The wealthtech industry is rapidly evolving, with more and more people trying their luck with the wealthtech services to get the most of their assets. Traditional, as well as relatively new assets, such as bitcoins or non-fungible tokens (NFTs), remain in focus of the growing number of new investors.

But the US is no longer an ultimate destination for welthtech innovators, with many promising startups appearing across Europe. With the record amount of funding and total digitalization of the wealth managers market, a wealth tech revolution is in full swing, bringing profits to singles, couples, and families.

These are but a few trends from the recent Sifted’s report. Based on the interviews of the VCs, accelerators, and wealthtech leaders, the overview below describes what is new in the wealthtech space, covers the challenges that the market faces, and makes predictions on how the industry may look in the coming years.

Wealthtech: The big picture

In July 2021, 12% of UK adults used an investment application to manage their savings independently. This number grew almost two-fold since March 2020, while 10 of the most popular apps in this category attracted 1.6 million users during the same period.

Wealth management, once being a prerogative of the wealth managers only, now is available for any tech-savvy user. Young generations prefer to invest and manage their assets themselves with the help of convenient wealthtech apps and platforms.

But the “big shift” is happening not only in the context of who manages wealth, but also in what people want to invest in. The NFTs and cryptocurrencies are becoming popular by the minute, while retail investors continue to keep an eye on high-level asset classes like venture capital or private equity. It is not like all the human financial experts will be out of their jobs anytime soon, but with the emergence of Robo advisors, some of their services are no longer needed.

The boost of digital asset growth is partially linked to the pandemic, which has changed just about every industry. But the interviewed experts by Sifted explain the popularity of digital assets also by the growth of trading apps, citing the Robinhood case as the example, which recently went public and became one of the tech world’s biggest growth stories.

Although robo-advisers were meant to bring wealth management to the masses, and they managed to accomplish that at some level, there is still a huge gap between those who can and can’t access financial advice. Another problem the report points out is the “very little tech in wealth management today.” It means that regardless of the great number of solutions on the market, the only thing that is really different about them is the user interface, while in general, we get the same product that the industry offered before.

If you want to dig deeper and understand the wealthech’s trends better, we will explore the current wealth tech tendencies in more detail in the next section.

Wealthtech The biggest trends and challenges

The following trends will give you a better understanding of how the wealthtech industry evolves.

• Trend 1: Wealthtech is going European. The evolution of the wealthtech market entails the geographical expansion of the wealtech startups. Now it is not only the US companies that contribute to the development of the industry. There’s London’s Nutmeg, recently acquired by banking giant JP Morgan. There’s Berlin’s Trade Republic that raised one of the most impressive rounds in the fintech history of Europe—$900 million ($5.3 billion in valuation). And there’s London’s Hapi, supported by the Entrepreneur First accelerator program, a startup that works on a bunch of products aimed at helping couples project their combined pensions. The list, of course, goes on.
• Trend 2: Startups help wealth managers to digitize. The way in which wealth managers work is also changing. It is no longer enough for them to create a fact sheet once a month or to have a few investment baskets to sell funds. In order to provide a quality and personalized service to demanding customers, wealthtech experts should modernize and improve their digital capabilities. And many wealthtech startups are working on products to help them do so. They’re building software solutions aimed at assisting wealth managers to perform their work more efficiently, from enhancing the client onboarding to determining what their customers are interested in. Some companies, like Fund Sense and TrueLayer, are even building APIs to connect legacy systems used by seasoned wealth managers to allow them to demonstrate their ideas to clients quickly and easily, and empower them to use the new technologies themselves.
• Trend 3: Wealthtechs attracted record funding levels. 2021 saw solid levels of investment into weathtech companies, particularly European. Bitpanda caught $170 million in a round led by Peter Thiel-backed Valar Ventures in Series C, Trade Republic got $900 million in Series C fundraising round, led by US venture company Sequoia, and equity management firm Capdesk attracted £5 million in a round led by fund giant Fidelity. According to a board member of Nutmeg and partner at Pentech VC, Craig Anderson, “there is huge year-on-year growth in capital invested by VC and private equity.” “And I feel confident that it will continue to grow,” he says.

Challenges to overcome

The search for the proper business model is a common challenge for businesses from various industries. Just like Fintechs, who struggle to achieve their goals, the wealthtech firms’ task is to understand how to become profitable without increasing the fees. Some believe that the answer lies in the deepening of the product offering. And Trade Republic, for example, focuses on both convenience (the longest trading hours) and advanced news feeds and stock search.

But there is another big challenge for welathtech, at least in Europe, and it is market fragmentation. The co-founder of Hapi Youssef Darwich stresses that regardless of the eurozone’s single regulatory market, the wealtech firms still have to adapt to the local characteristics, so they can get a product-market fit. “One of the drawbacks in such a regulated area is that it’s difficult to take what you’ve built and go into other markets,” he says.

Wealthtech — what the future holds

Prediction 1: More community-focused platforms

Sifted predicts that more wealtech platforms will be focused on the community side of wealth creation in the near future. The report points out the effectiveness of so-called democratized wealthtech inspired by social media approaches, although it stresses that social investing should happen in a more controlled way. But how can they achieve that? 

Some firms are already moving in the right direction, such as a social-first retail investor startup Shares. As the co-founder of the platform Benjamin Chemla says, they create social media within a fully regulated trading platform. The users of Shares must verify their identity, and the startup has a financial-crime, support, and compliance departments. Also, according to Chemla, a third of Shares funding is aimed at building a safer and more secure environment.

Prediction 2: Crypto and NFT are here to stay

Not only will the cryptocurrencies remain in strong demand, but they will grow in popularity in the upcoming years, the report predicts. The experts stress that the crypto infrastructure is going to its next development phase, “to a more institutional product.” And the wealthtech market should look at this as an opportunity — the opportunity for the projects allowing to buy and sell crypto assets.

Although the popularity of NFTs has been quite surprising for many people, the wealthtech community must understand that such assets are here to stay, as they fit perfectly into the pricey good market for the rich. Such assets serve as some kind of signal for wealthy people, says the chief executive of Valour, Diana Biggs. “People ask why would one spend $1.7 million on a JPEG… It’s a status symbol, but it’s a status symbol for the metaverse”, she explains.

Prediction 3: Impact investing is on the rise

Another significant trend for the wealthtech industry is impact investing. According to the recent survey by The Harris Poll, a third of millennials use investments that consider ESG factors. The challenge is here, though, to understand what is deemed to be ESG. 

As the report explains, many large ESG funds have large technology firms like Spotify or Facebook among their top investments. Although such companies are considered to be good as they are working on limiting their carbon footprint, in reality, their products don’t impact the environment in any positive way. So is that impact investing after all? 

In the future, we will have organizations focused on real impact investing, and that shift has already started. “We are seeing a rise in the number of wealthtech startups that have a more impact-investing focused mission,” the report says. This trend will only increase as there is a huge demand for this, particularly among younger people. In 10-15 years’ time, impact investing will be just called investing,” co-founder of social impact investing firm CIRCA5000 Tom McGillycuddy foresees.

Prediction 4: Wealthech platforms for groups

Wealthech products and services should not be just for single users. The good news here is that companies are finally starting to get it. Wealthtech platforms now pay more attention to developing products that will allow users to manage their wealth as groups — couples or families. While according to Katherine Salisbury, co-founder and co-CEO of Qapital, a savings platform from New York, the investments into the couples’ wealth management hasn’t even reached $10 million in the United States compared to billions in the investments into wealth management space for single users, this might change soon. 

“Heavy fintech users are getting older, their lives are getting more complicated, she says. “And they’re getting to a point where they have more wealth, or they’re inheriting more wealth, so they’re going to demand more robust products than perhaps what they got before,” co-CEO of Qapital explains.

Prediction 5: More tech for wealthtech

There is very little tech in wealth management, says CEO of the wealthtech startup Finary Mounir Laggoune, and many people would agree with him completely. While the wealthtech industry has been developing vigorously, there is still much room for improvement when it comes to the technology part. 

The Sifted observers cite the banks as an example that are important players in the wealthtech space but still do not have the right tech solutions. This results in wealthtech managers spending time unreasonably, wasting it on administrative tasks instead of doing something valuable for their accounts. 

The future, the experts believe, will be different as more welthtech players will leverage the technologies to provide better service for consumers. However, it won’t happen quickly. According to McGillycuddy, tech changes will start to happen soon, but the big shift “will likely take decades.”

Prediction 6: The Wealthech growth story continues

According to analysts, the wealthtech market growth will only accelerate in the coming years. We will see more focus on tech and firms able to offer convenient solutions for various types of investors. There will be more partnerships in the market, particularly between wealthechs and fintech firms, the experts predict. 

There also might be some major shifts in how the wealthech platforms earn money. However, the analysts don’t have a single answer on whether more wealthtechs will have subscription-based or commission-free offerings, as this will depend on customers’ willingness to pay for products. 

The only thing that all experts agree is that the wealtech will continue to shine, and that crypto will be the catalyst of this growth. “Our parents’ generation had one bank account. Now you have 10 brokerage accounts, and you have five different crypto platforms,” Laggoune says.

Prediction 7: Challenging period ahead

Although the market will generally grow once the pandemic is over, there might be more challenging times for some people in the wealthtech space, particularly for retail investors who are not used to the bear market. 

The analysts remind us that while we have a bull market, many interesting things can happen, such as Dogecoin, NFTs, meme stocks, and many people are satisfied with their returns. But when the situation changes and the money is hard to come by, the strategy is of particular importance, and many might not be ready to adapt to that. 

Although the analysts aren’t ready to make any definitive judgment, they say it “will be a very unpleasant time.” “The far-out in the risk spectrum in the crypto world will be sharply curtailed, far-out in the alternative asset world, where you’re allowing individuals access to that, will [also] be sharply curtailed. I do think the Robinhood market will be severely impacted by a correction,” says Michael Meyer, managing partner at Middlegame Ventures.