The wealth management industry has gone through a seismic shift. The combination of technological advancements in data and analytics and changing consumer preferences has resulted in wealth management witnessing its first shake-up since robo-advisers entering the sector circa 2008.
If one analyses the sector today, a slew of wealth management firms are sprucing up their technology. From apps that help people track their spending to offering automated investment advice, there are a myriad of tools available to assist people manage their money. As wealthtech continues to evolve, it's likely that more innovative solutions will become available.
Overall, the wealthtech industry is expected to continue growing in 2023. The wealthtech solution market is expected to increase from $54.62 million in 2021 to $137.44 million in 2028, growing at a CAGR of 14.1% in the forecasted period. This growth is driven primarily by increasing demand for wealth management solutions and technologies to help people manage their wealth more efficiently.
Global consultancy firm Bain & Company released a new study predicting that customer demand for wealth management services will double over the next eight years, growing to more than $500 billion by 2030. Moreover, with total global financial wealth in 2021 reaching $250tn, 12% of UK adults are using at least one investment app as of July 2021, proving that the industry is only to get stronger.
But with inflation roaring again, will the explosion in retail investing built around bull markets take a hit? Let’s delve into what trends are shaping the industry.
ESG investing involves making investments that have a environmental, social, and governance impact. As pressure on climate change rises, financial firms are starting to focus more on ESG funds.
Of course, the ESG issue is not new for wealth managers; however, in recent years, it has moved from being a peripheral concern to a critical component of investment decision-making. Analysis from Bloomberg found that global ESG assets under management are expected to reach $53 trillion by 2025. While CNBC recently reported that money invested in ESG funds more than doubled in 2020.
There has also been an increase in regulations around ESG investments. For instance, SFDR (Sustainable Finance Disclosure Regulation) was introduced in March 2021, outlining disclosure requirements for funds and other financial products claiming to have sustainability-related characteristics and objectives.
Regulators will be scrutinising asset managers' sustainable investment disclosures as they will be forced to publish environmental impact data under a new Sustainability Disclosure Requirements regime.
In 2023, the need to invest in ESG initiatives will extend to private companies and SMEs to help wealth managers meet their new regulatory requirements and guide advisors by leveraging gamification or artificial intelligence.
Another trend enhancing tech usability is the proliferation of robo-advisors, used to manage investments, automate savings, create financial plans, provide portfolio analysis and tracking, and more to investors who need additional support, guidance, or expert knowledge.
Robo advisors powered by big data and advanced analytics are supplying new and digitalised ways to engage with clients, manage client relationships and manage risks for companies. Seemingly, collecting and manipulating all of this data can help companies to better compete in the wealthtech market.
However, seemingly lucrative, it’s unlikely that companies will shift completely to an algorithm-powered technology but rather leverage it alongside a human element i.e a human-centric design. Wealth management firms are now working to incorporate empathy into engagement and business strategy to consistently deliver on client needs.
Technology should be an enabler for businesses helping firms provide a more pedagogical and value-generating service, reducing the time and costs spent on admin while making workload easier. And the industry is moving towards a hybrid model combining a professionally managed account through the help of a robo-advisory service with financial guidance provided by human advisors.
Wealthtech companies are now making efforts to expand their customer base by offering new products and services. Investment advisory, until a few decades ago, was only available to HNWIs or ultra-HNWIs. However, the advent of technology has democratised wealthtech services, making it accessible to a larger pool of investors. For example, some companies are developing virtual wealth advisors that can provide personalised financial advice. Other companies are creating digital wallets that allow users to store and manage their wealth securely.
It’s easy to see how demographic shifts and the expansion of wealth globally are creating new customer segments. An estimated 250 million Gen Y and Z customers will have an annual income of over $100,000 by 2030.
By researching other industries, particularly the luxury goods industry, firms can easily increase product accessibility and awareness for next-generation customer segments. As the seamless personalized customer experiences offered by the likes of Amazon, Netflix and Spotify become the norm, consumers will increasingly demand the same level of convenience from their financial service providers.
No-code is designed to allow businesses to customize products, without needing to hire a team of coders. These solutions are drag-and-drop and can digitise operations with significantly fewer IT resources. With the current emphasis on digital transformation and personalisation, it’s easy to see the appeal of the technology.
According to Gartner, 70% of new apps developed by companies will use no-code or low-code technology by 2025, up from less than 25% in 2020.
It’s imperative to understand the pros and cons of using a no-code-based platform. It’s worth noting that when using no-code solutions to create new services, it’s challenging to create unique experiences as one is limited to using features offered only by the platform. Even so, it does not completely take away the need for skills associated with software development since large projects will still require development operations. Additionally, no-code solutions are not always designed to scale to meet enterprise needs. It’s challenging enough to live with data silos of legacy on-premise software and the last thing a company needs is even more silos.
While the demand for applications is growing five times faster than IT departments can deliver, the need for business agility requires IT leaders to take a step back and consider where low/no-code solutions can actually reduce the burden and deliver value to the business.
In conclusion, partnering up with wealthtech companies and services might escalate in 2023. The niche expertise of wealthtechs can form partnerships for business building – delivering to market quickly and satisfying customers with eminent user experiences – so wealth managers can be empowered to keep going - full steam ahead.
