Anak Agung Istri Syawana Bargandini

118112134
Management IC / Faculty of Economics and Business
6 th Semester
Lecturer : Agus Fredy Maradona, S.E., Ak., MSA., Ph.D.
Financial Technology

INNOVATIVE WEALTH MANAGEMENT

I. Innovative Wealth Management in Flash

New technologies are changing how wealth management works. With technology,
decision-making is simplified and easier to opening up information to larger
audiences. One example of innovation in wealth management is Roboadvisors.
Roboadvisors are actually a virtual robot that are used to provide advice at low-cost.
The use of analytics provides important insights for wealth management companies,
who are working to provide investment recommendations appropriate for their
customers. Besides, this chapter will explain about personal finance management
tools. These tools allow for the creation of an aggregate view of their different
accounts. It also fuse with investment products and other data sources to provide an
end-to-end view of a person and their financial situation.

II. How Wealth Management Works

The term wealth management is everywhere and can be found in almost every
topic. However, not everyone really understands its true meaning. Wealth
Management translate to different meaning depending to someone who perceive it.
For an affluent person, wealth management is a scientific method of enhancing their
financial position. For a financial advisor, it is the ability to provide affluent
individuals with various financial products and services.
Wealth management usually provide different financial products and services,
investment, portfolio management, and financial planning. Thus it can adjust to the
target market. Wealth management can be used for different purposes from
coordinate investment management, tax professionals, legal resources, estate
planning, and retail banking. When implemented, a wealth manager specialize in
certain products/services they can sell to clients. At first, they must present a
presentation in a consultative manner to let the client decide what kind of financial
products/services they want to buy.
 The aim of a good wealth manager is to understand their client’s needs and focus
on finding out about their client’s working environment, life goals, and spending
patterns.

III. Changes in Customer Expectations

A different generation represent different consumer behavior. Currently there are
Generation X, Y, Z and Baby Boomers. They interact with their financial advisors
differently as they want to be treated as unique individuals and receive tailored
advice.
This new generation do not purchase a lot of discretionary services and in general
conduct their own research. They don’t really trust authority, and ask the opinion of
financial advisors, experts, and colleagues, and read various sources of information.
They maximize the use of technology to understand financial advice through different
devices and channels.
The new investor tends to be more aware and has a sense of entitlement when it
comes to investment strategies and products available to affluent individuals and
institutional investors. This means that wealth management companies have to be
innovative in finding ways to provide access to new asset classes and alternative
investment.

