Wealthtech to make investors an awful lot of money in the years to come

27 Apr 2017

Concept image of digital money. Image: gregflat/Shutterstock

Within the burgeoning sector of wealthtech, there is a whole army of eager advisers willing to make investors a lot of money, and they never need to sleep.

Since capitalism began to take hold as a concept in the 17th century, investors have been searching for the enterprises or funds likely to generate the most money.

A simple idea, sure, but one that has never been an exact science – or anything remotely close to one – in the hundreds of years since.

That could be about to change, however, with not only the advent of fintech as a concept, but also the subdivision we now know as wealthtech.

In its simplest definition, wealthtech is the technology – typically software – used to help investors make better decisions when it comes to where they should put their money, and also when to call it quits.

According to market analysts CB Insights, in 2016, venture capital funds backed as many as 836 companies falling under the fintech umbrella.

Of that number, 74 investments could be categorised under the wealthtech banner, totalling $657m: a new record.

Even looking at the beginning of 2017 (up to the end of March), 17 major deals were secured in the sector. Smart investment marketplace Raisin led the way, with €30m raised in January.

Robots taking over

Obviously, interest has been quite high in this area, given the rise of artificially intelligent systems – known commonly as robo-advisers – that can find funds and give the investor immediate answers.

The figures certainly don’t lie, with market estimates showing that by the middle of the next decade, as much as $16trn in assets are expected to be managed by robo-advisers, up from $0.5trn in 2015.

Even taking the US alone, the number of funds using robo-advisers has multiplied from just six in 2008 to 44 in 2015, managing upwards of $300bn.

Also, unlike the typical image that the latest fintech solutions are all being developed by start-ups and not established institutions, even the largest investment consultants are getting in on the game.

In March of this year, Goldman Sachs – perhaps the biggest investment firm there is – revealed it was looking to build its own robo-adviser for its richest customers.

Morgan Stanley said it is looking to unleash its own robot into the investment world by the end of this year, while UBS and Wells Fargo are working with fintech companies to see how they can follow suit.

Even within the Irish space, London-based ETFMatic is revealing its plans to offer robo-advisers here, through a mobile app.

Not all about the robots

However, while the thought of a piece of code making many of your financial decisions with greater accuracy seems like a no-brainer, investors in some instances appear to be uncomfortable with diving in head-first.

This, based on comment from investors and dedicated sites, appears to revolve typically around the lack of ability to actually talk with the adviser, particularly as they aren’t personalised.

That said, there is still space for humans to remain in control of the wealth generation through the advent of virtual meetings with advisers.

Effectively productivity software, companies such as SuiteBox are enabling meetings between clients and investors wherever there’s a decent internet connection.

Much like some of these other new technologies, it appears that there is scope for growth. While a 2015 study found that only 4pc are using virtual meetings, this could grow to just under one-third in five years.

Eventually, this could even encapsulate a productivity service similar to Slack, which is already becoming the office technology of choice for most businesses.

Stock markets

Stock market graph. Image: TJmedia/Shutterstock

Blockchain and quantum computing

Another area becoming increasingly interesting for investors and fund management firms – particularly from a transparency perspective – is in the area of blockchain.

A technology much covered and explained on Siliconrepublic.com, blockchain is a distributed ledger technology spawned from the cryptocurrency bitcoin, and is expected to tap into multiple sectors, particularly investments.

Research conducted by Roubini ThoughtLab found that almost half of 500 wealth management companies surveyed are now using blockchain in some capacity, thereby allowing investors – and banks – to save as much as $20bn per year through transparent transactions.

However, there remains some hesitancy towards it within the wealthtech sector; some have the perspective that it isn’t some silver bullet that will solve all of the problems.

“It is still very immature for what we are doing,” said Alan Meaney, co-founder and CEO of Irish fund reconciliation software company Fund Recs.

“The thing about blockchain is that it is interesting as a concept, but you need everyone to use it.”

He added that within the company’s own area of interest in wealthtech, the issues of standardisation still persist – it is more of a political issue to get it widely adopted as opposed to any technical issues.

It does seem, however, to be only a matter of time before it reaches widespread adoption, with consultancy firms such as Deloitte and PwC already developing hubs specifically for the technology.

Yes, even quantum computing

But while robo-advisers might get most of the headlines, other more advanced technologies could also stand to make a lot of investors much wealthier, much faster.

While still in its earliest stages of development, the future of wealth creation and generation could be largely done on incredibly powerful quantum computers that can process actions millions of times faster than existing systems.

As far back as 2015, Wall Street’s biggest names – including Goldman Sachs and the Royal Bank of Scotland – revealed that they were working with technology that could take the smallest event on the other side of the world and translate that into usable data.

So, for example, a failing farmer’s corn field connected online via internet of things sensors in Iowa could instantly trigger an alarm in a supercomputer to alert investors of potential problems in the agriculture market.

Quantum computer

IBM’s quantum computer. Image: IBM research

Too much to ignore

It must be said, however, that we are far from seeing quantum computers doing most of the decision-making in firms as they are still very experimental.

Some of tech’s biggest names, such as IBM, are now offering quantum computing (albeit a limited version) to companies and researchers looking to crunch seriously large numbers or data.

These are just a few examples of where wealthtech is going in the years to come, but with 90 major companies already identified by market analysts, it will surely grow to eventually define the investment sector.

As Efi Pylarinou of the Daily Fintech quite rightly put it: “The truncated message from the myth of Icarus is that it is dangerous to fly high, but the forgotten message is more important for wealth management: ‘It is equally dangerous to fly low’.”

Colm Gorey was a senior journalist with Silicon Republic