Wealthtech is currently shaking up the financial services industry, across two separate fronts; digital transformation of the wealth management industry and the rise of the neo-broker.
It is an exciting time for the industry, as what is now commonly referred to as ‘old’ (traditional fund/trust managers) versus ‘new’ (tech robo-advisors/neo-brokers), are evolving to provide alternative investment solutions for the shifting generational demographics.
The rise of wealthtech has injected innovation and digital optimisation into the sector. Today, with an estimated Assets Under Management (AUM) value just under USD$30 trillion, and an estimated CAGR of over 12% according to the Wealth Mosaic Report, the wealth management industry in APAC is both significant and dynamic.
Wealthtech – a duality of purpose
Wealthtech is a collective term for two camps of digital wealth technologies that have evolved separately based on the distinct use cases of two audience groups.
There is wealthtech for the digital transformation of traditional wealth management workflows, designed to help automate and modernise the services that private banks and investment firms provide for their clients – those considered high net-worth or even ultra-high net worth.
On the other hand, the industry serves neo-brokers, who service the more common mass affluent and emerging market segments. These neo-brokers generally provide services through digital trading platforms, replete with wealth algorithms and robo-advisories. Being digital-first entities, they offer lean, mobile-optimised platforms that appeal to a relatively young demographic.
The two groups of wealthtech users are quite distinct. While traditional brokers are adopting technology to stay current and offer a wider range of services, neo-brokers are likely to be digital start-ups offering a predominantly digital experience.
Modern technologies appeal to next generation
While most investments across APAC – and therefore the bulk of the money – resides with older generations who are more likely to use the services of traditional wealth managers, the younger generations – from Gen Z through to Millennials – have grown up with technology and expect to make their own decisions and moves online via streamlined apps and digital services.
This has given rise to the neo-brokers and digital platforms enabling these demographics to take more direct control of their finances.
Recently, wealthtech companies added cross-border payment capabilities, allowing wealth managers to conduct local and international transactions. This empowers clients to transfer funds swiftly between accounts across borders and facilitates digital buying and selling of securities.
Multi-currency capabilities have become essential in meeting growing investor demand. By collaborating with specialist FX and cross-border payment firms, wealthtechs can offer faster and more cost-effective services.
Wealthtechs and wealth managers can provide the investment community with access to stocks and shares by integrating APIs into their app or core banking system. This enables buy and sell orders with the possibility of unlimited commission-free trading and lower FX rates.
These customers can regularly trade in real-time and convert currencies when it suits them, without incurring hidden bank fees. There are also other benefits, like automation for smoother and faster reconciliation, and the ability for the business to determine its own pricing strategy for FX.
In one such example eToro made the decision to offer day-to-day spending and withdrawal functionality to its tech-savvy customer base. This allows them to view their wealthtech account as not just a platform for investment but a flexible, dynamic and handy means of using their investment capital in a broad range of everyday activities.
Why wealth management firms are embracing fintech
One of the key reasons wealth management firms are adopting fintech is to enhance operational efficiency. Fintech solutions – especially those with artificial intelligence (AI) and machine learning (ML) capabilities – offer automation and digitisation of manual processes, allowing firms to streamline their operations and minimise human error.
Tasks such as client onboarding, portfolio rebalancing and reporting can now be automated. By leveraging fintech, wealth management firms can focus more on providing personalised advice to clients, rather than getting bogged down by administrative tasks.
Additionally, fintech enables wealth management firms to offer more seamless and convenient client experiences. Advanced algorithms can analyse vast amounts of financial data and market trends to identify investment opportunities, manage risk, and optimise portfolio performance. AI-powered robo-advisors have gained popularity, offering algorithmic investment advice and portfolio management at lower costs compared to traditional human advisors.
Fintech solutions provide enhanced security and risk management capabilities. Wealth management firms deal with sensitive client information and large sums of money, making data security and fraud prevention crucial. Fintech platforms offer robust encryption, multi-factor authentication, and real-time monitoring to safeguard client assets and protect against cyber threats.
Fintech also facilitates fractional investing and access to alternative investment options, making wealth management services more accessible to retail investors with limited capital. Leveraging plug and play white-label solutions allows an organisation to launch an investment product in weeks. Investing-as-a-service is powering unique, customisable investment products for fintechs and investment institutions. This opens opportunities for wealth management firms to grow their business and diversify their revenue streams.
Transforming wealth management for the future
Wealth service providers have a decision to make about what role they want to play in this tech-first market. By harnessing the power of technology, firms can adapt to the changing financial landscape, meet evolving client demands, and remain competitive in an increasingly digital world.
The integration of fintech in wealth management represents a transformative shift that benefits both firms and their clients, paving the way for a more efficient, accessible, and personalised wealth management experience.
