Is big tech making a move on wealth management?

Glob­al tech giants like Google, Ama­zon, Face­book and Apple have long made inroads into the finan­cial ser­vices indus­try. While they’ve so far focused main­ly on pay­ments, Amazon’s recent invest­ment in Indi­an wealth man­age­ment start­up Small­case is seen by many as the first step in a wider for­ay into the sec­tor. 

Is this a wake-up call for wealth man­agers? Most in the US sec­tor cer­tain­ly think so. Accord­ing to Glob­al Data’s 2021 Glob­al Wealth Man­agers Sur­vey, 87% see big tech com­pa­nies as a key threat. Mean­while, Boston Con­sult­ing Group’s Wealth Report finds that some of the lead­ing tech play­ers are already build­ing the dig­i­tal infra­struc­ture required by wealth man­agers. 

Three years ago Ama­zon col­lab­o­rat­ed with Fideli­ty Labs to cre­ate a dig­i­tal finan­cial advi­sor that peo­ple could inter­act with, poten­tial­ly assess­ing their stock port­fo­lios in vir­tu­al real­i­ty. The cur­rent robo-advice mar­ket could be a poten­tial point of entry for big tech; it’s a small part of the broad­er wealth man­age­ment mar­ket and is viewed as ripe for dis­rup­tion. So how big a threat could a big tech incur­sion into wealth man­age­ment pose?

Competitive advantage

Brands with broad con­sumer appeal are more like­ly to over­come the trust and iner­tia resis­tance often seen when it comes to invest­ing, says Alan Hig­gins, chief invest­ment offi­cer at Coutts. That could give big tech an advan­tage in wealth man­age­ment. 

“Big tech will ben­e­fit from tar­get­ed, clever adver­tis­ing led by data insights as a way to gain and hold trust from con­sumers,” he says. “Trust is huge­ly impor­tant when it comes to mon­ey man­age­ment so this will cer­tain­ly act in big tech’s favour.”

People’s anx­i­eties about mak­ing cru­cial mon­ey deci­sions and a mis­con­cep­tion that wealth man­age­ment firms only cater for the wealthy could also play into the hands of big tech, says Mar­cus de Maria, chief exec­u­tive offi­cer of Invest­ment Mas­tery.

“When tra­di­tion­al wealth providers use words like diver­si­fi­ca­tion, asset allo­ca­tion, risk tol­er­ance etc, it puts peo­ple off,” he says. “If the big brands like Ama­zon or Face­book that peo­ple trust and use every day made it sim­ple and also helped to edu­cate peo­ple, they might be encour­aged to take that first step. If big tech went a step fur­ther and allowed peo­ple to use their tools, talk to each oth­er, and cre­ate a com­mu­ni­ty, it could be a game chang­er.”

A matter of trust

But would sea­soned investors trust big tech com­pa­nies to man­age their mon­ey? As a rel­a­tive­ly new entrant to the sec­tor, it would take time and a size­able mar­ket­ing spend to earn their buy-in. On the oth­er hand, investors already embrace tech­nol­o­gy: for exam­ple, using secure client por­tals to check their lat­est port­fo­lio val­u­a­tions and to access and share impor­tant doc­u­ments.

Giu­lia Lupa­to is head of reg­u­la­to­ry pol­i­cy and com­pli­ance at the Per­son­al Invest­ment Man­age­ment & Finan­cial Advice Asso­ci­a­tion (PIMFA). She notes that big tech has already made huge progress in both the retail and finan­cial ser­vices spaces. “If they were inter­est­ed in doing the same in wealth man­age­ment, why haven’t they done it already?”

Wealth man­age­ment is very much a trust and rela­tion­ship-dri­ven indus­try. Big tech has had its issues with trust and isn’t tai­lored for estab­lish­ing indi­vid­ual one-to-one human rela­tion­ships. The UK wealth man­age­ment sec­tor is also a mature mar­ket, with very large, well-estab­lished play­ers.

“A com­pa­ny like Ama­zon would strug­gle to make a dent in the type of rela­tion­ships that many wealth man­agers have with their clients, par­tic­u­lar­ly with those high- and ultra-high-net-worth indi­vid­u­als,” says Lupa­to.

How­ev­er, she sees an oppor­tu­ni­ty for big tech through its data man­age­ment and data pro­cess­ing capa­bil­i­ties, with the poten­tial of becom­ing a data ser­vices sup­pli­er for the wealth man­age­ment sec­tor.

“We know that cus­tomers are look­ing for increased per­son­al­i­sa­tion. They want a fee struc­ture that is trans­par­ent, and the abil­i­ty to use mul­ti­ple providers,” she says. “They are look­ing for greater integri­ty around ESG [envi­ron­men­tal, social and gov­er­nance] invest­ment. They’re also look­ing for intu­itive dig­i­tal expe­ri­ences. This presents an oppor­tu­ni­ty for a data-dri­ven busi­ness to pro­vide that ser­vice to a large wealth man­age­ment firm with­out hav­ing to become a wealth man­age­ment firm them­selves.” 

Digital investments

Tech-led wealth man­age­ment could appeal to a wide range of asset hold­ers, help­ing to bridge the advice gap while pro­vid­ing oppor­tu­ni­ties to democ­ra­tise advice for broad­er sec­tions of the pop­u­la­tion. “Com­mu­ni­cat­ing dig­i­tal­ly and deliv­er­ing advice vir­tu­al­ly changes what’s pos­si­ble and allows us to devel­op more cost-effec­tive prod­ucts tai­lored for new mar­kets and fresh client demo­graph­ics,” says Tim Thomp­son Rye, chief tech­nol­o­gy offi­cer at finan­cial advi­so­ry firm Prog­e­ny.

Big tech will always present oppor­tu­ni­ties and threats in equal mea­sure. The tra­di­tion­al play­ers in any indus­try need to focus on the state of play if they’re to remain rel­e­vant. Client expec­ta­tions around things like com­mu­ni­ca­tion, access to infor­ma­tion and lev­els of con­trol have changed and are now dri­ven by big tech play­ers. Wealth man­agers need to embrace inno­v­a­tive tech­nolo­gies across all touch­points to remain rel­e­vant.

Hugo Bed­ford, chief exec­u­tive offi­cer of wealth man­age­ment firm JM Finn, thinks a grow­ing big tech inter­est in wealth man­age­ment could be an oppor­tu­ni­ty for all. “They see the attrac­tive­ness of wealth man­age­ment, thanks to the rel­a­tive­ly low pen­e­tra­tion of pro­fes­sion­al mon­ey man­age­ment and the advice and pen­sion gaps that exist today,” he says. “If the world’s largest busi­ness­es can encour­age more younger peo­ple to start their invest­ment jour­ney, that has to be a good thing.”

Bed­ford also believes the involve­ment of the tech giants can help wealth man­age­ment firms to clear­ly dif­fer­en­ti­ate their offer­ing. “While democ­ra­tis­ing wealth man­age­ment has to be good for soci­ety, there will always be those investors whose needs are not met by the lat­est algo­rithm. There will always be clients who need a rela­tion­ship with some­one before they entrust their wealth to be man­aged by them.”