How Wealth Tech Is Reshaping Investments: A Data-driven Revolution
Embrace wealth tech for data-driven investment strategies, automation, and growth.
Dennis Gada of Infosys discusses how wealth tech is reshaping investments through data-driven insights, AI-powered strategies, and automation, presenting opportunities for growth and efficiency in wealth management.
Embracing Wealth Tech: Seizing the Opportunity
Wealth tech presents an opportunity for wealth management firms and investment advisers to tap into the new data-driven digital era in finance and serve a growing clientele open to virtual relationships.
Dynamism has typically been a defining feature of global capital market environments. Transactions are rapid, and markets are (mostly) efficient, serving individuals and institutions looking for investment opportunities – while channeling capital to the companies that need it.
That dynamism in recent years resulted from the technology underpinning the digital economy accelerates the speed of business and transactions. Automation also plays a more important role in the markets, with trades increasingly driven by formulae, not human decision-making.
It’s an exciting new era for wealth management firms and registered investment advisers. But many of them risk missing out on this era’s many opportunities, as they are not equipped to leverage the new digital technologies and tap into the data underpinning them. What should they do?
There’s a new opportunity that helps address this – wealth technology – “wealth tech” for short. It encompasses many tools and technologies — leveraging artificial intelligence and big data. It is helping firms in myriad ways, from making their operations more efficient and their services more automated to creating new investment strategies and execution.
See More: Big Tech in Finance: Deep Dive Into Future of Fintech
Robo-advisors: AI-driven Investment Strategies
An example is robo-advisors, which draw on AI to develop customer investment strategies. For firms, robo-advisors have the advantage of being low-cost, and those savings can be passed along to customers – many of whom are comfortable with little or no contact with a human advisor. Similarly, digital brokers typically exist virtually and provide access to information while also being able to process trades.
Wealth tech can also be used in niches that aren’t typically considered opportunity centers, such as back-office systems, which often draw on automation and AI to function.
The power of many wealth tech tools stems from their ability to dissect and synthesize massive quantities of data. That process unlocks insights that can help guide investment decisions – with much greater precision than in the past – creating data-driven approaches to risk management and other areas. Several processes can also be automated, which helps to reduce costs (in areas such as customer service) and frees up time and resources to devote to other duties.
See More: Are You Ready for the Stock Market’s AI Revolution?
Beyond Traditional Investments: Tokens and Innovation
Wealth tech is going to play an increasingly important role as firms need to cater to the rising cohort of digital-first customers. In the United States, family wealth last year totaled $140 trillion. By 2045, $84 trillion of that wealth is projected to be handed down to heirs, largely Generation X and millennials. In the next decade, we will see $16 trillion of that wealth passed along.
“Tokens” are an example of a wealth tech tool that could appeal to the younger generation. They can be backed by platforms such as Bitcoin or crypto. While they have yet to develop broad mainstream interest, that’s likely to change as younger customers accumulate wealth and look for options beyond the traditional stocks and bonds.
But new financial instruments can also be volatile – human perceptions and assessments of situations still drive markets. And so just as wealth tech can create these instruments, it can also be used to create approaches to risk management that are uniquely tailored to each institution’s needs.
Addressing Challenges: Adoption and Continuous Innovation
The greatest value of wealth tech is in its ability to create more value from more data and spread that value across more of the products and services that firms offer. This can include higher productivity, more precise decision-making, and shortened time between insight and action.
It’s one thing for firms to understand wealth tech’s benefits. It’s another thing to get them to adopt it. McKinsey points out that “early success stories are encouraging, but they are the exception rather than the rule. More often, firms have started the transformation journey but have faltered along the way. Common reasons include a lack of ownership at senior levels and budgetary or strategic restraints that prevent project teams from executing effectively.”
The related issue is that wealth tech is not a stationary object that a firm buys once and then uses for several years. Wealth tech is always undergoing innovation, which means that when firms get comfortable with a new product or service, it’s probably on the verge of being displaced by something even more effective. Keeping up with the innovation and having systems in place is fundamental if firms maximize the potential of wealth tech.
One of the keys to building support for wealth tech adoption is showing how it addresses pain points at many firms. McKinsey, for example, estimates that non-revenue activities account for 60-70 percent of relationship managers’ time. Showing how wealth tech can free up time for revenue-generating activities is an example of how it could gain followers.
Wealth tech represents the future of the investing and wealth management industries. The only question is the pace at which the evolution unfolds. Firms adopting wealth tech must be vigilant about data protection and ensure regulatory compliance. And given the extreme dependence on technology, protecting against technological breakdowns will be key to building and maintaining customer trust.
For wealth management firms and investment advisers, making the investments to meet these challenges, and others like them, will unlock tremendous new opportunities – with the ability to serve more customers at lower cost while delivering strong risk-adjusted returns.
How can wealth tech enhance your investment strategies and drive growth in the digital era? Let us know on Facebook, X, and LinkedIn. We’d love to hear from you!
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