Fintech Money

The wealth management industry can no longer ignore the rise of fintech. Investors have pumped more than $100 billion into the fintech market since 2010—including $6 billion in the first quarter of 2019. Those investments are going toward things like robo-advisors and investment apps that help Millennials streamline their personal investments.I first noticed the fintech trend about a decade ago. Now, I can see that fintech is shaping the future of wealth management.

I needed a better way to manage my budget, so I created a few Excel macros and thought I had the seed of a startup idea. I showed my work to a friend who promptly asked whether I’d heard of Mint.com. After spending some time exploring the then-nascent financial management app, I realized it did everything my macros did—and a lot more. Even at that early stage, the potential for disruption in wealth management was obvious.

Mint and other pioneering fintech apps showed that the value of these technologies lies in their abilities to make something confusing relatively user-friendly for the first time. That’s not surprising considering the fintech industry first gained traction in the wake of the global financial meltdown—a time when confidence in banks and financial institutions plummeted.

When robo-advisors first introduced consumers to friendly interfaces and accessible tools, they quickly demonstrated the value of a tech-driven approach. Users might have been the first ones to realize this, but the industry now also understands it.

The Future of Wealth Management

Up until a decade ago, the wealth management industry was relatively resistant to technology. The years since have seen more enthusiasm and implementation, but fintech innovation in wealth management is still in the early stages.

Thus far, the industry has focused on convenience and accessibility. Moving forward, we should expect big data, connected devices and artificial intelligence to push the applications in exciting new directions. Everything from insurance to estate planning to equity compensation is ripe for innovation, and changes will come quickly.

Exactly how fintech will progress is a mystery, but we can anticipate some broad digital trends in wealth management. In one survey, for example, 75% of respondents had already tried a fintech transfer or payment service (like Venmo). That figure will increase as the technology becomes easier to use and more consumers adopt it. What’s more, the user-friendly features that consumers already enjoy will improve as the companies behind fintech apps release updates and additional features.

Additionally, costs will decline as technology makes basic services free or less expensive.

Robo-advising, for instance, is less expensive for firms to deliver, which makes it less expensive for clients. It’s no surprise the robo-advisor industry is expected to draw an estimated $2 trillion by 2020.

By lowering the cost and reducing the complexity of financial services, fintech makes them accessible to a wider base of society. In the past, firms worked mostly with families with seven figures in assets; new technologies have made the industry more inclusive to people from all financial backgrounds.

I believe the digitization in wealth management could automate as much as 80% of the work wealth managers do. Far from making advisors irrelevant, however, technology empowers them by providing better tools. Advisors will be able to focus on the real value of their services: gaining a deeper understanding of their clients’ needs and wants while forming richer relationships.

The automation aspect will allow advisors to perform complex work more quickly and with more precision. Meanwhile, advisors will be able to serve a higher volume of clients. Greater numbers of happier clients accessing more services eventually will lead to more revenue.

Use Fintech to Your Advantage

Most firms won’t be actively involved with developing fintech. That doesn’t mean they can sit idle and wait for innovations to transform their business models.

Here’s how you can embrace the power of fintech:

Accept Change

Fintech is here to stay. As it continues to transform the industry and client expectations, operating without technology won’t be acceptable.

Many advisors rely on Excel and macros for planning, which takes up valuable time that they could use to interact with clients. Things traditionally done via Excel can be done faster and more accurately with technology, such as financial planning and portfolio rebalancing software.

It takes time to learn new technology, but it’s an investment that will pay dividends in the future. Instead of resisting the inevitable, firms should consider how technology can apply to their businesses.

Identify Value

Technology may replace some of the work advisors currently perform, but it shouldn’t diminish their value to clients. Just the opposite, in fact. Technology enables advisors to provide better services, offer stronger advice and deliver more assistance.

Automation, for example, saves time, reduces errors and minimizes costs. Clients should be paying you to give valuable financial advice—not to input data. Automation can update your data automatically and eliminate the chance of human error. Fintech ultimately will upgrade the relationship between individuals and advisors, and firms that recognize this will thrive.

Support Advisors

There are currently about 311,000 financial advisors in America, and the workforce as a whole skews older. A talent shortage already exists—and the shortage will only increase as more Baby Boomers retire.

Fintech is shaping the future of wealth management. It’ll still be essential to hire good advisors, though. Technology can’t sit down, talk things out and dig deep into a client’s goals. It can’t bring peace of mind when the stock market changes. By using fintech to automate more basic duties, advisors will be able to serve more clients at a higher level. And don’t worry about getting replaced by fintech—if you continue to offer personal support and advice, clients will keep coming back.

It’s hard to overstate how quickly and completely fintech is transforming the future of wealth management. Though it’s easy to understand why some professionals in the industry feel anxious about this development, it’s unfounded. Why? Because technology isn’t just changing wealth management—it’s improving the industry in every way.

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Daniel Lee, CFA, CFP®, is a financial planner for Plancorp, a full-service wealth management company. He also advises BrightPlan, a digital financial wellness solution, and is an award-winning instructor at UC Berkeley Extension.

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