IV. Changes in Advisors

A roboadvisor is an electronic service that offers algorithm-based and automated
wealth management advice that does not involve humans. Due to the improvement of
technology, financial advices and its method of delivery is changing, including the
rising of roboadvisor. Roboadvisor provides portfolio management advice and is a
low-cost service attracting millennials because it is accessible online and does not
require a high balance. Roboadvisors can do complex algorithms to analyze data
which lead to personalization of asset allocations and financial plans.
Roboadvisor create a new innovation as well, it is called a robo-retirement. Robo-
retirement manages a person’s retirement plan with algorithms. Unlike financial
planner, it charges a fee as low as 0.14% to 0.15% of the total assets under
management and has no minimum asset requirement. However, this robot cannot deal
with quantifiable risks such as sudden market crash. Thus, clients who need social
security and tax guidance might use a hybrid roboadvisors includes human financial
planner.
Robo tax loss harvesting is an automated service for investors who want to pay
the lowest possible taxes in non-tax-sheltered accounts. Through Roboadvisors, it can
keep track of and rebalance investment portfolios at an affordable management fee.
This make roboadvisors have the potential to disrupt the market. Existing wealth
management firms with wide distribution capabilities and deep pockets are now
 collaborating with financial technology companies to develop roboadvisors, and some
are developing them in-house.
However, many investors still prefer human advice. This is because reassuring
clients, persuading them to take action, synthesising various solutions still requires
human interaction. Thus, to complement customer relationship, a hybrid model
between robo-advice and human capabilities would be necessary.
Robo-advice can affect wealth management companies’ business models because
if investors know how to obtain effective alternatives at a low price unless they can
understand the value of human advice. Then to reach a better performance in
investment management, wealth management companies can provide value-added
services.
Even though robot are already improving so much, a survey showed by Accenture
stated that 77% of clients still trust financial advisors and prefer to work with them.
81% insist on face-to-face interaction, so human advisors still play an important role
in wealth management. What about roboadvisors? They can provide new capabilities
for the advisors so management companies can integrate the system.
- Robo Advisor Market Size
A consulting firm, A.T. Kearney forecasted that assets managed by roboadvisors
can grow by 68% each year. Because of automation and cost reduction, investors
can now take advantage of services such as tax-loss harvesting that was in the
past only available to institutional investors. Meanwhile, a report by BI
Intelligence forecasts that Roboadvisors will be able to manage 10% of total
assets, equivalent to $8 trillion globally. Talking about market size, lead to
consumer behavior. Many of these new investors are young and middle-aged
individuals, often ignored by traditional financial advisors who focus on Baby
Boomers. This can be a good opportunity for companies who want to fix their
branding and reach their target market among the younger generation.
V. Changes in Data Analytics
The emergence of new technologies has helped find a use for such data. Big data
is revolutionising various industries, and wealth management companies are investing
in creating state-of-the-art data management and analytics capabilities.
Currently, many wealth management firms use simple analytics to provide
business insights into advisor books, client segments, training program effectiveness,
and product penetration. Yet, these same companies are creating more predictive and
descriptive analytics, combining external and internal data sources, and both
unstructured and structured data for more complete and insightful customer profiles.
In the future, wealth management companies are expected to be able to develop
algorithmic analytics to support investment decisions in real time.

VI. Changes in Access to Products

Now that technology is improving, investors can use online wealth management
in deciding where to put their money for a lower price, without asking financial
 advisors. With the help of robot, financial technology apps turn investors from active
investing into passive.
Innovators in Financial Technology can help reduce information asymmetry by
delivering information to investors in a comprehensible and transparent way. Retail
investors are now expecting the same thing. Thus for the past five years, financial
technology start-ups have been providing access to investment solutions to everyone.
They offer sophisticated trading strategies by copying those of professional portfolio
managers or by using the electronic trading strategies of hedge fund managers.
At last, financial technology start-ups also offer alternative asset classes and
provide analytics so that investors can research and test their strategies independently.
In conclusion, it can be said that fintech is democratising access to investment
products.

VII. Social Investing

The idea behind social investing is similar like social media. However, the IT
System in social media does not allow collaboration through social channels. Thus,
financial technology start-ups entering the investment industry are outsmarting larger
and more stable wealth management firms.
One example of a company is eToro. It provides a proprietary platform for its
users so that they can discuss strategies and trades. Users can also copy strategies of
popular users. Those popular users were verified to ensure that these people use their
real names and pictures.

VIII. Some Novel Investment Ideas

Investing Change
Acorn is an innovation of investing platform founded by Walter and Jeff
Cruttenden. Its users can connect all their credit or debit cards, and even checking
accounts, to the app. If a user spends $11.49 on lunch, they pay $12, because Acorns
invests the 51 cents difference. This method is proven successful because users are
able to invest between $30 and $180 per month. They can also invest more money by
setting up automatic and regular deposits or make one-off large investments using
their checking accounts.

Investing as a Game
Back in the old days, the stock market was exclusively for wealthy individual
investors and large institutions. Now that the technology are improving, everyone can
do it. A platform called Vestly, makes investing more fun, packaged like a game. An
individual can pick virtual stocks for their portfolio. They earn points based on the
performance of these stocks and learn about stock trading without losing real money.
They may earn up to $3000 if their portfolio is ranked in the top 100 at the end of
each month.

Female Investing
Ellevest is a company that specifically target women who’s interested in investing.
Ellevest provides hundreds of customised and distinctive portfolios for the female
 investor. It suggests an investment portfolio depending on the investor’s timeline and
goals, and an investor can change the portfolio if she changes her goals. She can keep
track of her portfolio’s progress through the app’s daily portfolio-monitoring feature,
also receiving an alert if her portfolio goes off-track. The platform charges 0.5% of all
the assets under management and does not require a minimum initial investment
amount.

IX. Key Players Serving Individual Investors

1. Robinhood
Robinhood was launched in December 2014 through Apple App Store has
positioned itself as a stockbroker for the millennial generation. It aims to
encourage the millennial generation to invest by offering a way to transact stocks
with minimal knowledge and effort. However, the idea receive some critics
because inexperienced investors could lose money easily. Furthermore, the
younger generation has to deal with student loan debts, and they do not typically
have high-paying jobs. As such, young professionals cannot afford to lose money
in stock trading.
Because Robinhood does not charge investors for transactions, it may not
be able to provide the necessary tools, customer service, and research to its
customers. However, Robinhood is planning to charge 3.5% interest for margin
trading and $10 per trade for phone-assisted trading. It also provide an improved
version of the app for a monthly fee of $10 that allows users to trade even when
the stock market is closed and provides instant withdrawals, lines of credit, and
immediate deposits.
2. Nutmeg
Nutmeg was founded in April 2011 with the purpose of makes investment
decisions for its customers based on their risk appetite and investment goals. It
invests funds in commodities, securities, cash, and other asset classes like
exchange-traded funds. it helps its clients meet their financial goals. It earns
between 0.3% and 1% of the total investor’s funds. Beside the mentioned above
companies, other key players that serves individual investors are Betterment,
Wealthfront, Robinhood, Nutmeg, and Motif Investing, and Trigger.

X. Key Players Serving Investment Managers

1. Riskalyze
Founded in 2011, Riskalyze provides a platform for financial advisors to
obtain a risk score for their clients, enabling them to suggest the right investment
strategy. It allows financial advisory companies to rebrand its digital advice
platform for their own use. At first, the platform target small investors and large
brokerage firms, however they failed and targeted financial advisors.

2. Addepar
Addepar provides integrated, normalised, and reconciled data through the open
API it offers. Most financial advisors do not understand how technology can help
their high net worth clients manage their wealth. Through Addepar, they can grow
 to understand each of their clients and how they allocate their assets, how they
plan their estate, trust, and tax.

3. Sumzero
Sumzero is a platform that only open to people that are part of a research team in
an investment banking proprietary trading desk, private equity fund, mutual fund,
or hedge fund. SumZero began as a repository of investment research. Then, it
collaborated with Match.com and LinkedIn to connect with new fund managers
and institutional investors. Members have to deliver their best ideas so that
institutional investors, family offices, pension funds, and Ivy-League endowments
will notice them.

XI. Personal Finance Management

Personal Finance Management provides services that act as a tool. It can be bank
provided, basic third party apps, complex third-party apps, and aggregator tools.
Challenger Banks provide the most exciting developments. Meanwhile major banking
institutions offer poorer aesthetics integrated into their mobile apps. Although banks
may not realise that personal finance management tools are valuable only when
linked to other services, challenger banks do and put these tools at the centre of the
user’s mobile experience.
Yet, personal finance management tools do not provide real insight into a
person’s financial situation if they are only based on account information. With no
aggregate information, their functionality will not mature as users expect or want.
Third-party apps aggregate and add more functionality, like Tink, a Swedish PFM
app that offers its users credit scoring.

XII. The Future in a Flash

The wealth management industry is progressing towards transparency and
openness. This is a good sign because everyone can access wealth services and they
will have the confidence consolidating their different assets to create a single view of
their wealth. For investors that want to diversify their portofolio can achieve more.
And those who dont have a lot to invest can get better returns without having high-
risk exposure.
Robotic advice that was provided by a lot of platform also will get better. Not
only roboadvisors will allocate our money between saving goals and expenditures,
but also helping reach life goals.