Description
Over the past ten years, numerous startup firms with digital business models have emerged within the Wealth Management (WM) industry. According to our analysis of over 50 WM startups, these firms are Business-toConsumer (B2C) focused, and primarily serve retail investors.
Digital disruption in
Wealth Management
Why established frms should
pay attention to emerging
digital business models for
retail investors
1
Executive summary
Over the past ten years, numerous startup ?rms with
digital business models have emerged within the Wealth
Management (WM) industry. According to our analysis
of over 50 WM startups, these ?rms are Business-to-
Consumer (B2C) focused, and primarily serve retail
investors in three ways:
1. Connect. Helping investors connect to their peers,
multiple accounts, and multiple sources of advice.
2. Advise. Providing investors with advice tailored to their
unique situations and delivered through a rich, digital
experience.
3. Invest. Providing access to esoteric investment
opportunities and investment strategies similar to those
used by professional investors and institutions.
Although it’s unlikely these new ?rms will draw large
amounts of market share away from leading wealth
management franchises over the next ?ve years, they will
likely continue to grow because they target investor needs
that established ?rms are not currently satisfying. Also,
they offer a convenient online client experience that retail
investors have increasingly come to expect.
Leading WM franchises have been monitoring these
digital startups for a while, but thus far only a few have
responded with enhancements to their own digital
presence. However, our research shows the tide is starting
to turn and a growing number of incumbents are looking
to selectively invest in building digital capabilities that will
help broaden their appeal with younger clients and other
digitally savvy retail investors.
The disruptive power of digital technologies business
models is creating opportunities for new ?rms to make a
big splash in the wealth management industry. However,
other kinds of ?nancial services ?rms — such as asset
management and insurance companies — may be able
to leverage similar capabilities to provide client advice and
add greater value through their own distribution channels.
Established WM ?rms that do not learn from digital
startups and adjust their business models accordingly
could ?nd themselves at a signi?cant disadvantage in the
marketplace. On the other hand, incumbents that learn
to use digital technologies to address unmet needs and
deliver a superior client experience may be able to leapfrog
the competition and capitalize on emerging market
opportunities.
Established Wealth Management frms that
do not learn from digital startups and adjust
their business models accordingly could fnd
themselves at a signifcant disadvantage in
the marketplace.
Digital Disruption in Wealth Management 2
Introduction
Imagine two executives having lunch at a wealth
management (WM) conference and discussing the recent
emergence of small, digitally enabled WM ?rms that
primarily focus on retail investors in the Business-to-
Consumer (B2C) market — ?rms such as Betterment and
Personal Capital. The ?rst executive doesn’t care about
these startups or view them as a disintermediation threat,
arguing that investors will always want direct, person-
to-person relationships with their ?nancial advisors. The
second executive strongly disagrees, arguing that all
incumbent ?rms should understand why these new ?rms
exist, what clients like about them, and what capabilities
should be developed in response to the threat.
This hypothetical scenario illustrates a real ongoing debate
taking place in the WM industry about the relevance of
digitally-enabled startups and their potential for disruption.
Established ?rms are trying to decide whether it is worth
their time, money, and effort to better understand these
emerging businesses.
According to our research for this report, the answer
is clear. Wealth management is an industry ripe for
disruption, and WM startups are a leading indicator of
what is anticipated to come. Studying the new digital ?rms
can reveal evolving customer needs that are not currently
being met by established ?rms, enabling incumbents
to adjust their business models and take advantage of
emerging trends.
3
Our study examined over 50 wealth management startups
that are B2C-focused and digitally enabled, most of
which were founded within the past ten years (Figure 1).
According to our analysis, these fast-growing ?rms serve
retail investors in three ways: they help investors connect;
advise them on ?nancial issues; and help them invest
(Figure 2).
Connect. Consumers have a need to connect multiple
accounts — often across multiple providers — in order
to create a holistic picture of their wealth and more easily
manage their ?nances across multiple asset classes and
?rms. Also, investors want to connect with each other
to learn from their peers, and to connect with specialists
and advisors that align with their needs. New ?rms are
providing integration across traditional boundaries to help
investors escape siloed investing.
