What is Fintech's role in wealth management?

In the year 2018, 38% of personal loans in the United States were granted by Fintechs[1]. The global fintech market is expected to grow to USD 308.9 billion by 2022[2]. Some of the biggest fundraising and VC deals for the past two years have been for fintech companies. It is clear that the industry is going to see tremendous growth over the coming decade. One area that fintech companies will have a significant impact on is wealth and asset management. Before we learn more about the impact of technology on this area let's look at these two components separately: fintech and wealth management.

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What is fintech (financial technology)?

Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of "financial technology".

When fintech emerged in the 21st Century, the term was initially applied to the technology employed at the back-end systems of established financial institutions. ​Since then, however, there has been a shift to more consumer-oriented services and therefore a more consumer-oriented definition. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management to name a few.

Fintech also includes the development and use of crypto-currencies such as bitcoin. While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multi-trillion-dollar market capitalization.

What is wealth management?

Wealth management is the highest level of financial planning services. Wealth management generally includes comprehensive investment management alongside financial advice, tax guidance, estate planning, and even legal assistance. The type of service offered by a wealth management firm is best suited to affluent clients. But while you may not require wealth management now, your needs are likely to change over time. At some point, it may be time to look into wealth management. Wealth management offers more complete financial planning than portfolio management. It includes comprehensive guidance on a client's financial situation, including investment management, estate and tax planning, accounting, retirement planning, and even legal guidance in some cases. Portfolio management refers to a service or person who crafts an investing strategy on behalf of a client. Portfolio management involves picking investments that minimize risk and maximize returns but typically does not include other financial planning services.

The role of fintech and wealth management

Comprehensive financial advice

Fintech firms will move further to consolidate their services with a more holistic approach. So far, wealth management firms have focused on either liabilities or assets. But with the democratization of services, fintech has brought in small investors. This has led to a higher demand for holistic services that include wealth management, diversification of assets, tracking financial goals, ensuring better returns on investments, and managing liabilities.

Artificial intelligence for automation

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.
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.

Examples of fintech wealth management startups

1. Cred

Cred is a B2B platform that, thanks to AI, is changing the way financial institutions acquire and engage clients in the investment advisory industry. It is also a Barclays-backed company operating in Europe and in the U.S. and is a recent graduate of the Plug and Play Fintech program in Frankfurt.

2. Responsive.ai

Responsive enables enterprise research terms with tools for understanding client diversity and events that drive revenue and loyalty. They provide a cognitive assist to frontline advisors that keeps focus on actions that grow and defend assets. Responsive is calibrated to evolve wealth team performance at scale by exploiting client analytics, and the hybrid wealth advisor service model.

3. Bambu

Bambu is a company founded in 2016. They provide their own robo-advisor technology, that aims to transform digital wealth globally. The companies white label robo, offers investors a natural experience in finding the right investment strategy for their clients' needs. Instead of a traditional single risk profile portfolio, the white label creates personalized portfolios for each of your life goals. Bambu also offers a dashboard that improves the efficiency of relationship managers within the banks by creating talking points for their clients. The platform processes various live and past data to offer a unified view of the market and house view.

4. Sarwa

This Dubai-based fintech combines innovative technology and human advice to make expert investing “available for everyone.” The platform’s algorithms and human advisors help Sarwa’s clients open an account in minutes via facial recognition, track their goals via an intuitive dashboard, and rebalance their portfolios when the market causes their investments to drift from their target.

5. Handcheque

This Vienna-based company wants to make payments easier and more convenient. With that in mind, they have developed a smartcard that enables customers to store all their payments and loyalty cards on one certified Mastercard card, that has the same dimensions as any other card.

6. AdviceRobo

This European startup was founded by Diederick van Thiel and Rosali Steenkamer in 2013. They developed software for predictive risk services and technology to increase acceptance rates for credit applications whilst keeping the risk level the same. Artificial Intelligence is the secret weapon powering their solutions. They have an AI-based platform that combines data from structured and unstructured sources.

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1. Jan 2021, "Share of personal loans granted in the United States from 2013 to 2018, by source", Statista [available online] available form: https://www.statista.com/statistics/935629/distribution-personal-loans-by-source-usa/ [accessed Apr 2021]

2. Aug 2020, "Key FinTech Statistics 2020-2021: Market Share & Data Analysis", Techtic [avialable online] available from: https://www.techtic.com/blog/fintech-statistics-2020/ [accessed Apr 2021]