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February 1, 2018

The Secular Trends Behind the Rising Tide in Wealth Management Technology (“WealthTech”)

MHT Partners  | Business & Information Services Investment Bank

The advent of Financial Technology (“FinTech”) has created ripples across the financial services landscape, and wealth management has been no exception.  As a growing subset of Fintech, WealthTech aimed at the Registered Investment Advisory (“RIA”) channel has garnered significant interest from both industry constituents and M&A professionals.

It’s worth looking a bit deeper into the secular trends driving this interest.

Modernization is Taking Higher Priority

Historically, the wealth management industry has been slower to adopt technology.  Now as trillions of dollars in wealth transfers from boomers to millennials, there is a sense of urgency to modernize.  As this generational wealth transfer occurs, RIAs are encountering a growing customer segment that is comfortable utilizing technology.

Realization of Operational Efficiencies

RIAs are facing an increasingly fee-sensitive client base, demanding a holistic approach to wealth management.  This dynamic, coupled with a complex regulatory landscape, has forced RIAs to rationalize back-office spending, while seeking new ways to generate operational efficiencies.  WealthTech providers are largely answering the call, allowing the RIA channel to more efficiently manage client interaction, portfolio management, financial / tax planning and compliance.  Notable examples include SS&C Technologies, Envestnet, MoneyGuidePro and Orion Advisor Services.

Breakaway Advisors

Another major trend comes from the growing number of advisors entering the RIA channel.  Even with breakdowns in anti-poaching “protocols” and efforts by large wirehouses to own the client relationship, financial advisors are leaving the traditional wirehouse model at a record pace.  Cerulli Associates estimates that more than 12,000 financial advisors were added to the RIA channel over the last five years alone.  While some of these breakaway advisors are joining existing RIAs, others are forming their own practices.  Both of these moves are expanding the addressable market opportunity for WealthTech providers, as RIAs are less constrained in which technologies they utilize.

Looking Forward

Changes in the wealth management landscape, coupled with the ability to utilize attractive SaaS delivery models, are creating promising opportunities for WealthTech providers.  Not only can these technologies help RIAs grow their assets under management (“AUM”), they can also serve as a strong defense and differentiator against lower cost financial advisory alternatives (e.g., Robo-advisors, and Discount Brokers).

MHT Partners believes the WealthTech industry will continue to grow at a rapid pace, with M&A in the sector largely driven by strategic acquirers seeking to deliver a one-stop solution to their customer base.

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  1. I really appreciate the blog for educating us regarding wealth management. I Look forward to read more.