What is Fintech's role in wealth management?

Published on 23 Apr 2021

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)?

Technology is transforming how businesses in all industries function. One of the biggest industries impacted by technology developments in the past 5 years is financial services. When technology is used to automate, improve or simplify the delivery of financial services to consumers it is referred to as fintech. Fintech is a portmanteau of the term financial technology. Fintech can be implemented to help businesses, business owners, or consumers. The technology makes it easier for these stakeholders to manage their financial interests, processes, and operations. The technology is delivered in the form of software, application, tools, and algorithms that may be utilized via a computer or smartphone. When this type of technology first emerged the focus was primarily on improving and automating the back-end systems at financial institutions. However, over the past few years, the focus has shifted to more customer-oriented services. The development and use of crypto-currencies are also part of fintech. These technologies now impact various areas of the financial section, including but not limited to:

  1. Education
  2. Retail Banking
  3. Investment Management
  4. Fundraising, etc

What is wealth management?

Walth management is a type of investment advisory service. It is the most comprehensive financial planning service. Wealth management is generally best suited for very affluent clients that have a large portfolio. This type of service includes but is not limited to:

  1. Tax guidance
  2. Estate planning
  3. Legal advice
  4. Investment advice
  5. Financial advice, etc

Wealth management is considered to be a more advanced service than portfolio management. In this type of service the financial planner will give their client advice and guidance on their complete financial situation, from planning and managing their estate to retirement planning. On the other hand portfolio management is limited to investment strategy. The goal of portfolio management is to select the right investments, minimize Irish and give the client the highest returns. It generally does not cover other types of planning services. In the context of fintech the term wealth management is used more freely and may be used to refer to any technology that helps with financial planning, either consumer focused or to benefit financial institutions.

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]