CAN YOUR WEALTH MANAGEMENT FIRM STAND UP TO THE NEW WAVE OF FINTECH DISRUPTORS?

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1 CAN YOUR WEALTH MANAGEMENT FIRM STAND UP TO THE NEW WAVE OF FINTECH DISRUPTORS? Digitally savvy investors usher in seismic changes in financial services technology In the aftermath of the 2008 global economic crisis, financial services firms devoted massive amounts of energy and resources toward recovering and coping with new regulatory reforms. As a result, other business priorities, such as keeping up with and investing in cutting-edge technology, took a back seat. Against this backdrop, a dramatic revolution in financial technology fintech is rapidly unfolding. In a seismic shift that is both technologically- and generationally-driven, digitally-savvy investors are increasingly demanding the ability to manage personal investment assets in a handson and online manner, via whatever device (PC, tablet, or smartphone) they prefer. The anytime, anywhere interface that offers a relatable personal-finance experience is rapidly becoming the new standard but can traditional wealth management firms catch back up and provide this more technology advanced approach? Fintech startups shake up the industry While many aspects of consumer life are smoothly migrating to next-generation technologies, making use of online platforms, cloud computing, mobile devices, and the like, the wealth management sector is significantly behind other industries, in using emerging technology to interact with clients, said Darrin Courtney, CFP, research director for CEB TowerGroup. In a July 2013 Financial Planning article 1, his 1. PRODUCED BY SOURCEMEDIA MARKETING SOLUTIONS GROUP FINANCIAL PLANNING ON WALL STREET SPONSORED BY YODLEE 1

2 Silicon Valley investors have been pouring money into fintech, with total investments reaching $2.97 billion last year. 5 research found that many advisory firms are relying on legacy systems, with 40 percent using solutions that are more than seven years old. There appeared to be, among planners, neither much will to improve the situation nor the funds to achieve such goals. Another Financial Planning 1 survey found that more than three-quarters of financial advisors said they dedicated less than 10 percent of their annual revenue to technology and technology training. 2 Some financial services firms have added basic online capabilities to their legacy systems in recent years, such as the ability to view accounts or transfer funds from a phone or laptop. However, it is becoming clear that the market is demanding more fundamental changes from the industry. An unprecedented surge of entrepreneurship has given rise to new, technology-driven wealth management competitors. Startup companies such as account aggregators and so-called robo-advisors offer alternative services through the digital channel that have great appeal to tech-savvy investors, and are capitalizing on what some analysts term the post-2008 public s distaste for the big banks, according to a recent Wired magazine report. 3 Fintech has become globally recognized as a smoking hot investment sector, one of the fastest-growing areas for venture capitalists. In Silicon Valley investors have been pouring money into fintech, with total investments reaching $2.97 billion last year. That s more than triple the $928 million invested in 2008, according to a study by Accenture and the Partnership Fund for New York City. 4 The sector reached a whopping $1.7 billion in the first quarter of 2014 alone, and is projected to grow to at least $6 billion annually by Silicon Valley venture capital dominates, but New York investors are rapidly increasing their share, according to InformationWeek s Bank Systems and Technology report. Approaching the market with a non-traditional perspective, many fintech startups are coming up with innovative ways to provide investors with personalized, relatable experiences that are radically different from what we ordinarily think of as financial services. Examples of these successful disruptor companies include FutureAdvisor, LearnVest, Personal Capital, and Wealthfront. The new players are doing much more than simply offering traditional services through a website, as large firms are attempting to do. Rather, they start from the unique perspective of building a holistic customer experience, leveraging digital technology to break down barriers inherent in the existing wealth management model and deliver mass personalization at scale. At the same time, the emerging firms cater to investors desire for lower fees, innovative products and intuitively-designed technology. With the appeal of user-friendly applications, the millennial user in particular has grown to expect best-in-class digital experiences and being confidently guided

