Five tech trends in wealth management for 2022

1. Tokenisation will increase

When Mike Winkelmann’s Every­days – the first non-fun­gi­ble token (NFT) of a dig­i­tal art­work to be offered by a major auc­tion house – sold for $69m (£52m) at Christie’s in March, the excite­ment it caused extend­ed far beyond the art world. NFTs are set to become part of the wealth man­age­ment main­stream next year. 

In Novem­ber, Gold­man Sachs announced that it would be adopt­ing Daml, a devel­op­ment frame­work cre­at­ed by blockchain start­up Dig­i­tal Asset to enable finan­cial insti­tu­tions to exe­cute agree­ments on a blockchain. Tokeni­sa­tion rep­re­sents a “vast com­mer­cial oppor­tu­ni­ty”, accord­ing to Math­ew McDer­mott, head of dig­i­tal assets in Gold­man Sachs’ glob­al mar­kets divi­sion. 

The own­er­ship rights of an asset of a pure­ly dig­i­tal rep­re­sen­ta­tion can be divid­ed, trad­ed and stored on a dis­trib­uted-ledger sys­tem such as a blockchain. Split­ting up or ‘frac­tion­al­is­ing’ real objects such as a prop­er­ty, on the oth­er hand, can be much hard­er or even impos­si­ble, but rep­re­sent­ing these as tokens over­comes the prob­lem. Tokeni­sa­tion can open up mar­kets and increase liq­uid­i­ty, as well as mak­ing the set­tle­ment process more effi­cient.

2. Established players will snap up more wealthtech firms

Dig­i­tal tech­nol­o­gy has been advanc­ing too quick­ly for the com­fort of some of the sector’s old­er, big­ger beasts, which have resort­ed to M&As to obtain cut­ting-edge know-how over the past 12 months. Charles Schwab acquired Motif, for instance, while JPMor­gan Chase bought Nut­meg, Open­In­vest and 55ip. More wealthtech star­tups are like­ly to be pur­chased next year.

US con­sul­tan­cy For­rester Research pre­dicts that rel­a­tive new­com­ers such as Bet­ter­ment and Wealth­front will con­tin­ue attract­ing cus­tomers and assets under man­age­ment in 2022, there­by increas­ing their appeal to poten­tial acquir­ers. 

There would be clear ben­e­fits for all con­cerned in the event of an acqui­si­tion, accord­ing to Vijay Ragha­van, senior ana­lyst at For­rester, who says: “Since the big incum­bents have more cus­tomers than the wealthtech firms have, a broad­er swathe of peo­ple will begin enjoy­ing improved dig­i­tal expe­ri­ences.” 

As the seam­less per­son­alised cus­tomer expe­ri­ences offered by the likes of Ama­zon, Net­flix and Spo­ti­fy become the norm, con­sumers will increas­ing­ly demand the same lev­el of con­ve­nience from their finan­cial ser­vice providers, Ragha­van pre­dicts. 

“As nim­ble wealthtech firms enhance the dig­i­tal expe­ri­ences they offer, spurring indus­try incum­bents to either improve their own capa­bil­i­ties or acquire them, con­sumers will ben­e­fit,” he says. “This will engen­der cus­tomer loy­al­ty, lead­ing to increased reten­tion and more assets under man­age­ment.”

3. Compliance management will become more automated

As the reg­u­la­to­ry ratch­et turns again next year, with new require­ments to be issued by the Finan­cial Con­duct Author­i­ty, among oth­er watch­dogs, wealth man­agers will increas­ing­ly use tech­nol­o­gy to ensure com­pli­ance. Arti­fi­cial intel­li­gence sys­tems will take over some of the rou­tine and repet­i­tive com­pli­ance work that peo­ple have been doing for decades. More firms will use tech­nol­o­gy to take a proac­tive approach to the task, antic­i­pat­ing the effects of poten­tial reg­u­la­to­ry changes.

