The WealthTech sector of tomorrow – what will drive the market’s future?
The wealth management industry is on the brink of a revolution. No longer the exclusive domain of private bankers and elite advisors, the WealthTech sector is rapidly evolving—driven by AI-powered hyper-personalization, blockchain transparency, and a seismic shift toward financial democratization amongst other things.
According to Jurgen Vandenbroucke, managing director at EveryoneINVESTED, a key tenet of the company’s belief is that technology can provide the scalability it takes to improve financial wellbeing on a societal level.
He said, “We believe that this ambitious goal is the main driver of innovation and regulation in the industry. As a result, we believe that finding the right balance between user experience and regulatory compliance is key to success. Some impactful regulatory initiatives clearly prepare for a world where more people invest.”
Vandenbroucke gave the example of Europe’s retail investment strategy, where its mission to maintain investor protection in anticipation of a significant increase in retail financial participation.
He highlighted that a recent survey by the European Commission reports that about ¼ of citizens in the surveyed European countries have already invested, with a wide range from 19% in Greece to 44% in Sweden. Meanwhile, a recent initiative by the Belgian supervisory authority FSMA shows a clear expectation that financial participation will increase.
In Q3 2024, the FSMA launched the first of its quarterly reports on a “retail investor dashboard”. “The report monitors at a high level the number of (new) retail investors observed in the Belgian financial market, their investment product and their age. In terms of investment product, FSMA observes a growing interest in ETFs or, let’s summarize this as an “easy and cheap” investment solution,” said Vandenbroucke.
In terms of market exposure, such ETFs can be passive or active, but the key element put forward in the marketing is cost efficiency and ease of trading, claims Vandenbroucke.
He added, “More importantly for everyoneINVESTED is to present each investment in a way that it supports informed investment decisions. The challenge is to present the – legally required – information in a way that people understand, that fits the screen of a smartphone and that guides the alignment with the client’s preferences in balancing risk and reward. Our focus is on ease of use and metrics such as a high Net Promoter Score or a low Client Effort Score, taking into account the prevailing – changing – regulation as a necessary condition for compliance.”
The EveryoneINVESTED managing director raised a related initiative in the UK called the Advice Guidance Boundary Review. “Most market participants in the UK tend to focus on Consumer Duty, which is of course also very relevant. However, while Consumer Duty relates to existing investors, the Advice Guidance Boundary Review explicitly aims to increase financial participation, similar to the European Retail Investment Strategy.”
Elsewhere, a recent initiative by the UK’s FCA is particularly illustrative, he outlines. “On March 20, a consultation on a “New Product Information Framework” was closed. Motivated by the desire to get more UK citizens invested, the FCA is formulating proposals to make information sharing on investment products more customer-centric, digital, retail-focused, research-based. The intention sounds like music to our ears. “
Despite this, Vandenbroucke believes there is much room for improvement, particularly in the space of customer centricity.
He said, “In essence, the proposals adhere to the risk-based paradigm that has been driving the asset management business for years. There is now ample evidence that investor behavior and investment outcomes are more refined, and that a more sophisticated framework is needed to understand them well.
“In our view, the business trend is to build financial technology that addresses the emotional component of investing. This means enhancing the risk-based paradigm with behavioral finance findings to better understand how people balance risk and reward, which informs financial institutions how to formulate an investment proposal that will stand the test of time. Alternatively this means enriching data science projects with decision science to better understand and anticipate how people make decisions, which boosts the business impact of AI.”
He concluded by explaining that EveryoneINVESTED is leveraging decision science in general, and behavioral finance insights in particular.
He remarked, “This will make it possible to increase financial participation without a proportional increase in operational costs. It should be considered at least a side benefit that such an approach at the same time supports investors to make conscious investment decisions. The good news is that this implies compliance, as it contributes to investor protection.”
Strong demand
According to Fredrik Daveus, CEO and co-founder of Kidbrooke, trends such as AI-driven personalised advice, a strong demand for sustainable investing options which I think will come back once the result of climate change becomes more and more tangible, and the continued democratisation of wealth management services will very likely shape WealthTech over the next decade.
On the future growth drivers of WealthTech, he outlined, “Better and more accessible digital solutions will enable more customers to consume wealth-related services. Also the automation opportunities presented by GenAI will help with this. Then unfortunately, to some extent the growing inequality we see in many parts of the world will create more wealthy individuals requiring more total services.”
Daveus explained that WealthTech will also face challenges related to data security, regulatory complexity and market saturation.
What technology will become industry staples in a decade? In the coming decade, Daveus believes robust AI algorithms for personalization, blockchain platforms for secure transactions, and sophisticated robo-advisors will become standard tools. Firms adopting these early will enjoy significant competitive advantages, claims Daveus.
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