WealthTech – Changing the Investment Landscape
New technology is transforming the way we manage wealth. What has become known as “wealthtech” now permeates consumer wealth management (through robo-advisors and micro investing platforms) as well as institutional wealth management (through brokerage and advisory software). Digital investment solutions represent the future, offering what Forbes touts as a method for delivering superior products at a better price.
Automated Advisors Take Center Stage
The robo-adviser segment is growing rapidly. Investment software allows robo-advisers to reach out to investors to advise on money management, offering low account minimums and affordable advisory fees. CBI Insights reports that in a context where only 41 percent of workers contribute to a 401(k), robo-retirement platforms have lowered costs and attracted a new kind of investor. Robo-advisory platforms focus on 401(k), 403(b) and other pension account segments.
This bridges the gap left by many small employers who can’t afford to offer a 401(k), leaving roughly one in five employees without access this important retirement investment vehicle. Through many of the same principles that led to the disruptive success of index funds, robo-retirement can provide access to wealth management for millions of people previously left out, and at scale.
Micro-investing as a New Investment Strategy
Micro-investing is an exciting new development that is gaining a lot of attention. With investments of as little as five dollars, people who never considered investing before are now viewing it as feasible. Investors can now chip in small amounts of money to build a nest egg for retirement. One popular investment model rounds the change on regular purchases up to the nearest dollar, investing a few cents at a time as a low-impact technique for accumulating and growing savings.
Because micro-investing reduces investment minimums removes the issue of transaction fees, the technology has made it possible for investors to gain experience at a much earlier age. They encounter the joys and frustrations of investing while risking a smaller pool of cash, helping them gain the first-hand experience to manage their risk profile more responsibly at a later stage.
Wealthtech and Blockchain Technology
Wealth managers are using blockchain technology to offer valuable applications that can be used by all industries. Blockchain technology can reduce the burden to verify transactions such as rollovers and estates, permitting such transactions to take place in close to real time. It can also help to store encrypted client profit data ‘out in the open’ to be decrypted only when permission is provided.
Let’s take the client onboarding process as one example. Financial institutions may need to verify identity, residency, sources of wealth, occupation and so on. With an integrated blockchain system, the user could theoretically release their information in a simple and secure way, facilitating approvals, risk profiling and safeguards against money laundering.
With blockchain technology integrated, there is also the possibility for fractionalized interests in quirkier asset classes like equity in homes which could then become tradable assets and give the average person entry to a unique class of property investment opportunities they had not had before.
Companies are still cautious. In its 2016 Capital Markets Roundtable, Ernest & Young conducted a survey of companies about the requisites for broad adoption of blockchain. Surprisingly, security was only the fourth-ranked concern. The leading three considerations were interoperability with legacy systems, technology standards, and the ability to handle volume and resiliency.
Artificial Intelligence and WealthTech
Wealth managers will soon be able to guide customers on the financial decisions that are most appropriate to meet their financial goals based on a synthesis of artificial intelligence (AI) and contextual data. With the use of Artificial Intelligence, operational costs will decrease dramatically, with emerging business models and modern technologies serving to streamline onboarding processes, operations, and client communication. AI also assists wealth managers to make more rational and smarter decisions based on machine learning analyses of portfolio allocations and investor trading behavior.
Like so many other industries, the investment industry is also going through some radical changes consistent with evolving technologies. Specifically, in the retirement investment arena, new ways of investing that appeal to a larger segment of the population have gained support.
What was once a sophisticated and somewhat intimidating investment world has evolved to attract both newcomers to wealth management and the corporate vanguards of the industry. That is good news for the investment community – especially for investors in the wealthtech space.
—Adam Jiwan, serial fintech entrepreneur