The rise of fintech wealth management

  • Financial technology, more commonly known as “fintech,” includes the emergence of a whole range of new technology used to improve and automate the delivery of financial services.
  • The rise of robo-advisors—along with the proliferation of artificial intelligence (AI) tools—has transformed the way financial advisors interact with and provide services to their clients.
  • Surveys show that a high percentage of affluent investors and those under the age of 40 prefer to do business with investment firms that use online collaboration and digital tools.
  • Those wealth management firms that are able to embrace the new fintech tools—while simultaneously helping investors navigate an increasingly complex financial landscape—will be more likely to grow and thrive.

The Rise of Fintech Wealth Management

For years, the industry has been predicting the disruption of the financial advisor model, all the way back to when commissions were no longer regulated in the ’70s, which led to the rise of the discount broker. The ’80s and ’90s brought forward no-load mutual funds, and the Internet gave us online trading. And now, here in the 2000s, we have the emergence of the robo-advisor, or the computer-automated investment platform, giving cynics even more ammunition to predict that advisors will go the way of the travel agent or taxi driver.

I am much more bullish on the future of the financial advisory profession. Despite all of these financial services and technology innovations that have the potential to put human advisors to the test, their role and importance in helping investors navigate complexity and meet their goals have only increased in demand. Advisors have proven time and time again that they can adapt to these structural changes quite nicely. In fact, advisors have been able to respond to these changes by engineering new models that take advantage of commission and technology disruption.

While some studies show that the number of financial advisors is expected to stay flat or grow moderately over the next five years, growth in assets managed by advisors shows that the industry is alive and well. The “Registered Investment Advisor (RIA) Benchmarking Study” from Charles Schwab shows that assets under management have increased steadily, with a five-year compound annual growth rate (CAGR) of 7.4% from 2014 to 2018.

Advisors’ Ability to Adapt and Thrive

Advisors should still take note of the change around them and understand how it could force them to once again prove their ability to adapt and thrive. Each year, the fintech drums only beat louder. This has played out not just in the media, but with investment dollars.  Global investments in financial technology ventures amounted to $137.5 billion, in 2019, according to KPMG Pulse. Statista notes that nearly $470 billion has gone into fintech ventures since 2010, worldwide.2

This surge in fintech industry investment may have something to do with the rise of robo-advisors. Global assets under management (AUM) by robo-advisors were nearly $1.1 trillion in 2020, and they’re expected to grow at an annual rate of 25.6%, according to a report from Statista. 3

The Impact of Artificial Intelligence (AI)

While the robo-advisor craze is well documented, the proliferation of artificial intelligence (AI) tools hitting the wealth management landscape has made a dramatic entrance into the financial trade press. While it might be early, AI’s role in financial advice is an area to watch. The launch of the predictive analytics tool from Salesforce, Einstein, gives the industry reason to consider the role of AI in supporting advisors with where to focus or automating tasks.4 The same is true with IBM Watson’s partnership with H&R Block.5

From my standpoint as an advisor fintech leader, the rapid and ongoing innovations in technology are exciting. For advisors, the more exciting innovations are about providing scale and removing behind-the-scenes work to prep for conversations with clients. Many advancements support the advisor-client relationship directly. High-net-worth investors, the sweet spot for most registered investment advisors (RIAs), are interested in digital financial advice of some sort and benefit from new developments.

According to a McKinsey & Company report from June 2015, 40% to 45% of affluent consumers who changed their primary wealth management firm in the previous two years moved to a digitally-led firm. What’s more, a full 72% of investors under the age of 40 said they would be comfortable working with a virtual financial advisor.6

What Fintech Means for Advisors

What does it all mean for advisors? First, it’s clear that investors expect digital tools as part of their relationship with their financial advisor. They enjoy online collaboration and digital tools in other parts of their lives, so why shouldn’t they when it comes to managing their wealth?

With Betterment and other firms advertising in mainstream media, investors are exposed to modern, understandable, and easy-to-use tools that display performance. While user design has been commonplace in consumer packaged goods firms for years, it has only more recently become a sought-after skill in the financial services industry. As an example, BBVA purchased Spring Studio, a San Francisco user experience design firm, in 2015 to accelerate the firm’s efforts to become a leading digital bank through great design and technology.7

Second, advisors need to ensure they are communicating with clients in new and different ways. Not all clients have time to come into the office. Clients who are still working usually expect interactions with their advisors to be efficient and direct. They also expect to be able to review information on their own at any time through a client portal and use online collaboration tools to check in with their advisor. This on-demand access provides an ultimate level of transparency. 

Third, there’s the question of value—more specifically, clients understanding the value that their advisors deliver. Many advisors offer much more than investment allocation and portfolio construction, but it’s not clear whether investors understand all the “extra” support they are getting. 

What Fintech Means for Clients

Most millennials say they would take financial advice from Meta (formerly Facebook), Amazon, or Google, if given the opportunity, according to the February 2017 “Tiburon CEO Summit XXXI Content Survey.”8 We could discount that since most millennials aren’t facing the complexity in their financial lives as their baby boomer parents are experiencing. However, it creates yet another reason why advisors need to continue to grow their trusted relationships. After all, we know that trust and communication are huge factors in why investors select or leave an advisor. 

If delivered well, clients may benefit in many ways from fintech. In addition to digital experience and transparency, new competition is driving costs down, and digital tools are removing overhead and certain manual processes for advisors. Case in point: Charles Schwab Corp. announced its robo+advisor offering, Schwab Intelligent Advisory, at 28 basis points, or $3,600 maximum, per year. The offering targets mass affluent investors with a minimum of $25,000 to invest, but it still sends a message to the industry that costs matter.9 In addition, 53% of millennials said they would find a new financial advisor if their advisor wasn’t using technology, according to a Fidelity Investments Benchmarking Study.10

The Bottom Line

My advice to advisors is to grab on to technology that helps you be more efficient and get closer to clients. After all, technology, when used well, can help you with the seemingly daunting challenges facing all advisors today—running an efficient and profitable business, demonstrating your value, and leveraging tools for growth. Darwin’s advice remains sound.

This article was written by Dave Welling, CEO of Mercer Advisors and former managing director and co-general manager of SS&C Advent.


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