Examples: Mint, SocialPicks, MyFinancialAdvice
An overview of wealth
management startups
Figure 1: Deployment Timeline
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
• My Financial Advice
• eToro
• LearnVest
• Lending Club
• Jemstep
• Stock Twits
• People & Picks
• Af?uence
• Betterment
• MyGDP
• Market Riders
• Currensee
• Family Bhive
• Peers
• Wealth Front
• Portfolio Monkey
• NerdWallet
• Motif
• Seed Ups
• Crowdcube
• Future Advisor
• LikeFolio
• Daric
• Realty Mogul
• Funders Club
• CircleUp
• Collaperty
• Fundrise
• My Prosperity
• NestEgg Wealth
• Crowdfunder
• Plan & Act
• Money Strands
• Seedrs
• Personal Capital
• Hello Wallet
• Hedgeable
• Prodigy Network
• Financial Guard
• Covestor • Flat Fee Portfolio
• Collective2
• Family Of?ce Exchange
• Institute for Private Investors
• Yodlee – Money Center
• Tiger 21
• Garrett Planning Network
• Financial Planning Association
• Folio Investing
• Mint
• CAPS – Motley Fool
• Prosper
• Social Picks
Digital Disruption in Wealth Management 4
Digital disruption framework
Figure 2: WM Digital Disruption Framework
Connect Invest Advise
Provide investors access to
non-traditional, institutional-like
investment strategies and opportunities
Leverage digital interfaces and
analytics to deliver tailored advice and
enhanced experiences
Account Aggregation:
• Money Strands
• My Prosperity
• Mint
• Yodlee – Money Center
Non-Traditional Investment
Strategies:
• Collective2
• Covestor
• Currensee
• Motif
• eToro
Financial Planning:
(with Digital Store Front)
• Wealth Front
• Personal Capital
• Plan & Act
• Hello Wallet
• LearnVest
Social:
• Peers
• Social Picks
• Af?uence
• Family Bhive
• CAPS – Motley Fool
• People & Picks
Alternative Products:
• Prosper
• Seed Ups
• Seedrs
• Lending Club
• Crowdfunders
• Prodigy Network
• Fundrise
• Funders Club
• Crowdcube
• Collaperty
• CircleUp
• Realty Mogul
• Daric
Portfolio Allocation:
(Algorithms-based)
• My GDP
• NestEgg Wealth
• FlatFee Portfolios
• Folio Investing
• Future Advisor
• Market Riders
• Hedgeable
• Financial Guard
• LikeFolio
• Portfolio Monkey
• Betterment
• Jemstep
Client/Advisor Matching:
• Garrett Planning Network
• My Financial Advice
• Finanical Planning Association
• NerdWallet
• Tiger 21
• Institute for Private
Investors
• Stock Twits
• Family Of?ce
Exchange
Allow investors to connect their
accounts together, and connect with
their peers and the right advisors
5
Digital disruption
framework continues...
Advise. Retail investors often seek advice from reputable
sources and want that advice to be tailored to their unique
needs and circumstances. In the past, access to tailored
solutions was largely limited to wealthy investors due to
the high cost of customization. Now, digital platforms
are democratizing the delivery of ?nancial advice, with
algorithmic tools giving the masses access to customized
investment planning and portfolio allocation.
Examples: Personal Capital, Betterment
Invest. Some retail investors are ready to explore
non-traditional investments or are looking to emulate
professional and institutional investment strategies. In
response, digitally enabled ?rms are starting to provide
access to alternative ?nance products that were historically
the sole purview of commercial or high net-worth
investors.
Examples: Covestor, Prosper, Seedups
Although ?rms are typically categorized based on their
primary functions, many offer services that cut across
categories (Figure 3).
Digital Disruption in Wealth Management 6
Digital wealth management
frms capabilities
Figure 3: Digital WM Firms Capabilities
Connect Advise Invest
Account
Aggregation
Social
Client/Advisor
Matching
Financial Planning
Portfolio
Allocation
Non-Traditional
Investment Strategies
Alternative
Products
Af?uence
Betterment
CAPS - Motley Fool
CircleUp
Collaperty
Collective2
Covestor
Crowdcube
Crowdfunder
Currensee
Daric
eToro
Family Bhive
Family Of?ce Exchange
Financial Guard
Financial Planning Assoc.
Flat Fee Portfolio
Folio Investing
Funders Club
Fundrise
FutureAdvisor
Garrett Planning Network
Hedgeable
Hello Wallet
Institution for Private Investors
Jemstep
LearnVest
LendingClub
LikeFolio
Market Riders
Mint
Money Strands
Motif Investing
My Financial Advice
My Prosperity
My GDP
NerdWallet
NestEgg Wealth
Peers: The Wealth Peer Group
People & Picks
Personal Capital
Plan & Act
Portfolio Monkey
Prodigy Network
Prosper
Realty Mogul
Seedrs
Seedups
Social Picks
Stock Twits
Tiger 21
Wealth Front
Yodlee Money Center
Source: Deloitte Analysis, 2013
Primary Capability Secondary Capability Key:
7
6%
10%
15%
20%
23%
27%
I thought my financial advisor was not as competent
My financial advisor did not offer me the right investment
options
The quality of advice received was poor/below my
expectations
Realized I enjoy managing investments on my own
Felt doing it on my own would yield better outcomes
Didn’t trust my advisor any more, felt they were putting their
own interests ahead of mine
Connect
Account Aggregation
Retail investors are increasingly frustrated with having to
reconcile or aggregate transactional information across
numerous bank, investment, and retirement accounts.
