How Financial Technology (FinTech) has changed the wealth, finance and banking industries

How Financial Technology (FinTech) has changed the wealth, finance and banking industries

Despite the pace of growth in the financial technology (FinTech) industry, recent studies show that investors still trust humans more than artificial intelligence when it comes to asset management, but their expectations continue to rise. It is therefore essential for financial services companies to harness the full potential of FinTech to provide consistently relevant human service.

As client expectations rise exponentially due to the ease and flexibility offered by new technological developments, traditional wealth managers may fear being replaced by investment apps.

Yet, 93% “of human-advised clients say they would not consider switching to digital [while] 88% of robo-advised clients would consider switching to a human advisor in the future,” state a study led by Paulo Costa and Jane Henshaw for Vanguard. The searchers surveyed 1,518 U.S. investors and the results were published a few months ago.

“Despite the common headlines about technology replacing humans, our data suggest that investors have a strong loyalty to their human financial advisors,” the authors wrote, adding that “human advisors should consider automating their portfolio management services, leveraging technology to scale their business while strengthening their uniquely human value.”

How financial technology is changing the wealth management industry

In recent years, new applications of technology have improved upon metrics such as productivity, monitoring, risk assessment, and many others. Given this, it’s safe to say that today’s FinTech is transforming the wealth management landscape in a very profound and permanent way.

Unsurprisingly, a growing number of traditional banks and wealth management firms are choosing to adopt financial technology in the hopes of becoming more attractive to investors. When it comes to assessing their digital transformation needs, 84% of traditional wealth managers firms consider productivity improvement as their top consideration, according to a salesforce/WealthManagement report. Improving the customer experience (62%) and profitability (34%) are the next two criteria.

FinTech and productivity

Productivity is one of the main reasons wealth management firms invest in FinTech. Easy portfolio construction, streamlined functional tasks, efficient management of taxes and capital gains, scenario planning according to different financial market conditions and life events, and risk management are all aspects of wealth management that are facilitated by FinTech.

One of the core tools to increase productivity and simplify the daily life of financial planners is a versatile portfolio management software. The strength of this type of system is that it brings together all the necessary functionalities in a single FinTech ecosystem, allowing for a better overview and quick advisory process.

Another particularly useful tool for improving productivity in these volatile and turbulent financial market times is an automated portfolio rebalancing solution. This type of software allows portfolio managers to ensure that their clients’ assets under management remain aligned with their mandate and investment objectives, taking into account a multitude of factors such as client preferences, risk tolerance, and market quotes changes. An efficient and customizable tool allows investment advisors to manage their clients as they see fit. They don’t have to worry about what to rebalance, because the tool shows them where to focus their attention and provides rebalancing scenarios that they can validate before sending orders to the market. To be effective, such tools must also consider factors such as tax optimization and compliance in their processes.

Indeed, FinTech enables financial planner firms to improve their productivity and manage costs both by reducing administrative overhead and by increasing their operational scale.

FinTech and the client experience

Investors are demanding a more digital experience and, at the same time, expecting far more for less. In such a climate, a wealth professional may feel like it’s harder to stand out in a crowded space. Fortunately, technology is giving financial planners and firms the ability to adapt and align their approach with the rapidly changing needs of the financial industry and its investors.

Nearly three quarters (71%) of firms are already using Customer relationship management (CRM) software, according to a salesforce/WealthManagement report. But digital innovation goes even further by providing financial advisors with a 360° customer data view across all touchpoints and channels to improve their onboarding, while delivering a personalized and transparent advice experience. All of these factors contribute to optimizing services to investors.

While the digital experience is important to client satisfaction, when challenging decisions need to be made, investors turn to their wealth professional. Therefore, it’s critical for them that they are equipped to provide timely and accurate investment advice. This is where a good portfolio management software comes in, allowing the advisor to have access to all relevant data throughout the advisory process. By answering all the client’s questions, the advisor positions himself as a reliable expert and demonstrates the added value of his service.

In addition to improved efficiency and customer experience, the latest FinTech offers financial services companies access to richer data which enables them to help make more effective and profitable investment decisions for their clients and themselves.

FinTech and profitability

Properly executed, the digital transformation of financial services providers should streamline internal processes and significantly reduce costs. By automating costly, routine internal processes that are performed throughout the investor lifecycle and improving workflows between departments, technology can help redirect resources to customer acquisition and retention. Portfolio rebalancing is one of these arduous processes where technology can be of great help.

Pressured by the steady decline in profitability of the banking industry, traditional banks need to consider (if they haven’t already) changing their operating model from event-based pricing to performance-based and advisory pricing. By working with a FinTech company, asset managers can leverage new technologies to gain new insights and develop innovative financial products.

What is FinTech?

The term FinTech stands for financial technology. It refers to technology that automates parts of the financial advice process. This means that the follow-up of the particular situation of each client is handled by digitized systems, and that a part of the wealth professional tasks, such as generating reports, risk rating process and portfolio rebalancing are now done by software.

Through its rapid development, the FinTech company sector is accelerating the change in business models of traditional wealth managers and the digital transformation in the financial services industry, but without causing a revolution.

Indeed, 74% of technology firms focus primarily on areas that are already core to the wealth management industry, according to Deloitte. In fact, 20% of the FinTech innovation revolves around the internal processes, 20% around investment product performance and 17% on services to consumers.

What are the two types of FinTechs?

B2B technology firms are partners or service providers for traditional wealth managers. They focus on innovating wealth management ecosystems, their structure and advice process by offering innovative and flexible platforms, analytics and other digital solutions.

B2C technology firms are often FinTech startups that compete with traditional banks for clients’ investable assets. They focus specifically on product performance, digital advice model solutions and service including offering investment apps, robo-advisors, P2P platforms, which are often available on mobile devices.

What is an API?

API stands for Application Programming Interface. APIs allow two digital solutions to communicate with each other. Thanks to APIs, financial services companies can integrate FinTech innovations into their wealth management ecosystem without having to discard their legacy systems.

For example, a financial planners’ firm could add an automated rebalancing solution to its core system using an API. This will allow data, such as bank account information and position of investable assets, to be exchanged seamlessly between the two systems through standardized and secure protocols.

In this regard, APIs provide a fertile ground for the rapid development of new types of advice experiences and could have a dramatic impact on the economic development of a financial planners’ firm.


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