With futurists looking to re-invent the asset management value chain and consumers demanding more client-centricity, can tomorrow's wealth management solution be led solely by tech? Digitalisation is promising a massive upgrade to long-term financial planning. What can this mean for you as an investor?
An investor usually has two broad objectives: to grow their capital and, second, to protect what they already have. But such seemingly simple goals can face some tirelessly complex hurdles. From trying to understand asset classes and keeping track of portfolio performance to changing investment buckets based on market trends, an average investor often has a lot to contend with. Combine this with increased uncertainty and the rising cost of risk, and you have a consumer who is frayed at the edges and is demanding a lot more in-the-way of client-centricity.
As per a report published by Deloitte in 2017, we are about to witness the largest wealth transfer in history over the next 40 years, with almost USD 50 trillion changing hands from one generation to another. This makes it even more essential for institutions to gear up to address a re-wired Millenials' demands. With increased globalisation, it's vital to recognise that digital transformation is no longer a choice but an imperative for sustainability. This is something wealth managers have now realised.
Risking disruption to re-invent their value-chain, wealth management is now following in the footsteps of consumer-centric organisations like Amazon, Apple and Netflix, to name a few; to empower a digitally-savvy investor, with tools and methodologies that up until now was the purview of a select few.
Just as fintech transformed financial services, Wealthtech promises a revolution in the investment management industry. It encompasses a range of different channels - from B2C robo-advisors to micro-investing platforms that allow users to regularly save small sums of money to even B2B providers that offer digital brokerages and wealth advisory. Wealthtech is attempting to create a fully operational wealth management bank 'in your pocket'.
With cutting edge technology, firms like Wealthfront, Addepar and InvestCloud are helping investors benefit from Artificial Intelligence (AI) and deep-data driven analytics to receive real-time personal financial management at a fraction of the cost.
Thanks to Machine Learning, advisory firms are infusing data and analytics to serve clients holistically by generating relevant, timely, and actionable insights for clients and advisors alike.
Embedded at the heart of Wealthtech is a behaviour-based segmentation based on risk appetite, interests, and financial goals. This brings a more intuitive experience to the investor, going beyond just recommending portfolio allocation based on risk profile or asset under management (AUM). Instead, more customised offerings are made available based on client personas and interests. With this outside-in approach, technology is bridging the chasm between business objectives and customer expectations.
But as consumer sentiment evolves, the new generation of wealth customer is looking beyond just growing their capital. With urbanised goals like sustaining a lifestyle, education planning for kids, healthcare costs of ageing parents, or even buying a new home, today's consumer needs more appropriate real-time advice than ever before. This is perhaps where traditional wealth management has sometimes fallen short of its objectives. With analyst, stock picks undermining market indexes more often than not and underdog plays making headline-worthy moves, advisors often find themselves dragging their feet when it comes to generating timely advice and meeting client goals.
For Wealthtech innovators, this is a core focus area - bringing granular level needs-based advisory, real-time, to the mass market. By integrating economic trends and even social media analytics, whose singular stand in recent times has moved markets beyond measure, this type of advice becomes more relevant than ever.
Combining this with click-of-the-button UI, Wealthtech brings in user-friendly omnichannel support to simplify investing and at the same time give control back to the investor. For instance, an investor can individualise their financial planning through goal-based bucket creation to set aside a long-term retirement corpus while having an aggressive short-term bucket for saving up for a down payment of a house. If there are changes in market sentiments in the short-term, the investor can shift money from one bucket to another. This is perhaps the most significant take back from this value-chain: more control, better individualisation and better expectation management.
Taking it a step further, a personalised dashboard gives you 24/7 access to your portfolio with the ability to compare performances across different asset classes ranging from commodities, mutual funds, energy, real estate, and even art. But where does this leave the traditional human element of financial planning advisory?
Wealth management has been a long-standing stalwart of a personal advisory model. But algorithms are slowly taking some of the more fundamental functions of human advisors. However, that doesn't entirely render the human element obsolete. On the other hand, it augments the offerings while still retaining the traditional model's personal and emotional component through a more hybrid approach.
Human advisory's significance is invaluable for clients with material assets to invest in, or even when it comes to tax planning and estate management. This is why the digitalisation of the Wealth Management space is so unique. The pairing of the human relationship with automation to create an omnichannel service makes financial planning a lot more approachable for the masses.
The paradigm shift in the wealth management landscape is occurring rapidly, and these digitalisation trends bear testament to the massive change that the wealth management space is facing. With the gamification of UI, the enormous shift in demographics now controlling wealth and the new and digitally re-wired customer at the helm, Wealthtech seeks to bring far-reaching changes to a system that up until was the purview of a select few. We, for one, are excited at the potential of this change.
Welcome to Wealth Management 2.0.