WealthTech: Technologies in the Wealth Management Sector

What is WealthTech?

WealthTech or wealth management technology refers to the convergence of technology such as AI, big data, SaaS, and financial assets, such as savings, investments, and patrimony, to create a digital ecosystem of finances.

WealthTech changes how individuals and companies manage their finances. It incorporates a set of technologies to automate and increase the efficiency of the processes associated with wealth management and investments. Currently, India has approximately 4 Mn WealthTech investors (FY20), who are expected to grow by 3x to reach approx. 12 Mn by FY25.

The term WealthTech was coined in the early 21st century – referring to the technologies that help personal and professional institutions manage finances. Today, the focus of these technologies has shifted towards improving consumer services. WealthTech has had a massive effect on today’s businesses, allowing people to manage their wealth in a way that traditional financial institutions do not offer.

With the recent advancements in big data, machine learning, artificial intelligence, software programs can now offer users personalized advice on wealth management.

wealthtech - wealth management technologies

The WealthTech ecosystem

It incorporates technology for both investment management professionals as well as individual end-users. WealthTech companies focusing on B2B provide their services to banks and independent consultants, allowing them to scale their businesses. For example, Motif Advisor allows registered investment advisors or RIAs to create, monitor, and rebalance their customer’s portfolios as per the needs of customers. The idea is to assist professionals, and not replace them.

Similarly, VestmarkONE Robo Solution is a digital advisor that helps with ETF advisory and mutual funds by providing enhanced advisor-investor interactions.

B2C WealthTech companies provide portfolio management tools for the standard user. Wealthsimple, a Canadian company, for instance, offers automated investments for individuals. Similarly, Folio Investing allows online investors to make money on ETFs, mutual funds, and stocks.

Thus, financial services that were previously unavailable are now reshaping the wealth management sector. The WealthTech ecosystem consists of various types of services. These are as follows:

Online Marketplaces

Marketplaces are online platforms that aggregate information on different types of investment funds and assets. Marketplaces allow investors to compare products and make decisions accordingly.

Investment Tools

WealthTech companies provide a suite of digital tools. These tools include software programs to monitor portfolios, manage investment planning, and automation software for investing. Many software products also employ artificial intelligence to do the heavy lifting for the investor.

Portfolio Management Tools

Portfolio management tools allow investors and financial advisors to manage all their investment portfolios from a single location. Companies such as Eigencat provides multi-asset class portfolio analysis platform for wealth managers.

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Compliance management

Along with WealthTech, a rapidly developing area in finance is RegTech. RegTech applies technological solutions for regulatory control. WealthTech and RegTech work together to ensure that all financial activities abide by the regulatory compliances.

Robo Advisors

Robo advisors are digital tools that often use machine learning-based methods to perform operations for the user or the client. They can automatically invest across different types of instruments depending on how the user has configured the software. The goal of such software is to allow investors make smart investment decision in a short time.

Robo-Retirement

Robo-retirement platforms are an extension of Robo-advisor platforms. Here, the platforms employ algorithms to manage a client’s retirement plan. The Robo-retirement platform helps the client create a retirement portfolio. It allocates and manages different assets using artificial intelligence and machine learning algorithms.

Quant advisors

Quant advisors are also an extension of Robo advisors. These systems actively use artificial intelligence to manage investment strategies.

Financial advisors

These companies specialize in offering financial advice over the internet based on extensive data analytics. Big data applications, as well as artificial intelligence-based decision-making, allow companies to provide accurate financial advice. However, these companies do not carry out any operations on behalf of the user.

Trading platforms

Trading platforms are for users of all expertise levels. These modern trading platforms make it easy to trade and even provide additional functionalities such as advisory services.

Algorithmic trading

Algorithmic trading enhances existing trading software by automating real-time trading. Users can extensively configure these software services according to their requirements.

Social trading

Social trading allows investors to share their trading experience. It merges the concept of trading platforms along with that of social media. Here, traders can replicate the investment models of other traders who have shared their opinions. Thus, novice traders can now learn from more experienced traders.

Micro investing

An increasingly popular trend in WealthTech is micro-investing. It allows investing through microcredits or small investments. With this, people who are not into investing can get started with micro-investing.

