The Future of WealthTech

This post was written by Renee Li and edited by Brett Martin at Charge.vc. It is the second in a series of posts on a WealthTech thesis (you can read the first post here). If you are working in or thinking about the WealthTech space, we’d love to connect! Get in touch with the team @ Charge.vc!

Mapping the Future of WealthTech for Millennials

Following the challenges for the wealth management industry that we outlined in the last post, we wanted to propose some opportunities for challengers to reshape the industry and serve millennials better. The following are just a few of the areas where we see opportunity and some of the companies that we’ve encountered as examples.

  • Layer 1: marketplaces/platforms that provide liquidity and transparency

Millennials are defined by DIY culture. They prefer to shop products and compare features before making decisions and have little patience for inefficient or poor service. The high-touch, referral-based way of customer acquisition is no longer a viable way to serve millennials.

Companies such Zoe Financial and SmartAsset are replacing conferences, accountant and attorney referrals, and networking events by connecting consumers to advisors online, while acting as LeadGen for advisors.

Due to the high barriers to entry, mass market consumers lack access to investment opportunities. Fractional share trading is pretty normal now with Robinhood offering the service on its platform. Other startups such as Alto, EquityZen and YieldStreet are allowing retail investors to invest in alternative assets including private companies and loans.

  • Layer 2: tooling / solutions for financial advisors

Financial advisors spend a lot of time on non-core tasks. These tools help them streamline their workflow so they can focus on advising clients. Shrinking margins will drive advisors to optimize efficiency by outsourcing non-core functions and increasing technology expenditures to stay competitive. Another challenge is the integration of technology tools.

There are a breadth of companies offering tooling for financial advisors from CRM tools such as Advisor360, client onboarding tools such as AppWay, rebalancing, reporting, billing & invoicing tools such as Blueleaf and B2B roboadvisors such as AdvisorEngine.

Given the rise of Registered Independent Advisors (RIAs) driven by regulation and consumer preferences, companies such as Vise AI are focused on this growing segment by providing automated portfolio management solutions for RIAs using machine learning. Given RIAs are usually smaller and lack the platform support of large wirehouses, such tools alleviate their bandwidth problem and allow them to spend more time serving clients.

  • Layer 1 + 2: SaaS-enabled marketplace

A SaaS-enabled platform connects advisors to clients and offers tools for advisors to manage their clients, process payments and generate reports etc. Platforms like Upwork have already enabled the freelance economy by making professional services available to prospective employers while eliminating the bundling effect imposed by traditional gatekeepers. With the number of RIAs skyrocketing in the US, a similar platform could further enable RIAs to acquire clients more efficiently, reduce time spent on non-core tasks and focus on serving clients.

  • Layer 3: lower-cost, lower-touch wealth advisor alternatives

Due to the ways in which wealth advisors stratify customers, wealth management services are inaccessible to the mass market. Roboadvisors such as Betterment and WealthFront are already offering financial advice with minimal human input. However, a lot of consumers, particularly millennials who are defined by DIY culture, prefer investing on their own or receiving advice with a human touch. These services also lack the very important financial planning element. We believe there are vast opportunities for startups offering lower cost alternatives to wealth management services or displace wealth management as a whole.

A group of companies are bridging the gap by offering digital, tech-enabled financial advising services. Large incumbents such as Santander, ABN AMRO and Nordea are complementing their traditional branch-based advisory services with virtual advising services, and digital banks such as mBank in Poland are offering a similar service. Personal Capital, a digital wealth management company, was acquired by Empower Retirement for $1Bn recently. Facet Wealth is bridging the gap of offerings for the mass market by acquiring smaller clients from RIAs but promises to offer them back if client assets exceed $1 million. NextCapital is a digital advice platform for retirement planning.

Some companies are bringing down the cost of financial advising by taking a hybrid approach combining input from both machines and human advisors. Multiply’s tech offers automated financial advice overseen by the advice team.

Others aim to offer an alternative to the traditional wealth management services by offering a lower-touch, subscription-based model that is available to mass market consumers without a large asset base. Financial Gym provides financial planning services including one-to-one training, financial cross-training, and debt recovery. It prices its advisory plans at $85 a month for a monthly meeting, an on-call financial advisor, and a financial fitness plan suited to their life goals.

In investing, social trading is gaining traction with retail investors. Social trading is a type of self-service platform that allows users to mimic the portfolios of successful investors. Some platforms also allow users to communicate via a social network to share trading ideas. The market opportunity for social trading is growing, as more retail investors use mobile investing

platforms and increasingly demand tools that lower the barriers to entry for investing. By leveraging the social network and other investors, this type of service is displacing traditional wealth advisors in the investing area. Public.com is a social platform that allows users to follow other investors, discover companies to believe in and invest with any amount of money. Wizest is another social investing platform that allows users to draft a team of advisors as per user selection, replicate their virtual portfolio on their behalf, while providing a learning experience through its gamified environment.

Idea Hacking

In our research process, we have come across many emerging companies revolutionizing the industry, but have also identified some potential gaps for further innovation. We venture to propose several potentially interesting ideas below and consider this a prompt for an open discussion.

  • Automated or low-touch financial planning
  • Besides seeking a wealth advisor, there is not currently one tech solution that enables the automation of holistic financial planning. While roboadvisors have provided an automated solution for investing, they do not cover other aspects of consumers’ financial health. Holistic financial planning covers every aspect of meeting consumers’ current financial needs and long-term goals. That includes financial situation assessment, budget planning, personal debt management, savings management and investments. That being said, leading fintech companies are racing to offer an increasing number of tools that provide insight into consumers’ financial life. For example, SoFi launched its own goal management and personal finance tool to help users easily manage their finances.While robo-advisors automate passive investing, an automated or low-touch solution with the aid of human advisors to plan for the entirety of a consumers’ financial life would dramatically lower the barriers to entry for mass market consumers.
  • Subscription model, low-touch financial advice
  • Because the wealth management industry has an AUM-based revenue model, mass market consumers without a large asset base do not have access to investing and financial planning advice. Is there an opportunity to provide low-touch, subscription-based financial advice to mass market consumers in an effort to democratize access?
  • Pooled investment club
  • The asset sharing model has been utilized in many industries to lower cost. Could it be applied to investing? Since professional financial advice and asset planning services come at high variable costs relative to the wealth of mass market consumers, could the assets of consumers with similar investing goals, retirement timeline and risk tolerance be pooled into an investment club in order to access the professional investing and financial planning services that are traditionally only available to high net worth individuals? Like institutional funds, these funds could have tailor made strategies that cater to personal investing goals, such as ESG-driven funds etc.
  • Financial education to enable DIY financial planning
  • The rise of free brokerage services such as Robinhood has democratized investing access to retail investors. However, most retail investors lack the expertise or bandwidth to perform analysis on stocks and are mostly investing based off of hearsay from sources such as Twitter and Reddit. Is there an opportunity to not only democratize access, but also democratize knowledge, by gamifying the investing process and explaining valuation methods, market conditions and technical factors in a simple and interesting way?

We believe there are vast opportunities for challengers to enable or even displace financial advisors by offering digital-first, lower-cost alternatives to current wealth management models. If you are building a solution lowering the barrier to entry in financial advising, or know someone who is, please let us know. It is an area we’re excited to learn more about.

This post was written by Renee Li and edited by Brett Martin at Charge.vc. If you are working in or thinking about the WealthTech space, we’d love to connect! Get in touch with the team @ Charge.vc!

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