Since the term “wealth management” came about, high-value individuals have sought advisors to grow, protect, and pass down their wealth. These advisors take control of their clients’ finances — from taxes to investing to estate planning — in decadeslong relationships.
Fintech wealth management — that is, the integration of technology to improve and automate aspects of wealth management — has disrupted this old-school industry. Customers now seek out alternative, often more affordable wealth management options. But wealth advisors can stay on top of these trends by learning about and integrating them into their business.
Table of contents:
- A brief history of wealth management
- The rise of fintech
- Fintech innovation in wealth management
- How financial advisors can use fintech
A Brief History of Wealth Management
In the early 1900s, financial institutions such as Morgan Stanley popularized the term wealth management to separate their standard customers from their high net worth ones. At first, wealth advisors only built portfolios consisting of individual stocks and bonds.
But the introduction of index funds by the American National Bank and Wells Fargo in 1973 spurred an evolution in portfolio management and asset allocation. Wealth managers now dealt with several different investment options, combining risk and wealth management.
With the rise of digital stock trading in the 1980s, wealth managers began serving a larger web of less affluent clientele. When robo-advisors and investing apps appeared in the 2000s, people of all backgrounds started to invest their money — with and without individual wealth managers — as financial planning became more accessible.
The Rise of Fintech
Fintech refers to any technology that improves, automates, or changes traditional financial services. Thanks to a series of startup launches beginning in the 2000s, analysts now expect the industry to grow sixfold from $245B to $1.5T by 2030.
Fintech includes technological advances in financial services, like:
- Digital stock exchanges
- Online banking
- Peer-to-peer payments
- Mobile investing
Over time, these advances significantly impacted traditional wealth management. Advisors could leverage technology to better serve their clients; however, customers could also seek alternative options, like robo-advisors, to manage their wealth for a lower fee.
Fintech Innovation in Wealth Management
Fintech has altered the kinds of services consumers expect from financial institutions, and the data demonstrates these changes:
- 47% of millennials plan to work with wealth managers who use digital tools
- 78% of Americans prefer banking via a mobile app or website
- 82% of Americans made digital payments in 2021
- 8% of Americans have an entirely online bank account
These statistics demonstrate consumers’ growing comfort with new technology when it comes to managing their finances, especially among younger generations.
Many have opted to ditch traditional wealth management in favor of digital native tools, such as robo-advisors and online trading platforms. Over 60% of millennials get all of their financial advice online, with just 21% using a professional financial advisor.
Most financial advisors tackle not only financial management, but complications caused by taxes, laws, and accounting. As these services can be costly, they are often limited to wealthy individuals.
Robo-advisors leverage AI-driven tools to automate portfolio development and investing. They cost significantly less while providing many of the same services as their human counterparts. Although they primarily serve everyday investors, the increasing popularity of robo-advisors has pressured traditional financial advisors to use similar algorithms when constructing portfolios.
How Financial Advisors Can Use Fintech
Fintech does not necessarily signal the end of wealth management, but it does present challenges. As millennials grow their wealth, they bring new expectations to wealth management. This includes greater use of technology, such as algorithms, digital platforms, and more.
Fintech represents a chance for wealth managers to better integrate technology into their current offerings. Though millennials tend to seek out financial advice online, five in 10 still find working with a professional necessary to mitigate risk and prepare for retirement.
Greater Adoption of Digital Tools
Pandemic shutdowns made direct contact with wealth managers impossible, leading many to seek digital tools to invest and grow their wealth. Though in-person activities have resumed, the shift to digitization has continued.
According to EY, 51% of wealth management clients plan to use digital tools more often in the future — a figure higher among millennials (78%).
This means wealth management firms must integrate more digital tools into their processes, such as:
- Business intelligence and data analytics
- Customer relationship management (CRM) software
- Digital onboarding for customers
Taking a hybrid approach to wealth management enables advisors to stay competitive as younger, digital-forward generations grow and inherit wealth.
Meeting Clients’ Changing Communication Needs
The days of meeting clients exclusively in person have ended. One in two clients will communicate with their financial advisors virtually — with millennials 2x as comfortable to receive advice virtually compared to baby boomers, per EY.
Wealth management firms must meet their clients’ communication needs — so when onboarding customers, wealth managers should ask about communication preferences, which might include:
- Receiving advice exclusively via conference calls or instant messaging
- Saving in-person meetings for important chats
- Only meeting in person
Leveraging the Power of Robo-Advisors
As the name suggests, robo-advisors provide automated financial guidance using artificial intelligence (AI) and machine learning (ML). Users provide their financial goals and current situation to robo-advisors, who then use that information to automatically invest for users using extensive data and algorithms.
Analysts expect assets currently managed by robo-advisors to grow at a compound annual growth rate (CAGR) of 14% between 2023 and 2027 to $5T. At that point, an estimated 234m users will leverage robo-advisors for wealth management.
Users of robo-advisors typically represent a younger demographic. One automatic investment platform, Wealthfront, reports that ~90% of their 470k users are under 40 years old.
Financial advisors can also leverage robo-advisors in their work. Deloitte characterizes this model as “Hybrid-Robo-Advice,” in which wealth managers use robo-advisors for asset allocation and portfolio rebalancing to improve the quality of their services. Robo-advisors automate these time-consuming activities, giving financial advisors more time to speak with their clients about long-term planning.
Integration of Artificial Intelligence and Machine Learning
In wealth management, AI and ML have the power to cut overhead costs, increase client satisfaction, and improve compliance.
Compliance typically involves staying up to date with financial regulations, requiring a team to carefully read through requirements to ensure compliance.
AI can be used to easily sift through regulations and provide a summary to teams, reducing the risk of a firm getting fined for non-compliance and the time needed to understand new regulations.
Advisors can also leverage generative AI to quickly produce text and graphic copy, especially if they operate independently or in a smaller firm — after all, not every wealth advisor has the capabilities or budget of a major bank.
For example, you could expedite the writing process for email marketing, or create graphics for advertising with simple instructions.
AI also provides advisors with the ability to expand their digital footprint, like by leveraging no-code tools to build apps, websites, and more. Some examples: