In just a few short years, we’ve seen our economy steadily rise and individuals begin to have the funds to invest again. The wealth management industry has also experienced a shift from personal finance advisors to automated digital solutions. The industry has completely transformed – from both a client and service provider’s perspective. As the market matures, we are seeing preferences transition from depositing capital to investing capital. Nowadays, wealth management services are more accessible than ever, even for novice investors, as a result of automation.
Robo-advising is steadily changing the landscape for wealth management. Within this changing landscape, one of the biggest transformations include individuals not needing large sums of money in their bank accounts to receive a personal consultation. Quite simply, the limitations of time with a personal consultant are erased with automated robo-advisors. Robo-advisors have become popular not only among companies seeking to adopt new technology and provide innovative services, but also among individuals focused on finding cost-efficient methods to manage their investments.
Statistics about the current state of the industry reveal the following:
- Assets under management by robo-advisors are expected to reach $4.6 trillion by 2020
- As of 2017, there are more than 200 independent robo-advisory businesses in the US alone
- More than 25 million customers are currently using robo-advising services, with the figure expected to reach 121 million by 2022
A recent poll by KPMG concluded that more than 80% of millennials (a generation interested in accumulating wealth but have limited investment management opportunities) and 75% of respondents from all age groups are open to considering a robo-advisory service proposal from their banks. As millennials are becoming the largest generation, that will account for almost 75% of all income by 2025, wealth management companies cannot afford to miss on this huge potential. An additional factor supporting this industry’s potential is EY’s estimation that by 2021 the global volume of net investable assets of high-net-worth individuals is projected to reach $70 trillion.
“Whether we build it or buy it, we should have it.”
-James Gorman, CEO of Morgan Stanley, on Robo-advising services, DealBook Conference 2015
Less than two years after Morgan Stanley’s CEO highlighted the importance of adding robo-advisory to their portfolio of services, the bank launched their new digital investment portal, Access Investing. They fast-tracked implementation on what they believed was a major opportunity. This power move set the stage for many to follow suit.
3 Challenges to consider when entering the wealth management industry – and how to overcome them
Morgan Stanley may not have any constraints when it comes to building or buying their wealth management solution but at True North, we understand that many businesses do not have the resources, the client base or the scale of a big investment bank. This is why we are here to assist companies in overcoming the biggest risks associated with entering the wealth management industry and ensure ideas live up to their full potential.
1. Ensuring high-quality execution
From portfolio management through fund accounting, record keeping and order management, to performance, reporting and data management – wealth management products are complex to their core and their development requires extensive industry knowledge. Building a professional robo-advising architecture requires a wide range of experts that work in close cooperation so that the final product is capable of satisfying the needs of your customers. Hiring in-house professionals can lead to higher costs and more overhead. The risk of hiring the wrong type of talent in this industry is huge. Ultimately, hand selecting an in-house team often times leads to a long complicated management process with this type of work.
By taking advantage of True North’s expertise, your company can avoid one of the most debilitating problems that these projects face – talent shortage (the third most common reason for startup failure). With True North, your project can utilize top industry expertise whenever and for as long as it is needed.
2. Speeding up the development process and delivering in reasonable deadlines
Depending on the complexity of the project, building a wealth management product from scratch can take up to 24 months – depending on the teams size. Even if your company decides to start tomorrow, this timeframe will set you back behind your rivals and may result in a significantly reduced growth potential. The truth is, the industry has developed quickly and there is high risk in facing competitors that are in a further stage of their product development process. Your proprietary product, v1.0, risks not being able to compete against a company with the second or third iteration of their product. Considering the high level of competition and the expected increase in popularity of robo-advisory products, it is crucial to work with a partner that has experience bringing similar projects to life and has the capability and depth to bring you to market in a shorter time frame.
“New firms and new business models, as well as a renewed commitment by incumbent wealth management firms, will drive the higher intensity of competition for the same clients and the same assets.”
“10 Disruptive Trends in Wealth Management” Report, Deloitte
At True North, we take care of all stages of your project, with the industry’s top experts. From defining the strategy, through the development, to market acceleration, we’ll take charge of the full or partial product or service development process (depending on the current stage of your project), your preferences and future plans. Our expertise guarantees that the final result will be delivered according to industry best practices via state-of-the-art methodologies.
3. The importance of budgeting and how to lower the project’s associated costs
Unless you are a big hedge fund, an investment bank or an established wealth management company with a huge customer base, the adequate cost estimation often turns out to be the make-or-break point. Determine your optimal budget, so that you can avoid overspending on development and project management. This will allow you to provide lower costs for your clients, and give yourself a competitive edge within the growing industry. In reality, building a proprietary system usually costs significantly more compared to partnering with an established company who has successfully delivered similar projects.
Higher costs, longer time-to-market, lower short-term ROI, lack of resources – the risks associated with the process of building the whole wealth management infrastructure from scratch and in-house, goes on and on. The conclusion is clear – you need a product within a reasonable budget but not at the expense of quality. That is why the most appropriate choice is to partner with a service provider who has solid track record and in-depth understanding of the industry.
Meet us at Money 20/20 USA
True North is attending this year’s leading event in the FinTech industry – the Money 20/20 conference in Las Vegas where entrepreneurs, leaders, and innovators meet. If you want to get in touch to discuss your project, build a productive partnership or just say “Hi”, attend the conference and meet us in person.
The first steps are always easier with a partner by your side
The FinTech industry and the wealth management business, in particular, are very challenging for first-timers. Nowadays, the one-size-fits-all approach to wealth management no longer works, and clients prefer solutions that are tailored to their needs. Many firms struggle to adjust to the constantly evolving consumer preferences. That is why collaborating with an experienced partner to help you tailor the perfect product is the only way to make sure that your company will bring a next-level solution to a highly-competitive industry without facing the niche-specific risks.
At True North, our experience in building wealth management solutions make us the perfect partner to define and implement complex operating models and integration plans for your project. We have helped numerous clients develop and launch comprehensive wealth management solutions. Our clients can focus on designing an exclusive customer journey, backed by execution follow-through and a seamless underlying process.