The wealth management industry has been the third industry after the lending and payment industry, that has been disrupted the most by FinTechs. The FinTech dis-ruption in the wealth management industry has been centered around the financial management and wealth advisory functions that were usually performed by the investment banks. The typical customers for most of the traditional advisors were the baby boomers. In the last decade, this generation has witnessed the emergence of complex products like derivatives and have seen a couple of boom and bust phases of the economy. This generation was also the most active in terms of learning the basics and advanced techniques of investing. This is also one of the few genera-tions that have witnessed more than one recession in their lifetime and also have seen skyrocketing inflation at times.
In the 21st century, the emergence of technology has made more things accessible to most of the customers, but at the same time they have made things more complex. The millennials who would soon be getting into the employable age have been brought up in a digital age. They are more comfortable operating digital devices, especially for playing games and using social media on these devices, than the baby boomers. In one of the research studies it was shown that these millennials would have more faith in advice given by Facebook and Google than a qualified advisor from a bank. Millenials are spending more time on devices and mostly talking to a mobile device. The implication is millennials are trusting devices more than humans. Consequently, the millennials are more likely to believe in advise given by a machine than a qualified advisor. FinTechs, with their technology advantages, are well positioned to utilize this opportunity. Additionally, since most of the FinTechs are agile and lean teams, they would prefer to connect virtually than in-person to reduce the overall operational cost. Moreover, FinTechs are start-ups and have less upfront expenses, therefore they can have customers with investments as low as $1 up to larger sums. In contrast, large investment banks cannot have customers below a certain mini-mum amount due to their overheads. Lastly, FinTechs have tied up with regtech companies to address the regulatory compliance-related requirements. Regtechs are the technology start-ups that address regulatory compliance-related require-ments for different industries. Though some of the large banks have also started collaborating with regtechs for the same, but owing to their large monolithic technology set-up, it is challenging for them to integrate regtech-related offer-ings. Thus, FinTechs with their low charges, less initial investments and through digital interfaces have enabled the large middle-class population to be a part of the wealth management industry. We will be discussing some of these FinTechs who have disrupted the wealth management industry, though a large part of the FinTech disruption is centered around robo-advisors and financial planning. The business functions impacted by FinTechs include the following:
- a. Financial advice
- b. Automated investing
- c. Socially responsible investing
- d. Investment-related research