and Information Companies
These are online platforms, APIs, or SaaS offerings that provide advisors market information, show them trending news, or connect businesses with market data to power their own products.

Screen-Shot-2016-10-31-at-3.22.22-PMForwardLane’s dashboard acts like a private research analyst for advisors advisors, helping them stay current on new trends and funds

Top Direct-to-Consumer Wealthtech Plays

wealthtech4

Our wealthtech industry coverage continues this week. We looked at the industry last week and reviewed the top trends earlier this month. Today we’re taking a look at industry players with B2C offerings—in other words, companies that market directly to consumers and not through businesses.

Since wealthtech is broader than just roboadvisers, we’ve divided B2C wealthtech players into seven categories and laid out our top picks for each group. Since category sizes vary, the number of our selections also vary.

Top in-house builds from traditional players
These are offerings from traditional wealth management firms that have been built in-house (or purchased and then white-labeled) and marketed under the firm’s brand.

Fully automated roboadvisers
These are online platforms that provide automated, algorithm-based portfolio management without intervention from human advisers and without personalized, one-on-one conversations with a human adviser.

screen-shot-2016-12-22-at-4-06-40-pmAcorns takes a unique approach by linking a user’s debit card and investing their “spare change”

Hybrid roboadvisers
These are traditional advisory services, including personalized conversations and actively managed portfolios blended with computerized portfolio recommendations. Business Insider reports hybrid roboadvisers will manage 10% of all investable assets by 2025.

screen-shot-2016-12-22-at-4-11-08-pmSigFig has partnered with multiple banks, including Wells Fargo, Pershing, and Citizens Bank

Non-U.S. roboadvisers

Alternative investing platforms
These are platforms that link participants to unconventional investment types, such as private equity, hedge funds, futures, real estate, etc.

screen-shot-2016-12-22-at-4-18-08-pmWith Motif, uses invest in grouped stocks and ETFs that revolve around a common theme

Non-U.S. alternative investing platforms

News and information companies
These are online platforms that help users discover news and market trends before they go mainstream. Some include social networking aspects.

screen-shot-2016-12-22-at-4-23-47-pmTickerTags helps users discover trends even before they become news

Wealth Tech: A Fintech Buzzword Overview

wealthtech4

Continuing our series on wealth tech (check out our first post highlighting top trends), I wanted to step back and look at the industry as a whole. While multiple published analyses about robo advisors can be found, little is published regarding the broader wealth tech industry.

What is wealth tech?

Simply put, wealth tech is a segment of financial technology that focuses on enhancing wealth management and investing. That means that while robo advisors are a large—and quite popular—piece of the wealth-tech puzzle, other pieces merit discussion, too.

What does wealth tech encompass? Exclude?

Technology from traditional wealth management firms, alternative investment solutions from non-bank players, and tools to support financial advisors—all fall under wealth tech. Ancillary technology, such as PFM, are not considered part of wealth tech.

A robo advisor by any other name

While the term robo advisor is commonly used (a Google search produces 2.2 million results), not all automated management and advisory companies appreciate the name. For example, Personal Capital (FS14, FDSV16) CEO Bill Harris doesn’t classify his company as a robo advisor, which he views as a wholly automated investment tool. Instead, he strives to balance high tech with high touch. In an interview with WealthManagement.com Harris said, “We do have technology that is helping to automate and scale what we do, but in addition to that technology, just as important, are the individual advisers. Ultimately, the job of matching a household with the optimal portfolio is a more complicated thing than plugging information into a series of algorithms.” iQuantifi (FF14) is on the other end of the spectrum. In his demo at FinovateFall 2014, iQuantifi founder and CEO Tom White said, “We’re the only true robo advisor, and we’re not ashamed to call ourselves a robo advisor.”

Industry movement

Since the advent of robo advisors in 2008, we’ve seen a lot of growth in the U.S. robo advisory market. Take a look:

screen-shot-2016-12-13-at-1-28-26-pm

Assets under management are predicted to climb six-fold in the next three years, to $2.2 trillion. With the number of robo advisor launches increasing by an average of 43% YOY since 2008, it’s likely we’ll see a decrease in the number of robo advisor launches in the U.S., combined with an increase in M&A (mergers and acquisitions) activity to further consolidate the industry.

Next week, I’ll continue the wealth tech industry analysis by taking a look at divisions in the industry and reviewing some key players.


Sources:

Financial Review
Logging on to the Future of Financial Advice
by James Frost

A.T. Kearney
Hype vs. Reality: The Coming Waves of “Robo” Adoption
by Teresa Epperson, Bob Hedges, Uday Singh, and Monica Gabel