Technology has been disrupting every industry, and the wealth management industry is no exception.
According to Rich Topia, there are 11 technologies and innovations disrupting the world as we know it: artificial intelligence (AI), the Internet of Things (IoT), space colonization, 3D printing, medical innovations, high-speed travel, robotics, blockchain technology, autonomous vehicles, advanced virtual reality VR), and renewable energy.
While not all these technologies have a direct impact on the wealth industry, some of them do, and that impact is proving to be substantial.
In this article, we consider how some of these technologies are disrupting the future of the wealth management industry.
Blockchain, Cryptocurrency, and the Opening of a New Investment World
Before the invention of bitcoin, other efforts to create a digital currency—BitGold, HashCash, B-Money, and the like—had failed.
Bitcoin succeeded because of the way it combined cryptography with blockchain technology. The use of blockchain allowed bitcoin to combine both decentralization and transparency.
Every bitcoin transaction can be independently verified on the blockchain network; in other words, the ownership of a bitcoin can be confirmed from the network. Yet this verification of transaction and confirmation of ownership happens without a central agency: computer users scattered all over the world create blocks of bitcoin transactions without central coordination.
Because of its limited supply (no more than 21 million bitcoins can be created), bitcoin has acquired a status as a store of value because no central agency can create more of it and thereby reduce and weaken its value.
As a result of its potential as a store of value and a means of exchange, bitcoin has become an investment asset. From a market cap of $250 billion in 2017, bitcoin crossed the $1 trillion mark in March 2021.
Financial analysts are already touting bitcoin as the “digital gold” because of its status comparable to precious metal. It has shown almost zero correlation to the stocks and bonds market, making it a good way to add diversification to a portfolio.
Consequently, wealth managers and financial advisors are asking if they should include bitcoin in the portfolios they offer to clients. They don’t really have a choice, since a Financial Planning Association’s Journal of Financial Planning Survey from March 2021 shows that 49% of advisors say clients are already asking about it
Will bitcoin, with its blockchain technology, end up replacing gold as the investment-proof asset that provides diversification in retirement and other investment portfolios? Or will bitcoin even become a more acceptable means of exchange that changes the “monopoly” of fiat currency?
However it plays out, what cannot be denied is that bitcoin, powered by blockchain technology, is already disrupting the wealth management industry.
Artificial Intelligence, Data Analytics, and Robo-Advising
The robo-advising industry is booming. The industry is already worth more than $460 billion, and analysts expect it to reach $1.2 trillion in 2024.
Robo-advising relies on data analytics tools made possible by machine learning to provide investment portfolios and advice that best matches the customer’s profile.
However, robo-advisors are already deploying AI more broadly. Betterment, one of the popular robo-advisors, already uses AI to reduce taxes on transactions. SigFig, another robo-advisor, also uses AI to automatically allocate assets in a way that minimizes taxation. And Wealthfront and Fidelity are deploying AI in interesting ways.
It remains to be seen how far robo-advisors will take AI in the future. What cannot be denied is that robo-advisors are already making an impact in the wealth management industry by using machine learning and AI technologies.
IoT in Financial Services
A MarketsandMarkets report predicts that the market for the Internet of Things (IoT) in financial services will grow from $249.4 million in 2018 to $2.03 billion by 2023, at a compound annual growth rate (CAGR) of 52.1% during the forecast period (2019–2024).
According to Oracle, “The Internet of Things (IoT) describes the network of physical objects—“things”—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.” Connecting sensors for the home, the car, the supply chain, and personal health offers many interesting data points for wealth managers.
The use of IoT allows wealth managers to offer personalized customer service as they gather more insights from customer interaction. Customer data such as spending habits can be used as a basis for financial advice and discussion.
IoT technologies such as device-to-device (D2D) communication protocols and sensor implementation are helping banks perform a better risk assessment of potential customers.
The IoT is also driving the increased use of automation in business processes.
While the use of IoT has been more predominant in banking and insurance so far, it won’t be long before the impact becomes more visible in wealth management. Trackinno is already leading the way in the asset management side of things.
Of course, there are many other technologies disrupting the wealth management industry, and the above are merely a selection from the broader pool.
Wealth managers must always keep track of these developments so that they can keep leveraging the best technologies to provide the best services for clients.
Technology is not an enemy of the wealth advisor; rather, it is a partner that improves the quality that the wealth advisor offers to his or her clients.