The rise of wealthtech
Retail investors now have a plethora of new technology tools at their disposal, thanks to wealthtech.
Wealthtech describes a new breed of financial technology companies, which are creating digital solutions that are slowly transforming the investment management industry. This includes both end investors and the firms that service them. It encompasses a range of different operations and channels, from business-to-consumer (B2C) robo-advisors and micro-investing platforms, to business-to-business (B2B) technology providers that offer software for brokerages, wealth managers, and advisors.
Robo-advisors are a significant breakthrough for retail investors looking for inexpensive advice. These platforms leverage technology to create economies of scale that make advice more accessible and less costly, lowering account minimums and advisory fees. This has democratised access to wealth management, enabling those who could not otherwise afford a financial advisor to benefit from tried and tested, institutional-grade, wealth management techniques.
These platforms tend to use standardised questionnaires to bucket clients into a spectrum of age, income, risk profiles and yield targets; they can also offer 24×7 automated support, tax-advantageous rebalancing and in some cases, access to advisors. Although it must be said that few match the regulatory definition of “advice”, and full automation remains a long way off, these platforms nevertheless have discretionary control over investor funds.
B2C robo-advisors such as Wealthfront in the US and Scalable Capital in Europe, have captured a lot of headlines – and funding – in recent years, as investors seek to gain exposure to the opportunities afforded by the automation of investment management.
There are also some outfits seeking to build diversified crossover models that target both consumers and the firms that already serve them. Betterment does this by offering a typical robo solution for retail investors whilst also providing a white-label solution for firms seeking to provide automated investing to their customers.
Oft-overlooked robo-retirement platforms help people plan and manage their retirement finances. Blooom automates retirement advisory services for individuals, whilst ForUsAll provides automated retirement savings plans to SMEs and supports integration with in-house HR platforms. NextCapital Group is another name in this space, offering a retirement savings platform for investors alongside an open-architecture platform that can be integrated with external investment management firms. It offers personalized planning and managed accounts alongside complimentary non-discretionary investment planning.
Wealthtech doesn’t stop at robo-advisors. Micro-investing is another exciting area, one that’s changing the way retail investors save and plan for the future. These platforms flip traditional investment practices to disrupt the traditional approach to saving by increasing the frequency of investments and significantly lowering contribution minimums, thereby helping customers to accumulate wealth when they might otherwise have spent it.
In order to make this a sustainable business in lieu of transaction and management fees, micro-investing platforms operate a subscription model. Stash is a goal-based digital investment platform that lets investors contribute as little as $5, and Acorns rounds up card purchases to the nearest dollar and invests the spare change.
Digital brokerage is another wealthtech category that’s growing strongly and taking market share from traditional players, thanks in part to the huge interest surrounding cryptocurrencies and other digital assets.
Robinhood is the big beast of the sector, and Freetrade are making inroads in the UK. These platforms are disrupting the traditional brokerage business and driving down fees, which could leads to broader structural changes in the sector as time goes by.
eToro is a great example of a brokerage that has leveraged technology to provide investors with a clear alternative to traditional brokerages. Through its innovative use of social media features, the platform allows SDIs to “copy” trades being executed by professional investors. It has recently expanded it’s crypto credentials too, drawing in retail investors who are keen to access this exciting yet opaque and risky asset classes via an accredited brokerage. On the B2B side, BlockEx is building an exchange where issuers can manage the entire lifecycle of blockchain based digital assets, including origination, issuance, exchange, settlement and redemption.
The role of actionable content
The way that retail investors behave is changing. They no longer passively wait for calls from brokers and advisors. They actively search for opportunities and compare prices. The source input from robo-advisors and save using micro-investing platforms. Clients are more empowered, educated and independent. They are driven by themes and narratives, so content is becoming a key weapon in the battle to engage and monetise advised and self-directed investors. Content is a crucial piece of the retail investing landscape and one that is set to play a pivotal role in the development of the sector moving forward.
This content needs to be actionable. The proliferation of exchange-traded funds (ETFs) provides cost-efficient and flexible exposure to a huge number of asset classes and market views. Linking content to product is a powerful way to promote action and drive revenue. This is something that’s traditionally been very difficult to achieve and as a result, badly executed.
Not any more. Artificial intelligence (AI) and machine learning (ML) are revolutionising this space. This is an exciting new frontier for wealthtech.
By Vinit Sahni, co-CEO and founder, and Townsend Lansing, CCO, Arkera