Farnoush Farsiar, founder of Plato Capital, explains why wealth management firms need to engage with fintech firms, or risk being left behind.
The pace of change in the financial industry as a result of disruptive technology has been unprecedented over the past few years. In 2018 global investment in fintech companies hit $111.8 billion with over two thousand deals, indicating a wave of investment opportunities for large-scale and private investors alike.
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By GlobalDataAs well as presenting a vital investment opportunity, fintech firms also threaten more traditional actors in the financial sector: firms across the board need to learn from the challengers who threaten them or risk trailing behind, potentially even facing extinction.
So how can firms who are neither traditional, high street credit institutions, nor fintech start-ups, prepare for the new environment which fintech is heralding? Entrepreneurial wealth management companies are increasingly looking away from out-dated portfolio management to new more flexible models that respond to their clients’ needs. This means keeping a close eye on technology investment opportunities and using fintech to improve their clients’ experience. Fortunately, being smaller and more agile than traditional banks, they are well placed to take advantage of changes across the wider sector.
Fintech companies are continuously proving they are able to respond to their customers’ needs and expectations. They are providing what traditional banks have not been able to: a personal connection, instant access to finances and a personalised experience.
When it comes to tech-savvy millennials in particular, fintech firms have been quick to appreciate the importance of an efficient mobile interface and the attention paid to a company’s social conscience. Meanwhile, incumbent banks are weighed down with legacy issues and a tainted reputation post-2008, struggling to acquire and retain clients.
During their ‘early years’, digital banks have been focused on growing within their domestic markets, however, it is expected that in the coming year they will expand beyond their borders. An example from the UK is Revolut, which has secured licenses in Singapore and Japan, as well as across the EU.
As well as entering new markets, the fintech challengers are diversifying into new services, many of which were previously exclusive to large-scale high street banks, and this is sharpening traditional banks’ focus to improve and streamline their own offerings. Positively, this is leading to a ‘race to the top’, as more people are able to access high quality banking services and firms are encouraged to continuously improve. For wealth management firms, the key is in joining this very trend and adopting change in pace with leaders across the rest of the industry.
A study last year by Capitama, the direct private investment platform, found that fintech is the most popular sector among high net worth investors in the UK, who see a strong future for the sector despite Brexit. However, wealth management firms have not been fast enough to acknowledge the opportunities of fintech within their own operations. Indeed, a study among wealth managers conducted by a financial software company last year found that 68% were aware that their firm’s technology was poor and in need of improvement.
Of course, fostering that innovation within a firm of any size requires funding and buy-in; and in this, boutique investment firms have the advantage. This sector, in particular, clients are time-poor, and looking to benefit from digital shortcuts even more than a client of a conventional high street bank.
Technologies which target these firms include cyber identity platforms, which speed up the process of KYC checks. A similar logic can be seen in the increase in banking-specific collaboration tools, which may seem alien to older clients, but which help streamline meetings in an age of travel.
While they may not feel, as high street credit institutions do, that fintech start-ups are hot on their heels, wealth managers cannot afford to wait when it comes to adopting these approaches and technologies internally, as well as seeing them as investment opportunities. Ultimately, firms across the sector who manage to adapt to a changed landscape in which fintech is king, will stand to thrive, rather than merely survive.
Ms. Farnoush Farsiar founded Plato Capital as a boutique licensed investment bank. Plato serves the unique demands of a range of international Ultra High Net Worth Individuals (UHNWIs) and institutional clients.
