All about Wealthtech: Past, present, and future

Let’s talk about Wealthtech. If the last fifteen years or so have been characterized by an intensive drive to digitalize almost all aspects of our economy, it’s fair to say that wealth management has been something of a laggard in that respect. A conservative industry based on trust and close relationships, it’s understandable why wealth management could be wary of the atomized, impersonal nature of digital relationships.

However, we have come to see that those fears are mostly unfounded and a wide range of companies, called Wealthtechs, have shown how digital solutions can supplement (or even replace aspects of) the delivery of wealth management services.

But as Wealthtech is a new industry, and one easily confused with its better-known cousin, Fintech, we want to take the opportunity to provide an in-depth explainer about what Wealthtech is, what problems it solves, its history, and its future.

What is Wealthtech?

First, let’s define what Wealthtech actually is, as there is some conflicting information out there on the subject.

Definition of Wealthtech 

Wealthtech is a subset of Fintech, which is the delivery of a broad range of financial services through digital means. Within that, Wealthtech is focused on delivering wealth management services digitally. 

The question is: What has digital enabled in the wealth management space that wasn’t possible previously? 

Broadly speaking, solutions fall into two categories: solutions that expand the availability of wealth management services to wider social groups; and solutions that leverage digital to deliver traditional wealth management services more effectively. 

Perhaps it would be helpful to look at the difference between eToro and Betterment and why one can be considered Fintech and the other is Wealthtech. eToro is an investment platform that lets customers buy and sell a wide range of assets. It allows them to get hands-on with their investment portfolios and become individual active investors. We would argue this remains Fintech, despite its services being used to build one’s wealth. 

On the other hand, while Betterment also allows its customers to invest in the stock market, it requires them to consider their long-term financial goals, risk appetite, and investment horizons. It does not allow its customers to trade individual equities (or other asset types), deploying algorithms to invest instead in passive funds. It treats its customers like private wealth clients. Therefore, we can consider Betterment a Wealthtech company. 

Both the above groups target the customer not the service provider, but Wealthtech solutions also exist that improve the lives of the wealth managers themselves, either allowing them to serve more clients or serve existing clients more effectively—or both. The term for Wealthtech solutions for wealth managers is “Advicetech”, although this term is not as established. 

Click here for a deeper look into the differences between Wealthtech and Fintech. 

Wealthtech Solutions 

Wealthtech companies comprise, by our count, seven distinct verticals.

Robo-Advisors 

Robo-advisory platforms provide algorithmically generated investing and financial planning services. New clients will complete a questionnaire that assesses their risk profile, ESG (environmental, social, and governance) views, time horizon, financial goals, and other key criteria, forming an investment basis. The platform will then invest typically in passive investment funds. 

Robo advisors can deliver services at scale, allowing them to charge lower fees. Clients can also open accounts with a smaller investment pool and can access the service at any time. On the downside, they have fewer investment options available. 

Robo advisors make up the fee deficit through processing larger volume of transactions, thanks to their larger client base. 

We’ve dug further into this topic in our blog, ‘How Wealthtech is democratizing investing’. 

Robo Retirement 

Some firms offer algorithmically generated retirement planning. The general approach is similar to the robo-investment platforms, just with a tweaked end goal. 

Micro Investing 

For people who struggle to set aside a monthly sum for investing, micro investing allows customers to round up their daily purchases to the nearest primary unit of currency (dollar, euro, pound sterling etc) and invest the margin in their portfolio. This allows the customer to slowly build up their investment pot without having to adjust their behavior or spending. 

This model is possible with zero investment fees and the advent of fractional shares. Fractional shares are a portion of a share that’s less than one whole share. 

Digital Brokers 

Digital Brokers automate services provided by traditional brokers in verticals such as insurance and mortgages. Robo advisors can also be considered digital investment brokerages.   

Account Aggregators 

Made possible by Open Banking regulation introduced in the 2010s, account aggregators use APIs to bring together an individual or household’s financial accounts (savings, current, and investment) in one place. 

Private Banking Solutions 

The ultra-rich have different, or extended, needs in terms of managing their wealth than the layman. Companies such as Topaz bring together a raft of existing technologies to offer end-to-end private wealth solutions that make wealth management easier for both clients and advisors alike. 

