Are you WealthTech?
Ahead of the inaugural AltFi WealthTech Summit 2017 , on 3rd October, Risk-Save’s Daniel Tammas-Hastings takes a look at just what the term WealthTech actually means.
WealthTech has become defined as the FinTech sector that focuses on enhancing wealth management and the retail investment process. The most visible players are the robo advisors but other technologies should be included. Technology derived from wealth management firms, research tools that generate investment solutions, and platforms to support financial advisors—all fall under WealthTech.
Perhaps the best known UK player in this space is Nutmeg, a digital asset manager which now manages approximately $1bn for UK investors despite no branch network or physical presence. Newer entrants to this space include RiskSave, and Vanguard
Whilst the term robo advisor has gained traction, few digital asset management firms appreciate the label. This is as few players match the regulatory definition of ‘advice’ and not all parts of the process are automated. The term ‘semi-automated digital guiders,’ whilst more accurate, isn’t quite as snappy and has yet to catch on.
Simply having an online presence in an asset management or advisory firm doesn’t reach true ‘WealthTech’ – for us not only must the technology work and meet the needs of the business, but it must also be novel, surprising and transformative.
Traditional financial firms have put developers as a back office function separate from the front-office business line. This has been fine when technology has been considered a support role. However, for a WealthTech (or any FinTech), we question whether this back office approach is likely to yield the desired result. WealthTech seeks to replicate or enhance processes currently performed by a finance professional.
This requires developers to understand intricately how the front-line/customer needs work. This knowledge would ensure that the developers have a better grasp of customers wants. Developers will struggle to replicate a process, let alone innovate without this commercial knowledge. Some of the larger players are seeking to integrate the technology team with distinct revenue lines. Indeed Goldman Sachs is seeking – perhaps unconvincingly – to position itself as a technology player.
This, of course, brings new responsibilities to both technology teams and the multiple revenue producers, who have to commit time and effort to communicate and understand new concepts in different areas to their own expertise. This presents both a challenge and an opportunity.
The challenge will be in establishing this more integrated way of working. The opportunity, however, is access to the vast and varied knowledge base that exists in any professional organisation. If the two can be successfully combined then some real WealthTech may actually emerge.
For us the most exciting changes will be the use of AI as part of the customer experience (although more limited in the investment process.) and the relentless rise of passive. Passive investments are approximately 10 per cent of retail distribution currently – we could see this become a majority in the next decade. The main benefit of the changes in the investment ecosystem will be the continued slashing of fund management charges, but it is a struggle to give WealthTech the credit for this, with Vanguard and the rise of the ETF providers being the main catalyst.