SECTOR SPOTLIGHT: Wealth Management in FinTech

Desktop of a Financial Advisor (Image Credit -  Plug & Play Tech Center )

Desktop of a Financial Advisor (Image Credit - Plug & Play Tech Center)

SECTOR SPOTLIGHT is a series of in-depth articles on FinTechtris that explores a specific FinTech sector, discussing the industry challenges being addressed, top companies or products leading the trend for change, and future outlook of the sector.

The financial services industry has been revolutionized by the explosion of innovation from FinTech (financial technology) companies that are constantly improving on current products and services.  In the past, customers would find it difficult to qualify for managed brokerage or retirement accounts if they carried balances below a minimum threshold.  Those that did qualify would have to go into a branch or advisory center to meet in-person with a financial advisor, pay an upfront fee for advice, and ultimately invest in recommendations that were biased towards highest paying commissions.

Legacy institutions and brokerage firms no longer have dominant control over the wealth management sector in financial services, due to the disruptive forces of FinTechs who cater to a wider range of customer segments with similar offerings at a fraction (or no) cost.  These companies are allowing individuals to start building wealth now at a young age through innovative tools and resources leveraging the best in financial technology.

The Diminishing Role of the Financial Advisor

Roboadvising on a desktop screen (Image Credit -  ScoopNest )

Roboadvising on a desktop screen (Image Credit - ScoopNest)

FinTech has been actively disrupting financial services over the last 10 years, with the future of banker and financial advisor roles becoming radically different. In particular the position of the financial advisor started changing over 40 years, when commissions were deregulated in 1975 — ushering the era of the discount broker. In the decades to follow there were changes to product offerings (such as no-load mutual funds) and the start of trading online as the internet became a new tool for information exchange.

One of the newest industry trends of robo-advising creates an investment platform that is automated and based on algorithms and data insights, which provide investor recommendations and wealth management tools on a mobile interface. Bolstered by widespread usage of smartphones and enhanced connectivity (from Wi-Fi and 5G), asset and wealth management has its current modern era of access, with multiple fintech companies providing products and applications that any retail investor can follow and afford.

Industry Leading FinTechs in Wealth Management

Top companies in Wealth Management sector (Image Credit -  Medium )

Top companies in Wealth Management sector (Image Credit - Medium)

Here are industry leading companies in the wealth management sector, delivering easy-to-use platforms for investment and retirement, financial advising and long-term planning, and addressing other financial needs both for consumer, business, and enterprise customers. Multiple fintechs listed have been part of the annual Forbes FinTech 50 or reached industry unicorn status.

Betterment founders - Jon Stein and Eli Broverman (Image Credit - )

Betterment founders - Jon Stein and Eli Broverman (Image Credit -

Betterment is a pioneer online investment company founded in 2008 by Jon Stein and Eli Broverman, and based in New York City. This industry leading fintech provides robo-advising in a portfolio of passive index-tracking equity and exchange-traded funds (ETFs), and offers traditional and Roth individual retirement accounts (IRAs). Betterment has $15 B in assets under management for 400,000 customers, and is valued at $800 MM.

Wealthfront founders Andy Tachleff and Fan Carroll (Image Credit -  CNBC )

Wealthfront founders Andy Tachleff and Fan Carroll (Image Credit - CNBC)

Wealthfront is a competitor to Betterment, based in Redwood City and started by Andy Rachleff and Dan Carroll in 2008. The company evolved from a mutual fund analysis company into wealth management through its robo-advising platform. As of March 2018, the company had over $10 B in assets under management. Wealthfront has also added a high-interest (2.24%) cash account with FDIC insurance up to $1 MM, as it tries to capture deposit balances from banks and other institutions.

Acorns founders Jeff and Walter Cruttenden (Image Credit -  Business Insider )

Acorns founders Jeff and Walter Cruttenden (Image Credit - Business Insider)

Acorns is a well-known fintech that has combined personal finance with investing, best known for its micro-investing mobile app that rounds purchases to the nearest dollar to be invested into ETF portfolios. The company has added on complementary offerings through a retirement account and debit card (with checking account) for $2 and $3 a month, respectively. The company is based in Irvine, CA and was founded by father and son duo Walter and Jeff Cruttenden.

SigFig CEO and Founder, Mike Sha (Image Credit -  American Banker )

SigFig CEO and Founder, Mike Sha (Image Credit - American Banker)

SigFig provides an automated investment advice platform focused on enterprises and large institutions, instead of being a direct-to-consumer offering. The focus is on being a complete digital solution that integrates with current infrastructure and compliance frameworks, in addition to gathering insights from data sharing. SigFig is helping enterprises become a holistic financial model, and truly pioneer the digital advice space. Top bank clients include UBS and Wells Fargo.

Founder of Grove, Chris Hutchins ( Image Credit - Grove )

Founder of Grove, Chris Hutchins (Image Credit - Grove)

Grove offers a personalized financial advice platform at transparent pricing that is affordable for most customer segments, compared to industry incumbents with high hourly rates or assets requirements. Grove is based in San Francisco, CA.

Robinhood Founders, Vlad Tenev and Baiju Bhatt (Image Credit -  WSJ )

Robinhood Founders, Vlad Tenev and Baiju Bhatt (Image Credit - WSJ)

Robinhood has emerged on the scene in the last 5 years as commission-free trading platform for stock, options, ETFs, and most recently cryptocurrency. Launched in 2013 by Stanford graduates, Vladimir Tenev and Baiju Bhatt, the company attracts investors of all sizes with its self-directed, easy-to-use interface — growing in valuation as a unicorn to $5.6B. January’s DEEP DIVE from FinTechtris, took a close look at the company’s origin, product, and revenue streams.

Future Outlook for Wealth Management

As FinTech companies mature and progress in various financial services offerings, the industry continues to evolve and develop further innovation in the wealth management space, with a specialized focused on access and improving financial well-being. 

Individuals around the world struggle with what to do with savings and how to build long-term wealth. This sector in fintech has addressed this gap with an infrastructure of self-directed and managed platforms for the entire spectrum of the investor community, from retail to institutional.

Despite the rush of technology minimizing the past need of a financial advisor, there are still opportunities for financial representatives to add value on the customer journey for new and existing clients, especially during life events and drastic changes in the economy.

Based on content from Investopedia