Practical analysis for investment professionals
01 December 2017

Fintech: Revolutionizing Wealth Management

Fintech is changing the dynamics of the advisory relationship.

It is helping advisers focus less on investment management — much of which it can automate — and more on building client relationships.

It is transforming traditional wealth management at a breathtaking speed and revolutionizing the entire wealth management industry.

Mandating Change

Fintech’s phenomenal growth rate demonstrates that firms must adopt the technology if they want to survive in today’s competitive market. In 2015, global fintech investment (business investment by firms) grew by 75%, or $9.6, billion to $22.3 billion. The reasons for this are obvious: Fintech increases scale, decreases overhead costs, and improves adviser productivity while simultaneously providing clients with additional investment options, lower costs, and greater transparency.

Though fintech adds a layer of complexity to the mix, it is often so streamlined and user-friendly that it makes the day-to-day of portfolio and wealth management much less cumbersome. Advisers benefit by having more time to spend with clients and build their business. Clients have a reliable point of contact and know that their money is being managed in a professional and methodical manner 24 hours a day, seven days a week.

Many fintech firms are “cutting out the middleman” and creating a direct-to-consumer framework of financial offerings, in cash services, banking, wealth management, lending, insurance, and even settlement services. They are constantly evolving to meet consumer needs, and are helping keep the traditional industry players honest. For example, relative newcomers like Aspiration, Betterment, LearnVest, Robinhood, Prosper, and Acorns have disrupted the market. Well-established firms such as BlackRock, Goldman Sachs, JPMorgan Chase, LPL Financial, and Edward Jones have not only taken notice, but have built strong contending platforms of their own and partnered with other successful fintech start-ups.

Initially, many onlookers thought these partnerships were just “marriages of convenience,” but the incredible rate of change in the field and the expansive growth of investment in fintech heralds a new era of innovation and a triumphal return to true stewardship. Firms that are serious about contending in this explosive environment had best heed the call.

Transforming Wealth Management with Technology

For advisers, the possibilities of the emerging technology are compelling. The potential benefits include increased automation of clerical tasks and the other mundane service-related functions such as data entry, platform aggregation, and portfolio rebalancing. Free for more client-facing work and comprehensive financial planning, advisers can foster stronger, more meaningful client relationships while streamlining their entire wealth management process. In fact, many services and tasks that office personnel and even advisers used to perform as a matter of course, are now being commoditized by an expanding repertoire of new technologies and applications.

The fintech revolution was preceded by the rise in discount brokers and passive-investing strategies like E*Trade and Vanguard Now, global assets under management by robo-advisers are predicted to reach $8.1 trillion by 2020, from just $200 billion at the close of 2016. These automated investing strategies are fast becoming the norm industry-wide.

Perhaps most compelling is the emergence of artificial intelligence (AI) in wealth management.

AI is influencing advisory-service software and CRM applications with predictive analytics tools like Salesforce’s “Einstein” and IBM’s Watson. Machine learning and other types of AI technology can analyze client behavior and use the data to deliver individualized advice based on their investing, saving, and spending habits.

Although some advisers fear being replaced by AI at some point in the future, the more proactive are embracing it to enhance their own practice management and drive revenue growth.

To be sure, the growing divergence between the old and new advising approaches is compelling — and possibly alarming: Nearly 100% of young advisers use social media, compared to only 50% of older advisers. One in three advisers lack a client portal, and 20% do not use any financial planning software. Of advisers between the ages of 65 and 74 years, 37% don’t have any planning software. In stark contrast, 40% of 25- to 34-year-old advisers noted that they realized higher ROI from their financial planning applications than from any other technology.

The implications are significant. As a group, younger, more tech-savvy advisers, or “eAdvisors,” have nearly 40% higher AUM, serve 55% more clients, and find more professional satisfaction than their counterparts.”

While some advisers may be wary of the current technology push, clients are expecting more. According to “The Virtual Financial Advisor: Delivering Personalized Advice in the Digital Age,” published by McKinsey & Company, “40% to 45% of affluent clients who changed their primary wealth management firm in the previous two years moved to a digitally-led firm.” What’s more, a full 72% of investors under the age of 40 indicated they would be comfortable working with a virtual financial adviser.

Online collaboration and digital tools are becoming less of an option and more of a requirement. Efficient and direct communication with clients and a greater array of firm services are being demanded and delivered. Mindful of the potential threat posed by such millennial-courting tech stalwarts as Facebook, Amazon, and Google, many in the financial industry are prioritizing improvements in their digital experience, transparency, and existing cost structures.

Fintech is transforming the finance sector and how wealth is managed. The drive toward efficiency and agility in practice management benefits both clients and advisers. The value add is no longer in the inner workings of wealth management, but rather in how existing and evolving tools can enhance the client experience and deepen the advisory relationship.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/Alexsl

About the Author(s)
Marguerita Cheng, CFP, RICP

Marguerita M. Cheng is the CEO of Blue Ocean Global Wealth. Prior to co-founding Blue Ocean Global Wealth, she was a financial adviser at Ameriprise Financial and an analyst and editor at Towa Securities in Tokyo, Japan. Cheng is a past spokesperson for the AARP Financial Freedom Campaign and a regular columnist for Investopedia and Kiplinger. She is a CFP® professional, a Chartered Retirement Planning CounselorSM, a Retirement Income Certified Professional® and a Certified Divorce Financial Analyst. As a Certified Financial Planner Board of Standards (CFP Board) Ambassador, Marguerita helps educate the public, policy makers, and media about the benefits of competent, ethical financial planning. She serves as a Women’s Initiative (WIN) Advocate and subject matter expert for the CFP Board, contributing to the development of examination questions for the CFP® Certification Examination. Marguerita also volunteers for CFP Board Disciplinary and Ethics Commission (DEC) hearings. She served on the Financial Planning Association (FPA) National Board of Directors from 2013 – 2015 and is a past president of the Financial Planning Association of the National Capital Area (FPA NCA). Cheng is a recipient of the Ameriprise Financial Presidential Award for Quality of Advice and the prestigious Japanese Monbukagakusho Scholarship. In 2017, she was named the #3 Most Influential Financial Advisor in the Investopedia Top 100, a Woman to Watch by InvestmentNews, and a Top 100 Minority Business Enterprise (MBE®) by the Capital Region Minority Supplier Development Council (CRMSDC).

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