The financial industry is undergoing a tech revolution that is changing the way people manage their finances. There is a wide range of digital solutions that facilitate banking activities, money transfers, purchase payments, and much more. Now it is time for the wealth management industry to face digitization.
With the major progress in Artificial Intelligence and Machine Learning, the wealth management industry is already harnessing the power of advanced analytics. It offers its clients more constructive and data-driven advice on how to manage their wealth assets, as well as provides more investing opportunities. In this article, you’ll discover what WealthTech is, what solutions this industry provides, and what to expect from WealthTech in the near future.
What is WealthTech?
WealthTech is a branch of FinTech that combines the wealth management industry and digital technology together, changing the way people manage their funds and assets. By implementing the latest technologies such as Artificial Intelligence (AI), Machine Learning (ML), blockchain, cloud computing, and others, FinTech developers create div erse digital WealthTech applications. These applications help their users to better protect, smartly invest their funds, effectively manage their capital, and carefully choose their retirement plans.
More and more banks and financial institutions implement the latest digital technologies in diverse verticals, including the WealthTech industry. In 2020 the demand for AI in financial analytics has significantly increased.
According to the latest research study conducted by the GlobeNewswire on WealthTech, the WealthTech Solution Market is expected to increase from $54.62 mln in 2021 to $137.44 mln in 2028, growing at a CAGR of 14.1% in the forecasted period.
Wealthtech Industry Solutions and Services
WealthTech covers a number of services aimed at enhancing how companies and individuals manage and invest their finances. Let’s have a look at the most prominent solutions.
Robo-advisors are among the most popular WealthTech features. Based on ML and algorithms they provide users with investment and personalized wealth management recommendations. The technology uses advanced analytics tools to process customer and investment market data such as user goals, income, risk prevention, and other factors to generate the best advice.
The technology is quickly spreading among FinTech users, including those who couldn’t afford to invest before. This happens because the technology significantly reduces the cost of financial advisor services, most often removing the need for human intervention in investing activities.
According to Statista, assets under management in Robo-Advisors services have reached more than $1tn in 2020 and are expected to amount to $3.13 tn by 2026, growing at a CAGR of 14.985 between 2022 to 2026.
Robo-Retirement is a type of Robo-Advisors focused on the management of users’ retirement savings. This service includes various retirement plans such as 401(k), 403(b), Individual Retirement Accounts (IRA), and Individual Saving Accounts (ISA) where the capital gains are not taxable or have reduced taxation.
Robo-Retirement advisors help individuals and SMEs to choose the most suitable retirement plan among a diverse variety of offerings and manage their savings in a more affordable and user-friendly way.
In its article, CNBC states that the first Robo-Retirement advisors emerged in around 2008 and since then they’ve grown into quite popular digital service in the US, currently managing more than $1tn of American’s wealth.
Digital brokers represent online platforms and services that provide businesses and individuals with access to stock markets. They allow investing capital in various projects and assets without the help of certified brokers. This way, the investment market becomes more accessible to a larger number of beginners. They don’t have to pay rather high trading fees to brokers, instead of relying on digital broker advice and forecasts.
Platforms for micro-investments allow users to contribute smaller amounts of money in comparison to conventional investing. An investor can start with only $100 or even less to purchase stocks, ETFs, or any other securities. This type of investing is usually offered via micro-investing apps or robo-advisors. For example, these apps can round up a user’s credit card sum to the nearest dollar and deposit the difference for investing.
Micro-investing has become especially popular among Millenials. Investopedia states that the main reasons for that are: Millennials are comfortable with using digital banking and e-trade, and they tend to be conscious consumers due to facing “a challenging economy” as they become adults. This way, micro-investing provides more opportunities to the Millennial generation, turning them into active participants in the investing market.
B2B Products and Services
WealthTech offers a more complex set of investment and portfolio management tools for the B2B sector. They can include research analysis tools, access to expert investor networks, centralized portfolio management tools, and many others. With the help of these instruments, finance-related companies can effectively automate and organize their work on investment.
WealthTech Trends for 2022
The WealthTech industry is evolving. There appear new types of assets like bitcoins, and NFTs as well as new trends, e.g. wider adoption across Europe, an increase in the number of investors, and many others. Here are the main WealthTech trends to expect in 2022.
WealthTech Gains Recognition in Europe
The development of the WealthTech industry has led to its wider expansion across the globe. Today, it’s not only North Americans who enjoy the services of WealthTech. According to the Joint European Supervisory Authority response by EBA, the US users managed $987 bn of assets with the help of robo-advisors in 2020 and the figure is expected to increase to $2.9 tn by 2025. Meanwhile, the use of robo-advisors for asset management in Europe reached EUR 140 bn ($147bn) in 2021 and the annual growth is estimated at 21% on average in the next four years.
Given this, more and more European finance-related businesses and banks contribute to the development of WealthTech technology. The most prominent examples are the acquisition of UK-based robo-advisor Nutmeg by JP Morgan Chase & Co., a multinational investment bank and financial services holding company from the US; The Berlin’s Trade Republic startup managed to raise $900 mln in a Series C round of funding, being estimated at $5.3 bln, and many others.
Wealth Managers Adopt WealthTech Digital Tools
With the progressive development of WealthTech tools, wealth managers have also started implementing them in their work. Now, managers can offer their clients a wider range of services of higher quality and a more personalized approach.
There are a number of WealthTech startups that develop instruments specifically for wealth managers. With their help, managers can better adjust to their clients’ demands, provide them with data-driven recommendations, strengthen client relationships, enhance client onboarding by performing a more detailed analysis of their wants and needs, provide in-depth reports, and much more.
Crypto and NFT as New Investment Trends
Cryptocurrencies and NFT are becoming a more popular type of wealth today. According to the Crypto.com report, the number of crypto users around the world is expected to reach 1 bln by December 2022. Meanwhile, NFT is turning into a sign of wealthy people, representing a digital asset of real-world objects, mainly art, that can be bought for a couple of million dollars.
It’s expected that the WealthTech market will start focusing more on cryptocurrency development in the near future as crypto becomes more regulated around the world.
Read more about crypto regulations and why it’s important for the development of cryptocurrency.
A new investing trend that is quickly gaining popularity is “socially responsible investing” (ESG) also known as “impact investing”. In this type of investing, investors prioritize companies that have high scores on environmental and societal responsibility scales.
A recent survey conducted by Yahoo Finance and the Harris Poll states that the global socially responsible investing assets have grown from $22,839 bln in 2016 to $35,301 bln in 2020. Meanwhile, major tech companies such as Spotify and Facebook are among the top ESG investments.
The trend of ESG investing is expected to become even more important in the near future. The same survey states that the major impact investors are Millennials and Gen Z-ers who confirm that ESG factors are important for them when they choose investments.
WealthTech is one of the most popular branches of the FinTech industry. It offers a diverse range of digital tools for effective investment and wealth asset management. For this reason, many businesses implement WealthTech features into their financial software.
If you’re also considering incorporating WealthTech features into an existing app or developing a stand-alone FinTech solution, then SCAND, a software development company is ready to help you with that. SCAND has 20+ years of experience in FinTech development and works with the latest digital technologies, including AI, ML, blockchain, SaaS, and others.