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Digital disruption in Wealth Management Why established firms should pay attention to emerging digital business models for retail investors Executive summary Over the past ten years, numerous startup firms with Leading WM franchises have been monitoring these digital business models have emerged within the Wealth digital startups for a while, but thus far only a few have Management (WM) industry. According to our analysis responded with enhancements to their own digital of over 50 WM startups, these firms are Business-to- presence. However, our research shows the tide is starting Consumer (B2C) focused, and primarily serve retail to turn and a growing number of incumbents are looking investors in three ways: to selectively invest in building digital capabilities that will help broaden their appeal with younger clients and other 1. Connect. Helping investors connect to their peers, digitally savvy retail investors. multiple accounts, and multiple sources of advice. The disruptive power of digital technologies business 2. Advise. Providing investors with advice tailored to their models is creating opportunities for new firms to make a unique situations and delivered through a rich, digital big splash in the wealth management industry. However, experience. other kinds of financial services firms — such as asset management and insurance companies — may be able 3. Invest. Providing access to esoteric investment to leverage similar capabilities to provide client advice and opportunities and investment strategies similar to those add greater value through their own distribution channels. used by professional investors and institutions. Established WM firms that do not learn from digital Although it’s unlikely these new firms will draw large startups and adjust their business models accordingly amounts of market share away from leading wealth could find themselves at a significant disadvantage in the management franchises over the next five years, they will marketplace. On the other hand, incumbents that learn likely continue to grow because they target investor needs to use digital technologies to address unmet needs and that established firms are not currently satisfying. Also, deliver a superior client experience may be able to leapfrog they offer a convenient online client experience that retail the competition and capitalize on emerging market investors have increasingly come to expect. opportunities. Established Wealth Management firms that do not learn from digital startups and adjust their business models accordingly could find themselves at a significant disadvantage in the marketplace. 1 Introduction Imagine two executives having lunch at a wealth management (WM) conference and discussing the recent emergence of small, digitally enabled WM firms that primarily focus on retail investors in the Business-to- Consumer (B2C) market — firms such as Betterment and Personal Capital. The first executive doesn’t care about these startups or view them as a disintermediation threat, arguing that investors will always want direct, person- to-person relationships with their financial advisors. The second executive strongly disagrees, arguing that all incumbent firms should understand why these new firms exist, what clients like about them, and what capabilities should be developed in response to the threat. This hypothetical scenario illustrates a real ongoing debate taking place in the WM industry about the relevance of digitally-enabled startups and their potential for disruption. Established firms are trying to decide whether it is worth their time, money, and effort to better understand these emerging businesses. According to our research for this report, the answer is clear. Wealth management is an industry ripe for disruption, and WM startups are a leading indicator of what is anticipated to come. Studying the new digital firms can reveal evolving customer needs that are not currently being met by established firms, enabling incumbents to adjust their business models and take advantage of emerging trends. Digital Disruption in Wealth Management 2 An overview of wealth management startups Our study examined over 50 wealth management startups Connect. Consumers have a need to connect multiple that are B2C-focused and digitally enabled, most of accounts — often across multiple providers — in order which were founded within the past ten years (Figure 1). to create a holistic picture of their wealth and more easily According to our analysis, these fast-growing firms serve manage their finances across multiple asset classes and retail investors in three ways: they help investors connect; firms. Also, investors want to connect with each other advise them on financial issues; and help theminvest to learn from their peers, and