How Fintech Is Disrupting Wealth Management

Thomas Batcha |

Advisors who embrace new ways to free up their time and deliver client value stand at the vanguard of a new era of client engagement!  *JB*

As I travel the country and spend time with advisors, partners and industry colleagues, there is a lot of dialogue about how the advisor industry is evolving. All the chatter about evolution got me thinking about lessons from Charles Darwin, the famous naturalist who taught us that, “it is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” The strong and cunning may win the short-term battles but, over the long term, Darwin’s lessons foreshadow that those who are not able to adapt may end up on the endangered species list.

For years, the industry has been predicting the disruption of the financial advisor model, all the way back to when commissions were no longer regulated in the ‘70s, which led to the rise of the discount broker. The ‘80s and ‘90s brought forward no-load mutual funds and of course the internet gave us online trading. And now, here in the 2000s, we have the emergence of the robo-advisor, giving cynics even more ammunition to predict that advisors will go the way of travel agent or taxi driver. (For more, see: Offer Your Clients the Best Digital Experience.)

I am much more bullish on the future of the financial advisor profession. Despite all of these financial services and technology innovations that have the potential to put human advisors to the test, their role and importance in helping investors navigate complexity and meet their goals has only increased in demand. Advisors have proven time and time again that they can adapt to these structural changes quite nicely. In fact, advisors have been able to respond to these changes by engineering new models that take advantage of commission and technology disruption. While some studies show that the number of financial advisors is expected to stay flat or grow moderately over the next five years, growth in assets managed by advisors shows that the industry is alive and well, with firms in the U.S. managing $6.8 trillion in assets in independent channels.

Advisors' Ability to Adapt and Thrive

All that said, advisors should take note of the change around them and understand how it could force them to once again prove their ability to adapt and thrive.

2017 may very well become known as the year fintech took center stage and it seems that each year the fintech drums only beat louder. And this is played out not just in the media but with investment dollars. Global investment in financial technology ventures in the first quarter of 2016 reached $5.3 billion, a 67% increase over the same period a year prior, according to Accenture.

This surge in fintech industry investment may have something to do with the rise of robo-advisors - there are now 52 online advice firms, up from just two in 2000. Global assets under management (AUM) by robo-advisors are predicted to reach a staggering $8.1 trillion by 2020. The year-end 2016 AUM of robos was estimated to be $200 billion (source: Business Insider, January 2017).

While the robo-advisor craze is well documented, the proliferation of artificial intelligence (AI) tools hitting the wealth management landscape has made a dramatic entrance into the financial trade press. While it might be early, AI’s role in financial advice is an area to watch. Certainly the recent launch of the predictive analytics tool “Einstein” from Salesforce gives the industry reason to consider the role of AI in supporting advisors with where to focus or automating tasks. The same is true with IBM Watson’s partnership with H&R Block.

From my standpoint as an advisor fintech leader, the rapid and ongoing innovations in technology are exciting. For advisors, the more exciting innovations are about providing them scale and removing behind-the-scenes work to prep for conversations with clients. Many advancements support the advisor-client relationship directly. High net-worth investors, the sweet spot for most RIAs, are interested in digital financial advice of some sort and benefit from new developments. (For more, see: Why Harnessing Mobile Technology Is Crucial for Advisors.)

According to a McKinsey & Company report from June 2015, 40 to 45% of affluent consumers who changed their primary wealth management firm in the last two years moved to a digitally led firm. What’s more, a full 72% of investors under the age of 40 said they would be comfortable working with a virtual financial advisor.

What Fintech Means for Advisors

What’s it all mean for advisors? First, it’s clear that investors expect digital as part of their relationship with their financial advisor. They enjoy online collaboration and digital tools in other parts of their lives and why shouldn’t they when it comes to managing their wealth?

With Betterment and other firms advertising in mainstream media, investors are exposed to modern, understandable and easy-to-use tools that display performance. While user design has been commonplace in consumer package goods firms for years, it has only more recently become a sought-after skill in the financial services industry. As an example, BBVA purchased Spring Studio, a San Francisco user experience design firm, in 2015 to accelerate the firm’s efforts to become a leading digital bank through great design and technology.

Second, advisors need to ensure they are communicating with clients in new and different ways. Not all clients have time to come into the office. For advisors serving clients who are still working, they expect interactions to be efficient and direct. They also expect to be able to review information on their own at any time through a client portal, and use online collaboration tools to check in with their advisor. This on-demand access provides an ultimate level of transparency.

Third, the question of value - more specifically, clients understanding the value that their advisors deliver. Many advisors offer much more than investment allocation and portfolio construction, but it’s not clear whether investors understand all the “extra” support they are getting.

Most Millennials say they would take financial advice from Facebook, Amazon or Google, if given the opportunity, according to the February 2017 Tiburon CEO Summit XXXI Content survey. We could discount that given that most aren’t facing the complexity in their financial lives as their Baby Boomer parents are experiencing. However, it creates yet another reason why advisors need to continue to grow their trusted relationships. After all, we know that trust and communication are huge factors in why investors select or leave an advisor.

Delivered well, clients benefit in many ways from the fintech rise. In addition to digital experience and transparency, new competition is driving costs down and digital tools remove overhead and certain manual processes for advisors. Case in point: Charles Schwab Corp. recently announced its robo+advisor offering, Schwab Intelligent Advisory, at 28 basis points or $3,600 maximum per year. The offering targets mass affluent investors with a minimum of $25,000 to invest, but it still sends a message to the industry that costs matter. In another data point, Millennials remark that they would use a financial advisor if costs were not as high (source: Fidelity Investments Benchmarking Study).

My advice to advisors is to grab on to technology that helps you be more efficient and get closer to clients. After all, technology, when used well, can help you with the seemingly daunting challenges facing all advisors today - running an efficient and profitable business, demonstrating your value and leveraging tools for growth. Darwin’s advice remains sound. (For more from this author, see: How Tech Advances the Advisor/Client Relationship.)

This article was written by Dave Welling, Managing Director and Co-General Manager of SS&C Advent. The SS&C learning institute provides online courseware on over 200 subjects of interest to financial services professionals and students. You can learn more here about the SS&C Learning Institute’s curricula for companies, universities, and individuals.