3 It is critical to understand that the traditional financial advisory practice is at risk of seeing assets under management significantly decline in coming years, unless they can attract these younger clients. through their financial engagement. This type of experience is difficult for legacy wealth management systems to achieve. A cultural shift led by millennials and their profound distrust of financial brands Tech-savvy millennials born in the early 1980s to 2000 have grown up with technology and social media and often blur the lines between work and play. When it comes to their financial lives, they continue this approach and behavior. These younger consumers often expect transparency and seem to prize ease-of-use and convenience even more than they do the privacy of their personal information. They have little affinity for traditional banks and virtually no loyalty to established financial brands. In fact, they seem to be utterly indifferent to and mistrustful of them. According to the Millennial Disruption Index a three-year study conducted by Viacom s Scratch banks are at the greatest risk of disruption of all the industries studied with almost twice the risk of the second runner up. In fact, the report states that the younger generation believes that banks will be unnecessary within five years, 6 and their financial engagements will likely occur in an entirely new, entirely digital environment. It is critical to understand that the traditional financial advisory practice is at risk of seeing assets under management significantly decline in coming years, unless they can attract these younger clients. As the great intergenerational wealth transfer from Baby Boomers to millennials begins, the average firm is poorly positioned with only 20 percent of the average client base aged 40 years or younger, and children of existing clients representing less than 15 percent of book for the majority of practices, according to an Aité Group survey 7. Developing relationships with the next generation is key to future growth, but may prove challenging. According to research conducted by Pershing, a leading provider of business solutions to advisors, broker-dealers, RIAs, and others 8, millennials who inherit money are almost 90 percent likely to move their assets to another advisory firm. 9 Here are more revealing survey results: 53% of millennials don t think their bank offers anything special 1 in 3 are open to changing banks in the next 90 days 33% say in 5 years we won t need banks at all 71% would rather go to the dentist than listen to what banks have to say (Source: millenialdisruptionindex.com) Aité Group survey of 401 U.S. financial advisors, Q2 2014, from report The Digital Transformation is Here: Prepared? 8/6/

4 Younger, digitallysavvy investors are much more likely to characterize themselves as selfdirected online traders and use advanced technology and mobile devices to enable their financial lives. For this younger generation, rapid technological change is the norm. When it comes to innovation in financial services, younger people are convinced that it will come from players outside of the traditional financial services industry: 73% say they would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal, or Square than from their own national bank. The Pershing survey findings underscore the fact that millennials are more than ready to switch from their current firms, or their parents firms, as soon as they realize they are being denied the anytime, anywhere functionality that they want. And, truly, this skepticism is not limited to the younger generation. They may be the earliest adopters of new personal financial management platforms, but they pave the way for everyone else. To acquire and service millennial clients, wealth management practices must offer user-friendly, self-service tools and appealing content for digital financial management. Issues that wealth management firms experience when they build out their own digital channels Wealth management firms risk not delivering the experience that younger consumers want. The traditional financial institution approach is rooted in a framework of, Here is the customer. How much money does the customer have? When building its own digital channel, the brick-and-mortar financial institution defaults to delivering brick-and-mortar functionality viewing accounts or sharing information about investment options, on a website, and expect that the customer should visit the institution online and figure out where to go from there. But, in reality, today s investor doesn t have the time or inclination to navigate and learn a website just to get investment information or accomplish a transaction. As work blends into play in a 24/7 world, younger users increasingly gravitate toward highly-engaging sites that provide interest, ideas, friendliness, and a sense of understanding. Younger, digitally-savvy investors are much more likely to characterize themselves as self-directed online traders and use advanced technology and mobile devices to enable their financial lives. Yet at present, only 36 percent of wealth management and financial advisory firms are offering any type of account aggregation capability on their site or portal, and fewer than 20 percent give clients the ability to build or modify their personalized financial plan, according to Aité Group. Digital accessibility and lively, individualized content will be key to keeping or acquiring customers in coming years. Only by keeping users engaged can firms earn the opportunity to present wealth management products or advisory services that may entice them. 4