They want an accurate, real-time, aggregated view of their
?nancial assets, liabilities, and net worth across multiple
accounts and providers. Also, such a view would help
?nancial advisors provide more effective and timely ?nancial
planning and investment advice — and create opportunities
for them to cross-sell a wide range of ?nancial products and
services.
One of the ?rst movers in this market was Mint.com. Mint
is a free online personal ?nance service that allows users
to see all their balances and transactions in one place.
Launched in 2007, Mint now has over 1 million users,
making it one of the largest and fastest growing account
aggregation services. Once a user provides their logins, Mint
automatically pulls in daily information about bank accounts,
credit cards, loans, property, and investments from nearly
all banking and ?nancial institutions in the U.S. — giving
users an up-to-date view of their money with no data entry,
import or synching required. Mint automatically categorizes
transactions, calculates budgets by category, and shows cash
?ow for each month. To keep users engaged, the service
also sends email and SMS alerts about upcoming bills, low
balances, and unusual spending. In addition, Mint.com offers
personalized recommendations on alternative products a
user may be interested in. The recommendation engine is a
source of revenue as af?liates pay to have their products put
in front of desired clients.
Myprosperity is conceptually similar to Mint, with a focus
on ?nancial planning. Myprosperity can aggregate bank,
credit card, investment accounts, and assets (e.g. home,
car) into a single dashboard, providing the user with a
real-time view across multiple accounts and ?nancial
institutions. The site has a budgeting tool to help users
monitor spending and manage savings goals. A “?nancial
?tness score” is generated to measure against personal
goals and preferences. It also facilitates users’ need to
share information with the ?nancial and legal professionals
through a limited access portal.
Large incumbent ?rms could offer something similar to Mint
and Myprosperity by building account aggregation into their
current digital front-ends (websites/mobile apps), as it would
likely require minimal integration with current systems. Many
B2B ?nancial services technology ?rms provide products to
help incorporate aggregation into a company’s infrastructure.
Once a comprehensive picture of a client’s wealth has been
captured, incumbent ?rms may be better positioned to
systemically provide effective ?nancial advice and
cross-sell new products and services — enabling more
effective share of wallet strategies. Another potential use of
account aggregation is to offer services to families and other
groups of individuals, where different members would have
different levels of access to the ?nancial picture.
Social networks
Since the ?nancial crisis, retail investors have become more
skeptical of the advice they receive, while at the same time
realizing they need this advice more than ever (See Figure
4). One way to mitigate the perceived risk of advice is to
provide customers with access to a variety of different
sources. Investor want to know what their peers think and
Figure 4: Why the mass af?uent left their advisors
Digital Disruption in Wealth Management 8
how they invest, not just learn from investment specialists.
Furthermore, they value interactions with their peers beyond
addressing their own immediate investment needs. Forums
that began as chat groups and online discussions have
quickly evolved into full-blown social platforms that allow
for an open exchange of ideas and the ability to form af?nity
groups.
People & Picks, founded by Zack's Investment Research, is
an example of a company that has created a social platform
and online community for users to interact with one another.
The platform allows users to rate any stock as a buy/sell
and tracks performance against the market. Users can share
ideas with fellow users, and keep track of past selections.
The platform can also be used to blog and share ideas and
opinions about the market, and it aggregates the data so
people can review user sentiment for a particular stock.a
Family Of?ce Exchange is a company in the social category
that focuses on providing wealthy families (or their agents)
with a ?nancial education about how to effectively pass
wealth onto future generations. Founded in 1989,
the company has become a platform for sharing leading
practices in family wealth management. It provides a global
online community and listserv that gives members a place to
network and have discussions. It also uses the relationship
with wealthy families to connect them with advisors when
needed.
For major ?nancial institutions, social platforms can be an
effective acquisition tool and increase client retention. These
platforms can provide access to a wide range of qualitative
and quantitative investor data that can be used to better
design and target products and services. In particular, private
banking arms can transform a client base into a valuable
internal network of high net worth clients who have been
vetted through Know Your Customer/Anti-Money Laundering
processes.
Client/advisor matching
Although some clients want to make their own investment
decisions, many would still like to ?nd an advisor that is
the best possible match in terms of competence, personal
af?nity, and/or cost. WM ?rms are often reluctant to help
a client seek out an advisor who is a better long-term match
for fear of upsetting the sales force. Digital startup ?rms have
stepped in to ?ll this gap by building databases of ?nancial
advisors and matching engines that use targeted questions
to connect clients with particular advisors based on a broad
range of factors, including everything from ?nancial needs
and preferences to backgrounds and hobbies.
Garrett Planning Network is an example of one such ?rm.
The company, which has been around since 2000, allows
individuals to search for an independent advisor in their
area and then read about the advisor’s experience and
background. Any customer can contact an advisor for
answers to simple questions or for full ?nancial planning
services. The site provides a list of critical questions that
customers can ask an advisor to help assess if there is a
good ?t.
