Wealthtech

Wealthtech refers to the utilization of technology, for example, big data and artificial intelligence(AI), to offer an alternative to conventional wealth management firms. This subdivision of fintech aims to make wealth management and investment services more automated and efficient.

The convergence of wealth and technology changes how companies and individuals manage their finances. It integrates a number of technologies to automate and improve the efficiency of every process associated with investments and wealth management. This makes one’s life easier and enables individuals to generate higher profits. Some wealthtech solutions and services include micro-investing, robo-advisors, and digital brokers.

• Wealthtech refers to providing digital solutions that facilitate the wealth management process. It is fintech’s subset, and its objective is to automate investment and wealth management services besides improving their efficiency.
• The wide range of solutions under this umbrella term includes robo-advisors, social trading, robo retirement, quant advisors, and micro investing.
• A key difference between this concept and fintech is that the latter involves catering to a diverse client base. The target audience in the case of fintech organizations is not predominantly limited to individuals and wealth management firms.

Wealthtech refers to the delivery of an extensive range of financial services for wealth management via digital means. This technology improves investors’ decision-making and enables people to manage their finances efficiently in a manner that is different from how conventional financial institutions work. Because of the advancements in software as a service (SaaS), big data, AI, machine learning, etc., software programs can now provide personalized advice concerning wealth management.

The ecosystem resulting from the convergence of financial assets and tech incorporates technology for individual end-users as well as investment management professionals. Wealthtech companies that concentrate on business-to-business (B2B) offer services to independent consultants and banks, enabling them to grow their businesses. On the other hand, business-to-consumer (B2C) wealthtech companies offer standard user portfolio management tools.

Over the last few years, there has been an increase in the popularity of this concept as wealth management has acclimatized to significant alterations. Such alterations include increased compliance requirements and regulatory responsibilities, changing customer expectations and tastes, in addition to the increased competition from the startups that are tech-savvy and continuing to transform and threaten the business model concerning investment management.

Some noteworthy wealthtech solutions and services are as follows:

• Robo-Advisors: These are digital tools often utilizing machine-learning-based techniques to carry out operations for the client or the user. Such software can automatically allocate funds to different financial instruments based on how a user configures it.
• Quant Advisors: These are extensions of robo-advisors. Such systems actively utilize AI for managing investment strategies.
• Robo Retirement: These are a version of robo-advisors and are quite popular. Robo retirement services involve creating retirement portfolios, managing assets, recommending computer system-generated plans, and providing strategies.
• Micro Investing: These solutions enable investing via small credits or microcredits. They provide a more interactive experience compared to robo-advisors.
• Social Trading: It allows investors to share their own trading experience. It combines the concept of social media with that of trading platforms. In this case, traders are able to mimic the investment models of traders who share their opinions. Hence, novice traders can learn from traders who have more experience.

This subcategory of fintech covers more solutions and services, such as the following:

• Digital brokers
• Algorithmic trading
• B2B software services
• Online marketplaces
• Portfolio management tools

Let us look at a few wealthtech examples to understand the concept better.

Example #1

Suppose Company ABC offers wealthtech solutions. One of its offerings includes an investment platform allowing users to invest small sums regularly without requiring them to pay any commission. This micro-investment solution enables Sam, a new investor, to build a large corpus over the years by making regular investments without using substantial funds. Moreover, this offering also allows him to allocate funds to securities through microcredits.

Example #2

Suppose company XYZ is an organization in the wealthtech space offering a wide range of solutions. Among them, the most popular one is the robo-advisor. Jack, who was a new investor, availed of this service. He only specified his risk appetite, and based on that, the automated service utilized machine learning algorithms to come up with an investment portfolio that was ideal for him.

The opportunities in this space are as follows:

• With the help of this concept, individuals can automate the portfolio selection process. AI-enabled tools, for example, robo-advisors and robo retirement, automate the tasks to offer one-of-a-kind experiences to investors.
• The use of technology for wealth management enables people to lean on data insights when making investment decisions.
• This concept offers investors the opportunity to get access to their portfolios in real-time.
• Solutions based on this concept, for example, make investing more accessible to low-income individuals and Generation Z.

The risks associated with such a concept are as follows:

• Wealth Transfer: Per Credit Suisse’s estimates, the transfer of wealth valued at 8.6 trillion will take place between generations. Millennials are primarily transitioning into a phase where they will have substantial investible assets mainly inherited from their parents. Wealth management firms utilizing advanced technology to offer a wide range of solutions must understand the millennials’ requirements.
• Fintech Offerings: Another challenge faced by wealth management firms is the growing competition from fintech companies. The latter offers convenience via different digitized products and services. Wealth management companies must aim to compete with the fintech companies to have more market share by offering more appealing solutions.
• Client Onboarding: Another noteworthy challenge is client onboarding. This is because of the insufficient transparency concerning prices and offerings and the lack of end-to-end solutions.

The concepts of fintech and wealthtech can confuse many people who just enter the finance world. They can easily avoid such confusion by learning their key differences. So, let us dive into their distinct characteristics.

This article has been a guide to Wealthtech and its meaning. Here, we explain its examples, comparison with fintech, and explain its opportunities and risks. You may also find some useful articles here -

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