Eoin Treacy's view -
With the advent of Automated Digital Wealth Management solutions (aka robo advisors), the traditional wealth management industry is facing perhaps its most disruptive threat since low-cost online stock trading emerged in the mid 1990’s
The combination of highly credible digital wealth management solutions, the Millennial generation’s predisposition to “do-it-yourself-through-an-app” and the pending transfer of trillions of dollars of wealth to and eventually from Baby Boomers is forcing participants across the wealth management industry to reevaluate their product and distribution strategies
Already suffering from the relative shift in appetite towards ETFs and other passive investment vehicles, the mutual fund industry in particular appears further threatened by digital wealth management solutions since most of the solution providers utilize ETFs as their underlying investment vehicles; this movement may force firms that have traditionally only focused on providing financial services products to focus on providing scalable advice as well – the new Department of Labor rules around fiduciary duty for retirement service provides will likely exacerbate this trend
At a minimum, all wealth managers should be highly focused on “digitizing” their businesses as consumers of all ages and demographics will increasingly expect an “Amazon and Uber-like” experience from all of their financial service providers
Similar to the online trading playbook, new consumer brands are emerging in the digital wealth management industry (such as Betterment, Wealthfront and Personal Capital) while traditional firms are striking back by either offering their own in-house solutions (such as Charles Schwab and Vanguard) or partnering or acquiring to speed time to market
Recent M&A includes BlackRock’s acquisition of FutureAdvisor, Invesco’s acquisition of Jemstep and Northwestern Mutual’s acquisition of LearnVest
A handful of different business models have materialized in the digital wealth management space including 1) new direct-to-consumer brands with limited advisor assistance, 2) new direct-to-consumer brands with heavier advisor assistance, 3) traditional firms with in-house digital wealth management solutions, 4) business-to-business and white label providers enabling others to offer their own digital wealth management solutions and 5) retirement specific providers including both direct-to-consumer and business-to business providers
Similar to other recent FinTech innovations, digital wealth solution providers are quickly emerging around the globe – in fact, we have identified more international direct-to-consumer players than in the U.S.
As capital continues to flow into the digital wealth management space and traditional investment management firms evaluate their strategies, we expect to see a notable increase in partnership and M&A activity in the space
over the next 12-18 months
A number of newer firms are likely to be acquired by larger organizations that are looking to add or deepen their digital wealth management capabilities while only a relatively small number of new consumer brands are likely to achieve the level of scale (and funding) they need to survive on their own over the long-ter
A link to the full report is posted the Subscriber's Area.
The risk of litigation for financial advisors means the majority of investors are presented with what might be described as a plain vanilla 60/40 bonds to equities blend for their portfolios. Depending on whether the investor is categorised as conservative or risk tolerant that basic formula might be altered somewhat but the long-term nature of the strategy means the majority of clients will be invested in the model portfolio.
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