WealthTech 2017: Business as Unusual

robo advisor fintech compliance

By FINTECH Books Contributor, Nael Shahbaz
Follow: @NaelShahbaz

Robo-advisors will get more popular as high net-worth individuals will gravitate towards these. The rich investors like ETFs and robos mainly trade in them while providing low cost solutions. Also, the wealthy investors will find the mix of active-passive investment more attractive, the emphasis will remain on the passive investment.

There is a high likelihood of financial services collaborating with the wealth management industry. Due to the high probability of Banks buying up Fintech firms there will be a notice a bletrend of Fintech Mergers and Acquisitions, as well as a shift from discretionary management to wealth management.

There is an inherent danger for WealthTech startups of becoming obsolete in 2017 due to lack of profits. At the moment, the current price for a small portfolio is close to 0 (0.2% annually plus trading costs). And most robos are investor money funded with high burn rates of 1 Million or more a month.

Currently, only the customers with small portfolios are involved with robos (who initially did not have advisors). The majority of the robos are aiming to compete against the mutual funds. Robos will step up their game and focus on higher net worth individuals, while mutual funds will lower costs to win against the robos.

Many robo advisors will not be able to weather the storm of 2017, and the advisory business (for customers with small portfolios) will have zero profitability afterwards. As a result, the small robo-advisory firms will collaborate with big banks.

RegTech trends will add more responsibility to WealthTech and Fintech firms. Hence these firms will be extremely diligent in investing in proper allocations, and will be more wary of smaller clients. Independent advisors will lower their fees as they will partner with ETFs to lower their costs.