WealthTech Industry Overview
Since the FinTech industry has blown up in recent years, it has expanded to create several sub-categories, of which WealthTech is one of them. Services for the preservation of wealth had typically only been offered to those with 6 or 7 figure savings. With the help of technology, more investment opportunities are surfacing. Now individuals with a humbler savings balance can invest and get higher returns than what their bank’s ISA is offering. However, the general population doesn’t realise that these offerings exist… Although there has been a slight change in mindset for the average Joe when it comes to wealth preservation, there is still a lot of market share up for grabs. it is now possible for anyone to download an app and invest as little as €5.
WealthTech startups are considered as those which apply innovative ways to preserve and create wealth. However, the use of the term ‘wealth’ doesn’t mean several thousands or millions. Additionally, a WealthTech is not just a company that allows you to invest in the stock market, there are also some B2B offerings. Revolut, a leading European Challenger bank, has recently added stock trading to their app. Will other FinTechs follow suit and enter the WealthTech space? Below we’ll break down the main sub-sectors of WealthTech with an explanation and some examples of startups.
Robo-advisors are digital platforms which offer financial advice or investment management online. The Robo-advisor platform can build a diversified portfolio based on the preferences you have inputted on your profile. It can does this with little to no human interaction. E.g. Betterment allows their customers to text and receive answers from a human financial advisor. Wealthify have more human input when deciding what and how they invest. The total AUM for robo-advisors has reached $980m this year. In addition, there has been a 75% increase in users to around 45,000. This is a sector that is seeing some serious growth. Robo-advisors can be for both B2C and B2B.
Wealthify is a UK-based robo-advisor startup, with the aim of making investments simple and affordable. They have 5 Investment plans based on your risk appetite; you can read a detailed PDF on each here. Investment plans range from cautious to adventurous, in addition, they have 5 other ‘ethical’ options. The investments are typically with ETFs and can be diversified with shares, corporate & government bonds, commodities, property, private equity and cash. They invest in ETF funds which are created by top investment firms such as Blackrock and Vanguard. You can invest as little as £1 and withdraw anytime. Fees are laid out simply, the they start at 0.99% of your total AUM. The fees are lowered as you invest more, in addition to discounts with the refer-a-friend scheme.
These platforms allow users to invest small sums of cash, allowing them to get returns little by little. A popular way of doing this is by rounding up purchases to the nearest euro and investing the spare change. Instead of needing €1000+ to buy an amazon share, you can buy a €5 slice of it. It’s possible to both automate the process, allowing the platform to manage your portfolio based on your preferences, or you to choose your own ETFs and stocks. Given this option, micro-investing allows for a more hands-on experience than using a robo-advisor. Fees have also been dramatically reduced. It is common that micro-investing startups have a subscription-based/ flat fee payment scheme. This has levelled the playing field as more people are able to take part in investment opportunities. Furthermore, you can learn more about investing as you tend to be guided with recommendations and explanations.
Robinhood have become a favourite for the press, they currently have a valuation of $7.6bn. Robinhood have been able to target the millenial market perfectly by simplifying the investment process, making it accessible and providing materials to learn about investing. Robinhood has commision-free trading and uses a ‘freemium’ supscription model. The platform is very easy to use.
A broker would usually charge a flat fee per trade, handling fees and other hidden fees. These high fees are why investing has traditionally only been available to those who can invest large amounts. Digital broker platforms vary in target audience, they can supply analyses and a variety of investment instruments (sell, options, futures ect) for experienced investors. On the other hand, there are also digital brokers that are tailored for beginners. ‘Social trading’ is one feature that has proved popular for the less-experienced market. Users can shadow or simply automatically copy the trades that more experienced traders do.
Etoro is a digital broker which has simplified trading and gotten rid of high fees. It is also ‘commision-free’, however there are overnight fees and other costs which are relatively minimal. Etoro was one of the first to offer social trading. In addition to copying trades, you are able to see the experienced traders background, stats and even communicate with them on Etoro’s Facebook-styled status updates.
Investment tools & Portfolio management
Investment tools are a B2B segment of WealthTech, these are services which help investors. Typical aspects include comparison tools, access to networks of advice and research analyses. Portfolio management solutions are also a B2B offering. These help financial institutions with asset class analyses, then with the help of automation and organisation, they increase the efficiency of most tasks.
Addepar is a B2B portfolio management platform, it has a sophisticated operating system tailored for the financial world. With it you get a holistic view across all assets. In addition, the platform provides real-time analytics of your portfolio, customisable reporting, data aggregation and more.