“My Financial Advice” is a business that further automates
the selection process by providing a list of initial questions
that an individual might ask, and then providing a list of
local advisors that can resolve those questions. Prospective
customers can learn about an advisor’s cost and ratings
from previous customers, and can read the advisor’s pro?le
to see their certi?cations and past experience. The platform
reinforces the idea of getting independent ?nancial advice
from the convenience of home via a telephone or email.
Established WM ?rms might be able to differentiate
themselves by deploying more robust client/advisor
matching. Currently, matching is mostly based on
proximity and short-term needs (e.g., retirement planning
or tax optimization). Enhanced matching could identify
commonalities between clients and ?nancial advisors
(e.g., personality pro?les, backgrounds, interests) that might
help foster a long-term relationship.
The matching process is also a prime opportunity to capture
additional details about current and potential customers,
and could give traditional ?rms the option of leveraging
analytics and big data to improve client acquisition strategies
and on-boarding processes, and to better understand and
respond to client needs. This analysis could also help ?nancial
advisors better understand their market.
9
Investors have always been interested in advice about
their assets and investments that could help them manage
their ?nances more wisely. But with the move to online
platforms, digital interactions have naturally become as
an important extension of the overall client experience.
Clients today expect their Wealth Managers to provide the
same level of experience and ease-of-use as other online
businesses, such as Amazon and Google. New analytics
technologies enable ?nancial planning and portfolio
allocation tools to automatically deliver tailored advice
directly to retail customers. Armed with more data from
client pro?les,
?rms can better understand the psychology of the investor.
And while a ?nancial advisor might still be the preferred
solution, these new technology-driven insights provide
investors with a useful amount of automated advice
tailored to their unique goals.
Financial Planning
Online wealth management startups have entered this
market and successfully attracted ?nancial planning
customers by setting up digital storefronts based on
well-designed platforms that have a low learning curve.
These companies can form a complete picture of a client’s
?nancial situation by taking into consideration personal
?nancial goals, risk tolerance, diversi?cation, and/or
investment strategies.
Examples of these digital storefronts include Personal
Capital and Learnvest. Personal Capital offers an
investment platform with multiple options, from tracking
and analyzing investments to ?nancial advisor services
(for investors with over $100,000 in assets). Account
aggregation enables users to monitor their ?nances
as part of a single, integrated dashboard that shows
asset allocations, potential portfolio risks, and how
different product fees might impact their goals. Personal
Capital aims to merge online money management with
personalized case-by-case guidance.
It features an integrated dashboard and also provides
personal advisors to help investors navigate their ?nancial
data and challenges.
Learnvest goes even further by acting as an online coach.
The company provides an online tool that helps users track
their spending, visualize their budgets, and attain their
?nancial goals. It also facilitates discussions by allowing
users and their ?nancial planners to both view the user’s
dashboard at the same time. In addition, Learnvest
offers ten-day boot camps on ?nance-related subjects
such as becoming a parent, shopping for clothing, and
navigating one’s career. Learnvest also offers ?nancial
education by connecting users with Certi?ed Financial
Planners (CFPs) who can answer questions and perform
complimentary evaluations. For young adults interested in
working one-on-one with their assigned ?nancial planner,
a variety of service bundles are available to help them
accomplish their life goals. CFPs use information about a
person’s spending habits, budget, and ?nancial goals to
offer speci?c advice and help individuals understand how
money, expenses, and debt will continue to affect their
lives as professionals.
Advise
Digital Disruption in Wealth Management 10
Portfolio Allocation
Some digital startups offer customized investment
portfolio allocations, based a person’s unique needs, using
pre-de?ned proprietary algorithms. They also provide
user interfaces with interactive controls that dynamically
illustrate a variety
of scenarios, making goals-based investing much easier.
Startups that provide tailored portfolio allocation services
include Betterment and Hedgeable. Betterment is a
relatively new company that offers automated investing
to the public. For a monthly fee, Betterment automatically
creates a customized asset allocation based on clients’
?nancial goals and then invests their money in a blend
of two baskets: Bond Exchange Traded Funds (ETFs) and
Stock Market ETFs. Betterment gives clients control over
their level of investment risk by letting them adjust the
proportion of money invested in each basket.
Hedgeable is an online portfolio management company
that provides retail investors with an accessible method
of growing their portfolios in ?uctuating markets by
recommending portfolio allocations. Based on a client’s
unique pro?le, the company sends out alerts when a
trade is recommended. After executing the trade, risk and
performance analytics are both calculated and delivered
to the user to provide guidance.
