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“Our entire lives are digital today,” says Seb Dovey, a wealth management expert and board advisor to fintech platform Moneyhub, who believes that when it comes to managing wealth, we should no longer be thinking in terms of humans versus technology. “It’s not a question of either/or, but rather, a question of how,” he says.
The concept of wealthtech has gathered plenty of attention in the past few years, following the path of Monzo, Revolut and similar fintech startups. Wealthtech takes aim at the wealth management industry, attempting to attract high-net-worth individuals and the wider market. Using sophisticated algorithms and artificial intelligence, wealthtech firms hope to offer similar services to traditional wealth management companies, but at a much lower cost.
Until now, most wealth management firms have been slow to take up digital technologies, convinced that their clients’ needs can only truly be met with a personalised, bespoke service. That could be a mistake, however. A recent PwC survey found that 47 per cent of high net worth individuals (HNWI) under 45 would consider using wealthtech tools such as robo-advisers and similar systems to manage their money.
Wealthtech is increasingly hard to ignore. So, what is the state of play in this sector and how will it fit in with the wider wealth management landscape?
Investment flooding in
If money attracts money, wealthtech seems to prove the rule. Funding for wealthtech startups has surged in the past five years or so. Research by FinTech Global shows that some $2.5 billion was invested in wealthtech start-ups in the first quarter of 2019 alone – that’s more than half the $4.6 billion invested in all of 2018.
Wealthtech fits under the umbrella term ‘fintech’, but is itself something of an umbrella term. It encompasses a wide range of technologies which focus on different aspects of wealth management. These include:
Perhaps the best-known class of wealthtech, these tools provide a kind of entry-level investment platform. Users open an account online and hand over capital up front (which can be as low as a few hundred pounds). They then complete a short survey on their goals and appetite for risk and then leave an algorithm to do the rest, choosing stocks and shares for them. Examples include Wealthsimple and Wealthify, although most of the established investment firms now have their own alternatives.
“$2.5 billion was invested in wealthtech start-ups in the first quarter of 2019.”
Digital brokers essentially replace (or enhance, depending on who you ask) human brokers, providing investors with accessible information about the stock market and opportunities to consider. Digital brokerages such as eToro and RobinHood allow users to call the shots, deciding on where to invest without incurring a stockbroker’s fees.
With a focus on the mass market, micro-investment companies like Stash and Acorns allow customers to begin investing with as little as £5. For those without large sums of money at hand, these platforms aim to generate savings over time.
There are of course plenty of other start-ups jostling for position to tackle wealth management in its diverse forms – from retirement funds to portfolio management tools. Dovey points out that wealthtech companies are focusing both on the customer-facing experience (think smartphone apps for managing wealth) as well as the business back end of wealth management – using AI and clever algorithms to provide wealth managers with better information.
The next wave
“We’re really in the third wave of wealthtech,” Dovey explains. First came disruptive innovators such as Nutmeg in 2011 or eToro, first launched in 2006. Next, a slew of start-ups entered the market offering a diverse range of wealthtech tools. And today, Dovey reckons, we are seeing many of the major wealth managers begin to bring the best of this technology in-house.
We are trying to create a bionic model of wealth management,” – Richard Webb, Dolfin
This is evident at Dolfin, says Head of Technology Richard Webb. “We are trying to create a bionic model of wealth management,” he explains. This approach involves a combination of personalised, human services which HNWIs have always valued, but enhancing it with a range of technologies which make it faster and more efficient to provide this service.
Dolfin is making this possible by bringing together sophisticated IT systems which offer the best information to its advisors. This should in turn allow advisors to offer an even more personalised service to customers.
With every other aspect of modern life being managed through digital platforms, it seems almost inevitable that wealth management will go the same way. And, with a ‘bionic’ approach combining digital know-how with the human touch, HNWIs can expect to get the best of both worlds.