FinTech Disruptions: Robo-Advisory in Wealth Management


Introduction

Financial Technologies, or “FinTech”, is an emerging field at the intersection of financial service and new technologies. FinTech companies utilize cutting-edge technologies to provide new and better financial services to consumers and businesses. While there are many startups do specifically focus on financial technologies, it’s important to know larger companies have FinTech initiatives as well (e.g. Bank of America, JP Morgan, even Apple and Amazon).

One example of FinTech technologies are cryptocurrencies, which have dominated headlines for the past year. However, cryptocurrencies do not cover the entirety of FinTech. In fact, the crypto and blockchain spaces represent a very small fraction of financial technology. We wanted to highlight some of the other ways technology is disrupting traditional financial services and helping to provide better products to both consumers and businesses.

In this article, I wanted to highlight some more examples of how specific financial services are being affected by technology. I decided to start with Wealth Management, specifically how innovations like “Robo-Advisory” are changing the industry.

What is Wealth Management?

Wealth Management is providing financial and investment advice and services for high-net worth individuals. Rather than coordinate with multiple different people and firms, these individuals can contact wealth managers for a holistic approach to help them with their financial needs. This can include retirement planning, insurance planning, portfolio management, etc.

What is Robo-Advisory, and what is its effect on the Wealth Management Industry?

Also known as “digital advice platforms”, Robo-advisors are automated digital platforms that provide financial and investment management advice using algorithms. After collecting information from an individual(s), robo-advisors give advice on how to best proceed or some may automatically make the appropriate financial transactions for you.

Robo-advisors have actually been around for a few years now. However, they began using their algorithms and providing advice behind the scenes to the wealth managers themselves, who used that as supplemental information before giving their final recommendation to clients. However, as robo-advisors become more efficient, wealth managers are able to focus less time on investment management/data entry, and more time on building client relationships. This is key because of wealth management is very reliant on the relationships they create (the industry is very similar to consulting in that way). Tech savvy advisors, on average, have 40% more AUM (assets under management) and serve 55% more clients. Digital advances have raised the standard of customer service in the field, because clients can now talk to an advisor (albeit a digital one) 24 hours a day.