to connect with specialists (Figure 2). and advisors that align with their needs. New firms are providing integration across traditional boundaries to help investors escape siloed investing. Examples: Mint, SocialPicks, MyFinancialAdvice Figure 1: Deployment Timeline • Jemstep • Stock Twits • People & Picks • Affluence • Betterment • Portfolio Monkey • MyGDP • NerdWallet • Market Riders • Motif • Currensee • Seed Ups • LikeFolio • Family Bhive • Crowdcube • Daric • eToro • Peers • Future Advisor • Realty Mogul • LearnVest • Wealth Front • My Financial Advice • Lending Club 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • Flat Fee Portfolio • Covestor • Money Strands • NestEgg Wealth • Funders Club • Collective2 • Seedrs • Crowdfunder • CircleUp • Family Office Exchange • Personal Capital • Plan & Act • Collaperty • Institute for Private Investors • Mint • Hello Wallet • CAPS – Motley Fool • Fundrise • Yodlee – Money Center • Hedgeable • My Prosperity • Tiger 21 • Prosper • Prodigy Network • Garrett Planning Network • Social Picks • Financial Guard • Financial Planning Association • Folio Investing 3 Digital disruption framework Figure 2: WM Digital Disruption Framework Connect Advise Invest Allow investors to connect their Leverage digital interfaces and Provide investors access to accounts together, and connect with analytics to deliver tailored advice and non-traditional, institutional-like their peers and the right advisors enhanced experiences investment strategies and opportunities Account Aggregation: Financial Planning: Non-Traditional Investment • Money Strands (with Digital Store Front) Strategies: • My Prosperity • Wealth Front • Collective2 • Mint • Personal Capital • Covestor • Yodlee – Money Center • Plan & Act • Currensee • Hello Wallet • Motif • LearnVest • eToro Social: • Peers • Tiger 21 Portfolio Allocation: Alternative Products: • Social Picks • Institute for Private (Algorithms-based) • Prosper • Affluence Investors • My GDP • Seed Ups • Family Bhive • Stock Twits • NestEgg Wealth • Seedrs • CAPS – Motley Fool • Family Office • FlatFee Portfolios • Lending Club • People & Picks Exchange • Folio Investing • Crowdfunders • Future Advisor • Prodigy Network • Market Riders • Fundrise Client/Advisor Matching: • Hedgeable • Funders Club • Garrett Planning Network • Financial Guard • Crowdcube • My Financial Advice • LikeFolio • Collaperty • Finanical Planning Association • Portfolio Monkey • CircleUp • NerdWallet • Betterment • Realty Mogul • Jemstep • Daric Digital Disruption in Wealth Management 4 Digital disruption framework continues... Advise. Retail investors often seek advice from reputable Invest. Some retail investors are ready to explore sources and want that advice to be tailored to their unique non-traditional investments or are looking to emulate needs and circumstances. In the past, access to tailored professional and institutional investment strategies. In solutions was largely limited to wealthy investors due to response, digitally enabled firms are starting to provide the high cost of customization. Now, digital platforms access to alternative finance products that were historically are democratizing the delivery of financial advice, with the sole purview of commercial or high net-worth algorithmic tools giving the masses access to customized investors. investment planning and portfolio allocation. Examples: Covestor, Prosper, Seedups Examples: Personal Capital, Betterment Although firms are typically categorized based on their primary functions, many offer services that cut across categories (Figure 3). 5 Digital wealth management firms capabilities Figure 3: Digital WM Firms Capabilities Connect Advise Invest Account Client/Advisor Portfolio Non-Traditional Alternative Social Financial Planning Aggregation Matching Allocation Investment Strategies Products Affluence Betterment CAPS - Motley Fool CircleUp Collaperty Collective2 Covestor Crowdcube Crowdfunder Currensee Daric eToro Family Bhive Family Office Exchange Financial Guard Financial Planning Assoc. Flat Fee Portfolio Folio Investing Funders Club Fundrise FutureAdvisor Garrett Planning Network Hedgeable Hello Wallet Institution for Private Investors Jemstep LearnVest LendingClub LikeFolio Market Riders Mint Money Strands Motif Investing My Financial Advice My Prosperity My GDP NerdWallet NestEgg Wealth Peers: The Wealth Peer Group People & Picks Personal Capital Plan & Act Portfolio Monkey Prodigy Network Prosper Realty Mogul Seedrs Seedups Social Picks Stock Twits Tiger 21 Wealth Front Yodlee Money Center Source: Deloitte Analysis, 2013 Key: Primary Capability Secondary Capability Digital Disruption in Wealth Management 6 Connect Account Aggregation on financial planning. Myprosperity can aggregate bank, Retail
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