FinTech’s impact on traditional wealth management

Engaging with customers via a digital platform offers many benefits, exemplified by the rise and visibility of online brokers such as Robinhood, which have stated goals of democratizing financial services and providing access to non-traditional investment opportunities without costly fees. The app’s frenzy-like popularity is just one example of the shift in demand towards a fast and efficient digital interface.

When we observe today’s market, it is quite clear that the technical expertise of a single human advisor no longer justifies the high price tag. The average fee at a full-service brokerage is $150 per transaction, while for most online brokers the fee is non-existent.t While such firms offer a premium price for research, education and advice, the market has shown that today’s rewired investor wants to retain control, do things yourself, while tapping into multiple sources of advice instead of just one. Zero transaction fees, zero minimum requirements, sophisticated cloud-based algorithmic trading and user-friendly interface are more attractive to the growing clientele. In the coming decade, the demographic changes of an aging advisor population and mass transfer of wealth from baby boomers to younger generations will require major operational changes for established firms to remain relevant. Today’s clientele like to dedicate their resources to receiving financial advice from more than one source, including from a “robot” or computer algorithm.

Robo-advisors

Robo-advisors operate with little reliance on human interaction between client and advisor. They deliver sophisticated financial advice using artificial intelligence and machine learning to understand and predict investor preferences based on psychographic and demographic questions. The total valuation of robo-advisors was approximately $4.51 billion in 2019 and expected to grow more than 9x by 2027, demonstrating the increased willingness and confidence of clients to use innovative advisory models.

Robo-advice companies like Betterment have entered the market with low fees and the ability for clients to choose different investment portfolios to meet their individual goals. These Fintech companies allow users to choose from multiple portfolio strategies that align with their individual interests, including innovative technology, social and climate impact portfolios. In addition, companies such as Betterment offer tax management services and emergency fund portfolios for their clients on demand. The everyday investor is able to invest their money strategically, without the need for a minimum balance like traditional wealth management firms. A range of services expands the target market and increases the user base. These tailored yet democratized investments are effective because they offer personalized services that today’s customers expect, but on a much larger scale. This results in a highly profitable business model that provides more operational efficiency than the traditional Wealth Management model.

Mobile money management

Currently, only 17% of Americans claim to use a financial advisor, according to a CNBC and acorns Invest in your savings survey. In this same survey, 75%, across all age groups of Americans, admit to managing their finances entirely on their own (see Figure 4).