In the tug-of-war between automated and traditional (in-person) wealth management, a third way, hybrid advice, is winning. Hybrid advice empowers clients to handle certain tasks themselves while retaining the ability to talk to their personal financial advisor, building and maintaining the key element of private banking—trust. And for the advisor, such solutions automate laborious processes so they can focus on their biggest value-add—building relationships with clients. 

Advicetech 

Advicetech companies provide software solutions that help wealth management firms improve the efficiency and cost-effectiveness of their operations. While the term was coined relatively recently, Advicetech is perhaps the oldest type of Wealthtech, with financial planning and stock-picking software first appearing in 1998.

Find out which six Wealthtech companies we think are delivering outstanding UX.

History of Wealthtech

Now, let’s take a look at the big picture: how Wealthtech began, what its adolescent growth phase looked like, and what’s happening in the industry in the early-mid 2020s as the industry matures.

Stage 1: Origin of Wealthtech 

Before Wealthtech really started in around 2008, proto-Wealthtech companies and services existed before then. Financial Engines, now known as Edelman Financial Engines, began providing retirement planning and fund-picking software in 1998 for instance; while software that supports wealth managers has also been around since the ‘90s. 

Stage 2: Growth of Wealthtech 

The release of Betterment’s platform in 2008 can be considered to mark the initiation of the Wealthtech movement. Betterment was perhaps the first robo-advice platform and, as of 2022, is the largest globally. Wealthfront went live in 2008 as well. Betterment’s release coincided roughly with the 2007 Financial Crisis. Some commentators have drawn a link between the two, arguing that people looked to new ways to control and stabilize their financial situation in a turbulent time.  

No doubt that’s part of the equation. A more likely factor, however, was the coalescence of new consumer tech becoming available, namely the original iPhone in 2007, and the tech industry becoming a distinct entity. Together, businesses had new challenges to solve and new channels through which to deliver their solutions. With sophisticated software and hardware in consumers’ pockets for the first time, app-delivered services became viable.  

Not too dissimilar to Betterment, Nutmeg, a London-based robo-advisor, arrived in 2011. Other robo-advisors that sprung up in the following years included Scalable Capital (Germany), Wealthsimple (Canada), Stockport (Australia), Moneyfarm (Italy), TrueWealth (Switzerland), and 8 Securities (Asia-Pacific). There are an estimated 100 robo-advisors around today. 

Micro-investing pioneer Acorns was founded in 2012, followed by Stash in 2015. 

Robo-retirement company RobustWealth was founded in 2015 (but was absorbed into its parent company, Principal, in 2021, three years after its acquisition).  

Stage 3: Consolidation of Wealthtech 

While the world’s biggest financial institutions had incorporated robo-advisory technology in their own offerings for a while, the 2020s saw a change in their digital advice strategy. A period of consolidation began and many of the most successful robo-advisors were acquired for large sums. Nutmeg was acquired by JPMorgan in 2021 for nearly $5bn and Wealthfront was acquired by UBS a year later for $1.4bn. 

This is where we appear to be currently: the best Wealthtech companies have proven their business models and have drawn the attention of the financial world’s big beasts. 

Future of Wealthtech

The 2022 version of this section listed predictions: further acquisitions after Nutmeg and Wealthfront, robo-advice gaining on human advice, private wealth going digital, and investment into the sector continuing to rise. We are not grading those against the market.

Here is what changed in the wealth work we have shipped, which a reader can check on the work pages.

Aggregation stopped being the pitch. On the private-bank and external-asset-manager work, consolidated reporting across accounts is assumed. The question we get is what the app connects to.

The relationship manager did not get replaced. The Swiss private-bank mobile we designed had to feel exclusive and still sit on Temenos. EAM and HNWI onboarding was compliance-heavy and still human. Private-market offering analysis lets an investor interrogate a document in language, with citations, and it does not hide uncertainty. In each case a person stays on the decision.

The integration surface decides the release more often than the screen does. Core banking, custody feeds, and the custom interfaces around them set what is deliverable. The interesting engineering is rarely only in the part the client sees.

The open question in that work is not whether private clients will use a digital channel. They already do. It is what the relationship manager is for once the client can see the portfolio. That is a service-design problem.

Conclusion

Wealthtech is an industry to keep an eye on. At Windmill, we have been solving Wealthtech problems for clients for many years, such as delivering a slick onboarding experience, enabling a holistic view of wealth in one place, and, most importantly for us, building our own Wealthtech company, Topaz. If you have a problem with an aspect of your service, consider Windmill as your partner.