5 Wealth management firms that are bogged down in legacy systems need an experienced technology partner to enable them to move swiftly and seamlessly toward the new digital paradigm. Give them the confidence that they will be taken care of and the tools to manage their finances digitally, and wealth management firms will be able to keep that person at their firm generating revenue. By building that trust and capability, traditional wealth management firms will be able to attract the millennial. And that digital experience is what gives them the opportunity to provide their clients with the services that they want, says John Bird, senior director of product marketing at Yodlee, Inc. Wealth management firms can move to the new paradigm more quickly with the help of a best-of-breed tech partner Wealth management firms that are bogged down in legacy systems need an experienced technology partner to enable them to move swiftly and seamlessly toward the new digital paradigm. The in-house expertise at traditional wealth management firms may not be enough and can be augmented with best-of-breed platform partners to build a successful digital channel. The quickest way to build a digital channel, and to get it right, is with the support of a best-of-breed technology partner like Yodlee, leveraging technology that can rapidly deploy its wealth management customers an enhanced online experience under the customer s own brand. Wealth management firms will be better positioned to retain existing customers, attract additional customers, and even increase revenue by using the new platform to cross-sell products. An innovative platform for financial services As background, Yodlee is a leading technology and applications platform which enables cloud-based innovation for digital financial services. Working seamlessly with financial institutions existing technology, the Yodlee Wealth Management solution enables financial institutions to better serve techsavvy and self-directed investors, while unlocking new and existing revenue streams and increasing customer loyalty. With one easy-to-navigate dashboard, users of Yodlee Wealth Management, as well as their advisors, can conveniently view all their assets across investment portfolios. The suite delivers unprecedented access to an array of financial data, including assets and liabilities, credit card debt, loans, and life insurance policies, as well as mutual funds and stocks. A number of core financial apps, such as Investment Holdings and New Worth provide the user experience that customers have come to expect. Advisors can leverage the Yodlee Wealth Management solution to deepen collaboration with investors, while identifying opportunities to increase assets under management from their existing customer base. 5

6 Benefits for Digitally Savvy Investors: Investors do not need to look beyond their own brokerage firm to track their net worth history, personal rate of return, investment allocations, and asset categorization. Yodlee s Wealth Management solution gives investors: 1) the ability to easily manage finances from anywhere, on any device; 2) a comprehensive, aggregated view of all accounts in one place; 3) the convenience of a real-time, comprehensive view of their portfolio, allowing them to make informed financial decisions quickly and easily. Benefits for Financial Institutions: Yodlee s Wealth Management solution enables financial institutions to deliver customized online financial tools to retain investors who are beginning to drift from financial institutions in search of emerging digital solutions. Market leading aggregation, break-through financial apps, and maximum ease of deployment can be utilized in conjunction with a firm s existing online services. Powerful data analytics and an aggregated view of a client s entire financial picture enable meaningful cross-sell and upsell strategies and deepen the client relationship. Conclusion To cater to the needs and expectations of younger generations of investors and address rapidly changing technology requirements, wealth management firms will need to join forces with best-of-breed technology partners to be able to deliver the innovative digital capabilities that are rapidly emerging as the new industry standard. Yodlee s wealth management solution works seamlessly with firms existing online offering and firms own branding to deliver a technologically advanced, holistic personal financial experience that will keep existing customers engaged and also attract the new, more digitally savvy prospects. About Yodlee Yodlee is a leading technology and applications platform powering dynamic, cloud-based innovation for digital financial services. More than 750 companies including nine of the 15 largest U.S. banks and hundreds of Internet services companies in over 10 countries subscribe to the Yodlee platform to power personalized financial apps and services for millions of consumers. Yodlee solutions transform the speed and delivery of financial innovation, improve digital customer experiences, and deepen customer engagement. Yodlee is headquartered in Redwood City, CA with global offices in London and Bangalore. For more information, visit 6