Today, many wealth managers have a robust online
presence, and a few ?rms have already begun to establish
online platforms that aim to pair the advisor experience
with online details and transparency. However, the
remaining ?rms have an opportunity to leapfrog the
competition by delivering advice both to the mass market
and to af?uent clients that fall below the wealth tier
where truly personalized advice is economical. The key
is to provide a rich, digital experience that complements
person-to-person advisory relationships and increases
advisor productivity. Real-time trading ideas and access
to market and company research can be delivered by the
advisor to enhance the client relationship. Each of these
components can also be provided directly to customers
online in order to attract investors who are more
self-directed.
11
Invest
In the current low yield investment environment, investors
are constantly looking for better risk/return opportunities.
In response, startups have emerged that provide mass
market access to sophisticated, institutional-like trading
strategies. Whether by copying the trading strategies of
professional portfolio managers (PMs), or using automated
trading strategies developed by hedge fund managers,
companies are ?nding ways to give retail investors access
to services that historically have been the purview of
institutional or high-net-worth investors.
Startups in this segment fall into two main categories:
those offering non-traditional investment strategies, and
those offering access to esoteric asset classes.
Non-Traditional Investment Strategies
Startups focused on non-traditional investment strategies
offer individuals access to strategies that can help them
invest like professionals. Covestor is a company that allows
its members to view, study, and mirror the portfolios of
professional PMs — and will help match investors to PMs
that share their risk tolerance. Covestor offers access
to over 150 PMs, and once a client selects a PM, the
company will automatically recreate that PM’s account
with the client’s assets and then mirror all subsequent
trades that the executed. Covestor earns money by
charging a fee based on the assets invested with PMs.
Another company in this segment includes Collective2,
which uses trading algorithms originally developed
by hedge funds for ultra-high net worth individuals.
Collective2 brings a previously exclusive product to the
mass market, and is particularly appealing to investors
looking for new, complex investment strategies.
Additionally, the company will connect investors to a
limited number of brokerage ?rms that provide auto-
trading. Investors are charged a monthly ?xed fee set by
the system developer, plus a ?at monthly fee to
auto-trade stocks and options.
These investment products could help established wealth
management ?rms capture a larger share of wallet. In
general, traditional WM ?rms already have all of the
underlying components needed to address this gap in
the market. Their in-house trading desks already design
high end strategies and share them with the ?rm’s most
pro?table clients. Now, ?rms have an opportunity to
market a subset of these pre-de?ned trading strategies to
another tier of digitally savvy customers.
Alternative Products
In addition to gaining access to advanced trading
strategies, some investors may want to diversify into
exotic asset classes. A number of startups have emerged
that offer investors access to investments that were
previously unavailable. These startups fall into two types:
(1) platforms that allow investors to become creditors and
offer direct loans to borrowers for a ?xed rate of return,
and (2) platforms where investors “crowdfund” a company
and own a portion of the equity. Both types essentially
serve as a central point for bringing investors together with
people that need funding.
LendingClub falls into the ?rst category of direct peer-to-
peer lending, and is one of the largest companies in this
niche market. Borrowers go on the company’s website
and, once screened, create a listing with their information,
including the desired loan amount and purpose of the
loan. Loan investors view the listings and invest in those
that meet their lending criteria. Once the process is
complete, borrowers make ?xed monthly payments and
loan investors receive a portion of those payments directly
into their LendingClub account. LendingClub makes
money by charging a loan origination fee to the borrower
and a servicing fee to the loan investor.
Digital Disruption in Wealth Management 12
In October 2013, the SEC opened private investments
to the general public in response to the crowd funding
provision (Title III) of the JOBS Act. This will enable
startups to reach a much broader investment audience
than securities laws used to allow. Although there are
still certain limitations based on income and net worth,
this law is expected to have a signi?cant impact on
?rms involved in crowdfunding. Companies such as
Crowdfunder provide an online platform for startups to
post company information and funding request. Investors
can then behave like venture capitalists by funding startups
looking for capital. The Crowdfunder website provides key
information about each company and shows how much
funding is currently committed to it.
Although WM startups have begun to establish a foothold
in these new areas, incumbent WM ?rms can leverage
their strong brand names to defend their market leadership
and capitalize on emerging opportunities. In particular,
they can retain client assets by offering new investment
opportunities similar to those described here.
Looking ahead, Title III of the JOBS Act is likely to create
new growth opportunities in marketing and ?nancing of
startups. Also, there may be a signi?cant opportunity in
niche crowdfunding (e.g., there has recently been a surge
in websites exclusively focused on the crowdfunding for
real estate.
13
Established wealth management ?rms have many reasons
to care about the new startups, technologies, and
solutions that are emerging in the sector. Although WM
startups probably won’t disintermediate ?nancial advisors
for all customer types, they may increasingly poach clients
who no longer feel the need to consult with a human
expert for basic investment decisions.