Analytics and Big Data services

WealthTech companies can provide specialized analytics services for B2B clients. Earlier, because of insufficient and unstructured data, financial services lacked reliable insights and relied on manual analysis for suggesting investments. However, with analytics and big-data services, investment decisions have become much simpler.

B2B software services

A large section of WealthTech startups works with investment firms. They build disruptive software that assists professionals in investment, saving, wealth, and trade-related sectors. They also provide technical support to these firms.

Future technologies in WealthTech

WealthTech has evolved a lot from the simple predictive analysis. Firms are now using data from various sources, including client behavior, to improve their services. Here are some of the technologies that can disrupt the wealth management sector soon.

Extensive adoption of cloud technologies.

Cloud computing has always been an enabler of wealth technologies. Almost all WealthTech platforms are internet-enabled cloud-hosted services. Moreover, with the changing global regulatory environment, cloud-based services make it easier to maintain the platforms. Presently, wealth management firms are trying to make their services available via mobile apps to increase engagement at an individual level.

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Introduction of Quantum Computing

Quantum computing, even though at a nascent stage, will help model complex business situations in the future. We have now solved most of the critical roadblocks with quantum computers, and such computers may be commercially available by 2025 (Source: Financial Times). At present, the mathematical models used for analysis often make overly simplistic assumptions. However, quantum computers will help the wealth management sector overcome challenges associated with financial research. This progress will directly affect WealthTech and FinTech platforms.

Technologies for social impact

Social impact is an emerging trend in wealth management. With the rise of social media, multi-channel service delivery is becoming increasingly important. The future of a business will depend on how the younger generation adopts them.

The new generation of investors is now more concerned with the social and philanthropic impact of their investments. It also means opting out of companies whose business practices hurt society and the environment. However, simply digitization will not help. WealthTech firms will also need to track the impact of these social investments.

Use of automated advisors

As mentioned before, Robo-advisors have become quite popular in the wealth management sector. US-based services such as Wealthfront and Invest.com allow investment management with a minimal fee. However, this technology is still at a very early stage, and people usually opt for professional financial advisors. However, a lot of firms still use Robo-advisors for their ease of use.

Integrating blockchain in WealthTech

Investment and property management companies around the world are extensively researching the viability of blockchain technologies. Blockchain can not only assist in asset management but can also create multiple new classes of assets.

WealthTech market opportunities in India

With the rising adoption of digital platforms in India and a growing base of investors, the Indian WealthTech market has an opportunity to boom in the next few years. The projected growth is three times, rising to 63 billion USD by FY2025 from 20 billion USD in FY2020.

However, the Indian population is quite averse to investing in stocks. Only two percent of Indians engage in stock trading, whereas fifty-five percent of Americans invest in stocks. It shows a significant gap in investment attitudes between developing and developed economies. But it also indicates a place for growth.

Over the last few years, there has been substantial growth in the number of Demat accounts, Mutual fund folios, and Indian Equity Markets. WealthTech has also seen increased adoption due to end-to-end digitization of processes. The ease of access that these digital platforms provide allows almost anyone to get started with investing.

COVID-19 made a detrimental impact during March 2020. However, the Indian stock market has been on the road to recovery since then. The BSE Sensex and Nifty-50 bounced back to pre-pandemic levels by October 2020.

WealthTech has been generating a lot of interest over the last few years. The adoption rate has been more amongst the younger crowd. Seventy percent of the userbase right now is millennials. Moreover, India also has a decent investment in WealthTech. The increased adoption of digital platforms in Tier 2 cities will further accelerate the growth of this sector.

Besides, the pandemic has also been a boon for new investors. The economic crisis has allowed a lot of people to get positive feedback out of investing.

Wrap Up

Increase adoption of digital platforms has accelerated WealthTech globally, as well as in India. Before Covid, India saw multiple WealthTech startups focused on retail investors only. But digitization will allow these startups to expand their portfolio. For instance, SEBI allowed investments up to 714 USD per financial year via digital wallets. It also became the 4th largest funded sector of Fintech.

After the initial economic crisis from the pandemic, the market also recovered quickly. At present, the WealthTech segment has an opportunity to grow immensely, with mostly equities driving 70% of this market and mutual funds driving the remaining 30%.

If you are looking for a digital solution to manage your customer relations, check out LeadSquared products for financial services. You can also reach out to us at sales@leadsquared.com for your specific requirements.

Nidhi Agarwal

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