“Two years ago, the notion that a wealth man­age­ment busi­ness could take on a new client and pro­vide appro­pri­ate finan­cial advice, all with­out meet­ing that per­son, was unheard of. Now it’s the norm,” says Finn Houli­han, MD and char­tered finan­cial plan­ner at wealth man­age­ment firm Arlo Group UK. “That’s thanks to some incred­i­ble strides by com­pli­ance depart­ments and also to impor­tant invest­ments by firms in ensur­ing that their teams have the right dig­i­tal infra­struc­ture to engage with their clients remote­ly.”

4. Successful wealth managers will exploit advanced analytics

AI-based tech­nolo­gies such as machine learn­ing, deep learn­ing and nat­ur­al-lan­guage pro­cess­ing will pro­vide the next big advance in wealth man­age­ment ana­lyt­ics, accord­ing to Gart­ner. 

The next gen­er­a­tion of ana­lyt­ics sys­tems will become more pre­dic­tive, offer­ing guid­ance on actions that firms should be tak­ing. While 88% of the wealth man­age­ment exec­u­tives polled in Gartner’s 2021 Finan­cial Ser­vices Tech­nol­o­gy Sur­vey believe that such sys­tems are effec­tive, only 13% are cur­rent­ly using them. But Gart­ner reports that it’s observ­ing “a steady pro­gres­sion on the deploy­ment of this tech­nol­o­gy”. 

In Novem­ber, the Invest­ment Asso­ci­a­tion pub­lished a research report that not­ed: “Buy-side lead­ers have begun to access new alter­na­tive data sources (most com­mon­ly, web-scraped data, geolo­ca­tion data, social media data and cred­it card data) and use advanced ana­lyt­ics tech­niques to gen­er­ate new insights from these.” The report, AI and the Invest­ment Man­age­ment Indus­try, quotes a study from Grand View Research fore­cast­ing that the glob­al mar­ket for alter­na­tive data will expand at a com­pound annu­al growth rate of 58.5% between 2021 and 2028.

5. Virtual reality will transform client relationships 

In April, Nas­daq not­ed that vir­tu­al real­i­ty (VR) and aug­ment­ed real­i­ty (AR) were help­ing wealth man­age­ment firms to “make man­aged invest­ments more intu­itive for clients, espe­cial­ly mil­len­ni­als. The adop­tion rate of these tech­nolo­gies should increase as advis­ers become more famil­iar with their capa­bil­i­ties.” 

Nas­daq believes that wealth man­agers will start using these sys­tems to engage their clien­tele, using their game-play ele­ments to encour­age effec­tive sav­ings and invest­ment behav­iour. 

Giv­en that the pan­dem­ic has made remote work­ing wide­ly accept­able and the use of video­con­fer­enc­ing ser­vices such as Zoom and Microsoft Teams rou­tine for many peo­ple, it’s a small­er step for VR and AR to pro­vide more inter­ac­tions between wealth man­agers and their clients in 2022 and beyond. Wealth man­agers will find that they can use these tech­nolo­gies to pro­vide vir­tu­al sce­nar­ios that will enable clients to explore in vivid detail how the finan­cial choic­es they’re con­sid­er­ing could affect them in the future.

These tech­nolo­gies are also set to be used more for inter­nal train­ing pur­pos­es. For instance, St James’s Place (SJP) announced in Novem­ber that it would be sup­ply­ing employ­ees with Ocu­lus Quest VR head­sets. These enable them to expe­ri­ence the role of an advis­er and engage in con­ver­sa­tions with vir­tu­al clients through a series of mul­ti­ple-choice ques­tions.

VR tech­nol­o­gy is “improv­ing rapid­ly and becom­ing more afford­able”, accord­ing to SJP’s divi­sion­al direc­tor of learn­ing and devel­op­ment, Di Mac­don­ald. “Our inten­tion is to give peo­ple a safe space to prac­tice in, so that they can gain con­fi­dence with­out need­ing access to train­ers.”