Startup ?rms in wealth management are targeting an
evolving set of client needs. These needs are increasingly
important for a new generation of clients, and as such are
driving fundamental changes for companies in the business
of providing ?nancial advice. WM startups are disrupting
the industry by democratizing access to tailored advice and
non-traditional investments — and mass market investors
are embracing the new offerings.
Established WM ?rms have traditionally focused on the
needs of their most pro?table (and most demanding)
customers. This focus has allowed digital startups to
establish a foothold by addressing the simpler needs of
customer segments that are less pro?table, but also less
demanding. In the future, these startups — enabled by
emerging technologies — will likely be able to improve
and expand their offerings to an ever-increasing audience
without sacri?cing the economic advantages that allow
them to be pro?table at the lower-end of the market
(Figure 5).
Although this report focuses on wealth management, the
?ndings also apply to other types of ?nancial services. For
example, insurance companies and asset management
?rms have their own unique distribution channels, and
some are already expanding beyond the sale of a narrow
product range (e.g., life and annuity insurance). Lessons
and insights from wealth management can equip these
other types of ?nancial services ?rms with new tools to
provide broader investment advice and more effective
?nancial plans.
Many leading ?nancial ?rms are taking notice of the trends
in wealth management and are looking to selectively
invest in building similar digital capabilities to broaden
their appeal to younger, digitally savvy clients. Account
aggregation could help make a ?rm the advisor of choice
in its segment, and provide an entry point for clients
looking to change or enhance their portfolios. Client/
advisor matching and social platforms can also serve as
entry points, and both enable a company to demonstrate
to clients that it places their needs ?rst and is willing to
provide them with a tailored experience.
All of these tools can be used to enhance the ?nancial
advisor relationship — not replace it. By empowering
advisors, incumbent ?rms can deliver a better client
experience, address needs that are not currently being
met, and capitalize on emerging market opportunities.
On the other hand, established WM ?rms that do not learn
from the digital startups and adjust their business models
accordingly could ?nd themselves at a signi?cant
competitive disadvantage.
Conclusion
Digital Disruption in Wealth Management 14
Source: Raynor, Michael; “The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth”
P
e
r
f
o
r
m
a
n
c
e
Time
Performance that mainstream
customers willing to pay for
Upward march
Foothold
1.
2.
3.
4.
Overshoot
Disruption
Incumbent Firms
Disrupting Firms
Client Expectations
Legend
Figure 5: While startups may provide a lower performance point, they can grow to disrupt
traditional WM ?rms.
Source: Adapted from Clayton M. Christensen and Michael E. Raynor, The Innovator’s Solution: Creating and
Sustaining Successful Growth. Boston: Harvard Business School Press, 2003.
This publication contains general information only, and none of the member ?rms of Deloitte Touche
Tohmatsu Limited, its member ?rms, or their related entities (collective, the “Deloitte Network”) is, by means
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doc_243698833.pdf
Over the past ten years, numerous startup firms with digital business models have emerged within the Wealth Management (WM) industry. According to our analysis of over 50 WM startups, these firms are Business-toConsumer (B2C) focused, and primarily serve retail investors.
Digital disruption in
Wealth Management
Why established frms should
pay attention to emerging
digital business models for
retail investors
1
Executive summary
Over the past ten years, numerous startup ?rms with
digital business models have emerged within the Wealth
Management (WM) industry. According to our analysis
of over 50 WM startups, these ?rms are Business-to-
Consumer (B2C) focused, and primarily serve retail
investors in three ways:
1. Connect. Helping investors connect to their peers,
multiple accounts, and multiple sources of advice.
2. Advise. Providing investors with advice tailored to their
unique situations and delivered through a rich, digital
experience.
3. Invest. Providing access to esoteric investment
opportunities and investment strategies similar to those
used by professional investors and institutions.
Although it’s unlikely these new ?rms will draw large
amounts of market share away from leading wealth
management franchises over the next ?ve years, they will
likely continue to grow because they target investor needs
that established ?rms are not currently satisfying. Also,
they offer a convenient online client experience that retail
investors have increasingly come to expect.
Leading WM franchises have been monitoring these
digital startups for a while, but thus far only a few have
responded with enhancements to their own digital
presence. However, our research shows the tide is starting
to turn and a growing number of incumbents are looking
to selectively invest in building digital capabilities that will
help broaden their appeal with younger clients and other
digitally savvy retail investors.
The disruptive power of digital technologies business
models is creating opportunities for new ?rms to make a
big splash in the wealth management industry. However,
other kinds of ?nancial services ?rms — such as asset
management and insurance companies — may be able
to leverage similar capabilities to provide client advice and
add greater value through their own distribution channels.
Established WM ?rms that do not learn from digital
startups and adjust their business models accordingly
could ?nd themselves at a signi?cant disadvantage in the
marketplace. On the other hand, incumbents that learn
to use digital technologies to address unmet needs and
deliver a superior client experience may be able to leapfrog
the competition and capitalize on emerging market
opportunities.
