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New technology has been transforming the sector over the past 12 months – and next year is likely to see further momentous changes
Jan 03, 2022
Simon Brooke ,
When Mike Winkelmann’s Everydays – the first non-fungible token (NFT) of a digital artwork to be offered by a major auction house – sold for $69m (£52m) at Christie’s in March, the excitement it caused extended far beyond the art world. NFTs are set to become part of the wealth management mainstream next year.
In November, Goldman Sachs announced that it would be adopting Daml, a development framework created by blockchain startup Digital Asset to enable financial institutions to execute agreements on a blockchain. Tokenisation represents a “vast commercial opportunity”, according to Mathew McDermott, head of digital assets in Goldman Sachs’ global markets division.
The ownership rights of an asset of a purely digital representation can be divided, traded and stored on a distributed-ledger system such as a blockchain. Splitting up or ‘fractionalising’ real objects such as a property, on the other hand, can be much harder or even impossible, but representing these as tokens overcomes the problem. Tokenisation can open up markets and increase liquidity, as well as making the settlement process more efficient.
Digital technology has been advancing too quickly for the comfort of some of the sector’s older, bigger beasts, which have resorted to M&As to obtain cutting-edge know-how over the past 12 months. Charles Schwab acquired Motif, for instance, while JPMorgan Chase bought Nutmeg, OpenInvest and 55ip. More wealthtech startups are likely to be purchased next year.
US consultancy Forrester Research predicts that relative newcomers such as Betterment and Wealthfront will continue attracting customers and assets under management in 2022, thereby increasing their appeal to potential acquirers.
There would be clear benefits for all concerned in the event of an acquisition, according to Vijay Raghavan, senior analyst at Forrester, who says: “Since the big incumbents have more customers than the wealthtech firms have, a broader swathe of people will begin enjoying improved digital experiences.”
As the seamless personalised customer experiences offered by the likes of Amazon, Netflix and Spotify become the norm, consumers will increasingly demand the same level of convenience from their financial service providers, Raghavan predicts.
“As nimble wealthtech firms enhance the digital experiences they offer, spurring industry incumbents to either improve their own capabilities or acquire them, consumers will benefit,” he says. “This will engender customer loyalty, leading to increased retention and more assets under management.”
As the regulatory ratchet turns again next year, with new requirements to be issued by the Financial Conduct Authority, among other watchdogs, wealth managers will increasingly use technology to ensure compliance. Artificial intelligence systems will take over some of the routine and repetitive compliance work that people have been doing for decades. More firms will use technology to take a proactive approach to the task, anticipating the effects of potential regulatory changes.
“Two years ago, the notion that a wealth management business could take on a new client and provide appropriate financial advice, all without meeting that person, was unheard of. Now it’s the norm,” says Finn Houlihan, MD and chartered financial planner at wealth management firm Arlo Group UK. “That’s thanks to some incredible strides by compliance departments and also to important investments by firms in ensuring that their teams have the right digital infrastructure to engage with their clients remotely.”
AI-based technologies such as machine learning, deep learning and natural-language processing will provide the next big advance in wealth management analytics, according to Gartner.
The next generation of analytics systems will become more predictive, offering guidance on actions that firms should be taking. While 88% of the wealth management executives polled in Gartner’s 2021 Financial Services Technology Survey believe that such systems are effective, only 13% are currently using them. But Gartner reports that it’s observing “a steady progression on the deployment of this technology”.
In November, the Investment Association published a research report that noted: “Buy-side leaders have begun to access new alternative data sources (most commonly, web-scraped data, geolocation data, social media data and credit card data) and use advanced analytics techniques to generate new insights from these.” The report, AI and the Investment Management Industry, quotes a study from Grand View Research forecasting that the global market for alternative data will expand at a compound annual growth rate of 58.5% between 2021 and 2028.
In April, Nasdaq noted that virtual reality (VR) and augmented reality (AR) were helping wealth management firms to “make managed investments more intuitive for clients, especially millennials. The adoption rate of these technologies should increase as advisers become more familiar with their capabilities.”
Nasdaq believes that wealth managers will start using these systems to engage their clientele, using their game-play elements to encourage effective savings and investment behaviour.
Given that the pandemic has made remote working widely acceptable and the use of videoconferencing services such as Zoom and Microsoft Teams routine for many people, it’s a smaller step for VR and AR to provide more interactions between wealth managers and their clients in 2022 and beyond. Wealth managers will find that they can use these technologies to provide virtual scenarios that will enable clients to explore in vivid detail how the financial choices they’re considering could affect them in the future.
These technologies are also set to be used more for internal training purposes. For instance, St James’s Place (SJP) announced in November that it would be supplying employees with Oculus Quest VR headsets. These enable them to experience the role of an adviser and engage in conversations with virtual clients through a series of multiple-choice questions.
VR technology is “improving rapidly and becoming more affordable”, according to SJP’s divisional director of learning and development, Di Macdonald. “Our intention is to give people a safe space to practice in, so that they can gain confidence without needing access to trainers.”
Written by
Simon Brooke ,
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