10/7/2022

Digital Wealth Management

By: Kyungseob Shim, Phillip Nelson, Ahad Jawaid

1. Definition of Digital Wealth Management 1) What is Digital Wealth Management? Digital wealth management refers to the digital tools that established financial advisors use for creating unified client experiences across all user devices and platforms. These tools help garner increased engagement and transparency, foster collaboration, and contribute towards improving the performance of financial assets. 2) What are some examples of companies that exist in this space (industry leaders)? - Self-service and automation: Clients with basic questions about their accounts often prefer obtaining information quickly over the phone or Internet. Digital chatbots are one way to do this efficiently. - Portfolio recommendations: Wealth managers can use digital technology such as machine learning to automatically scan client portfolios and recommend potential changes to meet established goals. - Access to external information: Based on open standards, new digital platforms make it easier and faster to integrate existing applications with third-party data providers. This gives wealth management clients more insight into their investments. 2. Business Model of DWM 1) What are the specific business models that help companies make a profit? Digital wealth management companies turn a profit by offering competitive financial services at an affordable cost. Robo-advisors generating portfolio allocations can cost a fraction of the price normally charged for a financial advisor. Companies like Betterment, market accessibility, optimization, and personalization to create a tailored experience for anyone regardless of investment experience. Successful platforms are capable of aggregating portfolio management, financial education, and goal planning into a seamless one stop shop for financial services. 2) What are some important metrics to track success in this sector The best high-level key performance indicators (KPIs) to reflect success in this industry are the total number of clients, total assets under management, and net profit margin. These are core KPIs that represent the health of a business and are a broad measurement of success. More specifically for DWM, observing the net number of new clients or client addition rate is an excellent way to ensure consistent firm growth. Additionally, client retention rate and recurring revenue provide insight into the long-term stability of firm, and can reflect the quality of service provided to customers. 3. DWM’s Notable Trends 1) What are some past & upcoming trends in the industry? - More affluent clients are moving their assets according to “Money in Motion”. Last year, twelve percent of all affluent clients’ investable assets moved on an annual basis. - The mobile experience is becoming more important since clients who engaged through a mobile experience (e.g., the mobile web or an app) were 3.5 times more likely to move assets than clients using other channels. 2) What are some of the positive effects of the activity happening in this space? - Clients for DWM fund’s report high levels of satisfaction 5 to 10 times higher than clients of traditional wealth managers because of the improved user experience 3) Are there certain roadblocks/issues that currently exist? - Facing off against the larger funds who have more assets under management - Lack of awareness of Digital channels of investment - Government Regulations 4. Metrics of DWM 1) Include some metrics on revenue, valuation, profitability, market share, and anything else you find relevant. - The adoption rate of Robo Advisor in Investment & Equity field is gradually increasing(https://www.slideshare.net/FTPartners/ft-partners-research-are-the-robots-taking-over-the-emergence-of-digital-wealth-management-solutions). - According to BusinessInsider Fintech Report, around $330 billion was invested in robo-advisors in North America in 2019. However, we expect that number to increase significantly over the next few years to reach $830 billion by 2024 — presenting an opportunity to fintechs and incumbents already in the space, as well as financial institutions (FIs) that want to get involved with digital wealth management(https://www.businessinsider.com/digital-wealth-management-report). - The WealthTech ecosystem is ever-changing and growing. There are already hundreds of companies within the space looking to improve the industry in unique ways. Some institutions' report features a visual WealthTech industry landscape including multiple sub-categories(https://www.ftpartners.com/wealth-technology-report). - Digital Wealth Management’s market share(Region): (https://www.gminsights.com/industry-analysis/wealth-management-software-market) - The benefits of digital transformation, including improved customer experience and operational efficiency, are clear. As a result, most financial services companies anticipate high returns on revenue and profitability from digital transformation—even more than those in other industries. Lower middle market companies, especially, anticipate the greatest increase in revenue and profitability (10 percent or more) over the next three years, and are thus willing to also increase their spending by the same percentage(https://www.bdo.com/insights/industries/financial-services/digital-transformation-in-financial-services). (Note: the full document with pictures are available at: https://docs.google.com/document/d/1bJzt0mV8b-O1Crqhsr_NryCFkymekS-7/edit)