Established Wealth Management frms that
do not learn from digital startups and adjust
their business models accordingly could fnd
themselves at a signifcant disadvantage in
the marketplace.
Digital Disruption in Wealth Management 2
Introduction
Imagine two executives having lunch at a wealth
management (WM) conference and discussing the recent
emergence of small, digitally enabled WM ?rms that
primarily focus on retail investors in the Business-to-
Consumer (B2C) market — ?rms such as Betterment and
Personal Capital. The ?rst executive doesn’t care about
these startups or view them as a disintermediation threat,
arguing that investors will always want direct, person-
to-person relationships with their ?nancial advisors. The
second executive strongly disagrees, arguing that all
incumbent ?rms should understand why these new ?rms
exist, what clients like about them, and what capabilities
should be developed in response to the threat.
This hypothetical scenario illustrates a real ongoing debate
taking place in the WM industry about the relevance of
digitally-enabled startups and their potential for disruption.
Established ?rms are trying to decide whether it is worth
their time, money, and effort to better understand these
emerging businesses.
According to our research for this report, the answer
is clear. Wealth management is an industry ripe for
disruption, and WM startups are a leading indicator of
what is anticipated to come. Studying the new digital ?rms
can reveal evolving customer needs that are not currently
being met by established ?rms, enabling incumbents
to adjust their business models and take advantage of
emerging trends.
3
Our study examined over 50 wealth management startups
that are B2C-focused and digitally enabled, most of
which were founded within the past ten years (Figure 1).
According to our analysis, these fast-growing ?rms serve
retail investors in three ways: they help investors connect;
advise them on ?nancial issues; and help them invest
(Figure 2).
Connect. Consumers have a need to connect multiple
accounts — often across multiple providers — in order
to create a holistic picture of their wealth and more easily
manage their ?nances across multiple asset classes and
?rms. Also, investors want to connect with each other
to learn from their peers, and to connect with specialists
and advisors that align with their needs. New ?rms are
providing integration across traditional boundaries to help
investors escape siloed investing.
Examples: Mint, SocialPicks, MyFinancialAdvice
An overview of wealth
management startups
Figure 1: Deployment Timeline
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
• My Financial Advice
• eToro
• LearnVest
• Lending Club
• Jemstep
• Stock Twits
• People & Picks
• Af?uence
• Betterment
• MyGDP
• Market Riders
• Currensee
• Family Bhive
• Peers
• Wealth Front
• Portfolio Monkey
• NerdWallet
• Motif
• Seed Ups
• Crowdcube
• Future Advisor
• LikeFolio
• Daric
• Realty Mogul
• Funders Club
• CircleUp
• Collaperty
• Fundrise
• My Prosperity
• NestEgg Wealth
• Crowdfunder
• Plan & Act
• Money Strands
• Seedrs
• Personal Capital
• Hello Wallet
• Hedgeable
• Prodigy Network
• Financial Guard
• Covestor • Flat Fee Portfolio
• Collective2
• Family Of?ce Exchange
• Institute for Private Investors
• Yodlee – Money Center
• Tiger 21
• Garrett Planning Network
• Financial Planning Association
• Folio Investing
• Mint
• CAPS – Motley Fool
• Prosper
• Social Picks
Digital Disruption in Wealth Management 4
Digital disruption framework
Figure 2: WM Digital Disruption Framework
Connect Invest Advise
Provide investors access to
non-traditional, institutional-like
investment strategies and opportunities
Leverage digital interfaces and
analytics to deliver tailored advice and
enhanced experiences
Account Aggregation:
• Money Strands
• My Prosperity
• Mint
• Yodlee – Money Center
Non-Traditional Investment
Strategies:
• Collective2
• Covestor
• Currensee
• Motif
• eToro
Financial Planning:
(with Digital Store Front)
• Wealth Front
• Personal Capital
• Plan & Act
• Hello Wallet
• LearnVest
Social:
• Peers
• Social Picks
• Af?uence
• Family Bhive
• CAPS – Motley Fool
• People & Picks
Alternative Products:
• Prosper
• Seed Ups
• Seedrs
• Lending Club
• Crowdfunders
• Prodigy Network
• Fundrise
• Funders Club
• Crowdcube
• Collaperty
• CircleUp
• Realty Mogul
• Daric
Portfolio Allocation:
(Algorithms-based)
• My GDP
• NestEgg Wealth
• FlatFee Portfolios
• Folio Investing
• Future Advisor
• Market Riders
• Hedgeable
• Financial Guard
• LikeFolio
• Portfolio Monkey
• Betterment
• Jemstep
Client/Advisor Matching:
• Garrett Planning Network
• My Financial Advice
• Finanical Planning Association
• NerdWallet
• Tiger 21
• Institute for Private
Investors
• Stock Twits
• Family Of?ce
Exchange
Allow investors to connect their
accounts together, and connect with
their peers and the right advisors
5
Digital disruption
framework continues...
