Increased regulatory pressure, lack of trust in financial institutions, and the necessity to keep up with customers’ growing demands are just a few problems that the global wealth-management sector is facing these days. These multiple challenges are also opportunities for typical WealthTech players, from both incumbent and industry pioneer pools, to build new business streams by resolving inconsistencies.

We have spoken to numerous influencers who have shared their vision on the disruptions WealthTech is currently experiencing. They have predicted what we’re likely to observe before long as the industry shifts towards new horizons. Here is a summary of the opinions we’ve gathered, as well as comments from C-suite executives, on what’s going to happen on the wealth-management front.

Trend #1: Increased focus on social footprint

According to Andrei Cherny from Aspiration, investors are becoming more particular about how ethical their investment choices are. A typical wealth holder will think twice before allocating his or her assets, and will consider the trace he or she leaves on the planet prior to taking any steps. Thus, not only eco-friendly investing but also eco-friendly spending will be in demand among a broad range of customers. As Andrei states,

“The rising focus on ethics […] and sustainability in the financial industry has already been clear.”

The wealth-management industry will also experience a rise of thoughtful spending and asset growth before long. For now, such investment solutions have been rather niche, since the majority of sustainable choices belong to either High-net-worth individuals (HNWIs) or large-scale organizations. However, Andrei suggests that the pattern is likely to change and shift to the masses:

“Democratizing sustainable investing is going to be one of the next waves of innovation and growth.”

Hedgeable is one firm that is bringing socially responsible investing (SRI) to the table. The company relies on three pillars when helping clients allocate capital in an eco-friendly way:

  • The ethical component excludes from the investment portfolio firearms-, tobacco-, and alcohol-producing companies;
  • ESG (environmental, social, and governance) policies are closely monitored when deciding on an investment strategy;
  • The impact option allows customers to choose among firms that directly contribute to positive social change.

Here is what Sid Sharma, CTO of Hedgeable, says about SRI at the firm:

“If you invest, say, $100,000, you would see that your portfolio looks a lot different than [that of] any other digital wealth manager. It would have individual stocks that you can customize for socially responsible investing.”

Trend #2: Greater transparency due to regulations

Banking and financial sectors are rarely the ones to effortlessly embrace change. These days, however, adoption of the digital component is becoming a pressing need, rather than a choice companies are free to make, because of changing legislation.

Bertrand Rassat of TradingScreen mentions that the main driver for this market to open the doors for technology is pressure from regulators. Wealth management will not adopt technologies just because they are on trend.

A great example given by the expert is the Swiss Markets in Financial Instruments Directive (MiFID), adopted in 2004. A newer piece of legislation, called MiFID II, is aimed at increasing the transparency of the financial sector. The new framework is set to take effect at the beginning of 2018.

“[The adoption of MiFID II] means more transparency: digitizing the process and using professional tools, as opposed to just relying on Excel; it means connecting the brokers or custodians electronically.”

Martin Polasek from another Swiss company, Evolute, is also confident that the adoption of new regulations (MiFID II) will give industry players the chance to make the most of technological developments:

“[The adoption of MiFID II] might actually create opportunities to review the current business model and accelerate innovation.”

On the North American side of the globe, another WealthTech expert, Bryan Sachdeva from Canadian NexJ, agrees with Bertrand Rassat. He mentions that transparency and disclosure in the financial services industry has increased thanks to technology advancement that was a direct result of the local Client Relationship Model 2, a new reporting requirement for investment professionals.

Trend #3: More edge with digitalization

Bob Cortright from DriveWealth mentions digital wallets as an example of streamlining digitalization. e-Wallets mean that FinTech companies like DriveWealth can plug into the backend of the product, while the product itself has local licenses. In such a scenario, the regulation aspect will not be a problem when the digital component is at heart of the offering. Bob mentions PayTM in India in speaking about the peculiarities of the retail market and efforts required from WealthTech players to reach the end user:

“It’s very difficult to take a product and expand it outside of the United States, because solicitation rules to individual clients in local countries are a real problem from a regulatory standpoint.”

Bob’s colleague, DriveWealth CIO Harry Temkin, adds that some customers just want to invest as if they were shopping, so digitalization allows for a similar investor journey that resonates with the consumer experience:

“A client simply wants to buy $10 of Google, the same way they can buy a watch on that website. The technology allows us to digitally integrate with a wallet and allow the money to pass back.”

Trend #4: Lower costs for greater personalization

Customers are growing increasingly investment-savvy, and when looking for ways to grow their wealth will choose a service supplier based on how personalized the advice is. They will expect this level of service at no additional cost. As stated by Bryan Sachdeva from NexJ,

“People are expecting more fee-based service, they’re expecting personalized advice.”

Evolute’s CTO, Martin Polasek, predicts a similar scenario. The executive notes that this familiarity with what’s really going on in the market is most visible within the HNWI segment. Years earlier, investors were happy to entrust their assets to a wealth manager and watch the stakes grow. These days, however, the younger generation in particular requires products that not only meet their appetite for gains, but are priced at current market average.

Bob Cortright at DriveWealth, in speaking about the era of robo-solutions, mentions that even “ordinary” investors will look for much more customer-centric products that suit their particular goals:

“We think in the future someone with $50 [will be able to] have a very sophisticated, customized portfolio [that is] to their liking [and] has individual securities in it.”

Bob adds that his company opens the doors for a younger generation that is a obsessed with technology but yet to earn its “big money.” The CEO is seeking to ensure that DriveWealth can even offer portfolios managed by professional wealth advisors for low budgets:

“If you’re a big fan of technology at 25 years old, you could build a very sophisticated technology portfolio that’s managed by a professional, depending on scores or however you want to mark the value of those securities, and we can power it very cheaply for that person to make it affordable for a young person with $50 or $100.”

Anton Honikman at MyVest believes that companies will consider shifting from product- to customer-centric offerings. Some will do this because of technology, while others might need to go for such a scenario due to emerging legislation.

“You have to prove that you’re acting in your customer’s best interests.

Trend #5: Different fees for fractional investing

The benefits of stock splits are hard to debate; however, the question is how fair it is to charge the same price for fractional shares. These opportunities to build wealth are currently as costly as investing in whole units. Bob Cortright from DriveWealth feels that you cannot charge a similar commission to someone who is going for a fraction of a share only, instead of buying one full share of equity:

“You’ve got to literally bring it down to pennies.”

Bob blames the legacy technology for this discrepancy, which becomes an issue when it comes to optimizing costs: it’s very difficult to manage all components as a single platform and not incur higher costs.

Bottom line

The above represent several opinions on what’s going to happen within WealthTech in the future. Being aware of these predicted trends, and altering companies’ roadmaps to embrace them, can give industry players a solid competitive advantage and enable them to stay ahead of the curve.

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