Robo wars: commoditizing wealth

Date: 16 Nov 2017

Bumblebee Design

robo advising fintech wealth management

Investments in US fintech companies stood at $5 billion in the third quarter, according to KPMG’s Q3 2017 Pulse of Fintech report. who attribute this continuing goldrush to increased venture capital funding, an increase in deal value and strong performance by the private equity sector. In Europe B2B fintech investments into automated payment systems to help established companies leverage more money from customers has risen more than in fintech start ups.

Kenn Taylor is a head of the wealth practice at a strategic consultancy called Alpha FMC who specialise in advising the wealth management industry and he says: “Many organisations in wealth management now run fintech incubators or accelerator programmes to identify, develop and promote innovative start-ups. Similarly, investors themselves are playing a part. Investment managers are increasingly taking equity in fintechs whose services they procure, and then marketing the services externally to their own clients.”

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And this is predominantly because robo-advising platforms have become less costly with the advance of new software. Keith Hare, group director at fintech investor and strategic partners Benchmark Capital confirms this saying: “Many solutions can be accessed by firms managing as little as £100M, whereas five years ago, the entry point to an industrial strength custodian and software stack would have been out of range for the majority.” 

The US have considerable expertise in robo-advice, according to research by Deloitte with US robo-advisors like SigFig whose simple to use, educational platform has enabled them to partner with the likes of UBS Americas and Wells Fargo who are both considered to be the amongst the worlds largest banks to provide equity to Sigfig and software solutions to the banks.

Bank brands turn robo investor heads

Taylor who works with big-brand banking clients such as Edmond de Rothschild, Schroders and Barclays Wealth says: “Traditional wealth managers’ ‘robo’ efforts have initially been geared towards complementing the services they already offer existing customers, but with additional self-service elements. Increasingly wealth managers are looking to offer robo-products as a different proposition,” adds Taylor, “often through a model portfolio service, which both exploits the firm’s investment capabilities and leverages the power of the wealth management brand to target a different customer base. Independent robo-companies don’t tend to have as much brand capital and we have seen many go through extensive rebranding, but an established wealth management name on a robo-solution should have more clout.” He says that most wealth managers are confident that having the reputation of a high-quality brand is more important than being seen as low cost. “Whilst downward pressure on fees are inevitable, this is driven more by regulatory and consumer demands for greater disclosure and transparency rather than by direct competition.”

Biometric BNP Paribas

One of the greatest inhibitors to smooth customer experience is the rigmarole, mostly regulatory driven, involved in onboarding, Know Your Customer (KYC) and anti-money laundering requirements. Fintechs using biometrics show promise of alleviating some of these obstacles. For example, BNP Paribas Wealth Management has added biometric authentication product that allows clients to log into their details by taking a selfie and using their smartphone as a key. 

Untapped potential

Taylor adds that the application of predictive analytics and artificial intelligence in wealth management is still to realise its potential. “Increasingly fintechs are pushing the boundaries of what a wealth organisation can do with the data they own and aggregate.”  Which suggests that robo-advisory is certainly going to continue to make money for a wealthy minority but whether for the majority who are their intended audience, the jury might still be out.