Advise. Retail investors often seek advice from reputable
sources and want that advice to be tailored to their unique
needs and circumstances. In the past, access to tailored
solutions was largely limited to wealthy investors due to
the high cost of customization. Now, digital platforms
are democratizing the delivery of ?nancial advice, with
algorithmic tools giving the masses access to customized
investment planning and portfolio allocation.
Examples: Personal Capital, Betterment
Invest. Some retail investors are ready to explore
non-traditional investments or are looking to emulate
professional and institutional investment strategies. In
response, digitally enabled ?rms are starting to provide
access to alternative ?nance products that were historically
the sole purview of commercial or high net-worth
investors.
Examples: Covestor, Prosper, Seedups
Although ?rms are typically categorized based on their
primary functions, many offer services that cut across
categories (Figure 3).
Digital Disruption in Wealth Management 6
Digital wealth management
frms capabilities
Figure 3: Digital WM Firms Capabilities
Connect Advise Invest
Account
Aggregation
Social
Client/Advisor
Matching
Financial Planning
Portfolio
Allocation
Non-Traditional
Investment Strategies
Alternative
Products
Af?uence
Betterment
CAPS - Motley Fool
CircleUp
Collaperty
Collective2
Covestor
Crowdcube
Crowdfunder
Currensee
Daric
eToro
Family Bhive
Family Of?ce Exchange
Financial Guard
Financial Planning Assoc.
Flat Fee Portfolio
Folio Investing
Funders Club
Fundrise
FutureAdvisor
Garrett Planning Network
Hedgeable
Hello Wallet
Institution for Private Investors
Jemstep
LearnVest
LendingClub
LikeFolio
Market Riders
Mint
Money Strands
Motif Investing
My Financial Advice
My Prosperity
My GDP
NerdWallet
NestEgg Wealth
Peers: The Wealth Peer Group
People & Picks
Personal Capital
Plan & Act
Portfolio Monkey
Prodigy Network
Prosper
Realty Mogul
Seedrs
Seedups
Social Picks
Stock Twits
Tiger 21
Wealth Front
Yodlee Money Center
Source: Deloitte Analysis, 2013
Primary Capability Secondary Capability Key:
7
6%
10%
15%
20%
23%
27%
I thought my financial advisor was not as competent
My financial advisor did not offer me the right investment
options
The quality of advice received was poor/below my
expectations
Realized I enjoy managing investments on my own
Felt doing it on my own would yield better outcomes
Didn’t trust my advisor any more, felt they were putting their
own interests ahead of mine
Connect
Account Aggregation
Retail investors are increasingly frustrated with having to
reconcile or aggregate transactional information across
numerous bank, investment, and retirement accounts.
They want an accurate, real-time, aggregated view of their
?nancial assets, liabilities, and net worth across multiple
accounts and providers. Also, such a view would help
?nancial advisors provide more effective and timely ?nancial
planning and investment advice — and create opportunities
for them to cross-sell a wide range of ?nancial products and
services.
One of the ?rst movers in this market was Mint.com. Mint
is a free online personal ?nance service that allows users
to see all their balances and transactions in one place.
Launched in 2007, Mint now has over 1 million users,
making it one of the largest and fastest growing account
aggregation services. Once a user provides their logins, Mint
automatically pulls in daily information about bank accounts,
credit cards, loans, property, and investments from nearly
all banking and ?nancial institutions in the U.S. — giving
users an up-to-date view of their money with no data entry,
import or synching required. Mint automatically categorizes
transactions, calculates budgets by category, and shows cash
?ow for each month. To keep users engaged, the service
also sends email and SMS alerts about upcoming bills, low
balances, and unusual spending. In addition, Mint.com offers
personalized recommendations on alternative products a
user may be interested in. The recommendation engine is a
source of revenue as af?liates pay to have their products put
in front of desired clients.
Myprosperity is conceptually similar to Mint, with a focus
on ?nancial planning. Myprosperity can aggregate bank,
credit card, investment accounts, and assets (e.g. home,
car) into a single dashboard, providing the user with a
real-time view across multiple accounts and ?nancial
institutions. The site has a budgeting tool to help users
monitor spending and manage savings goals. A “?nancial
?tness score” is generated to measure against personal
goals and preferences. It also facilitates users’ need to
share information with the ?nancial and legal professionals
through a limited access portal.
Large incumbent ?rms could offer something similar to Mint
and Myprosperity by building account aggregation into their
current digital front-ends (websites/mobile apps), as it would
likely require minimal integration with current systems. Many
B2B ?nancial services technology ?rms provide products to
help incorporate aggregation into a company’s infrastructure.
Once a comprehensive picture of a client’s wealth has been
captured, incumbent ?rms may be better positioned to
systemically provide effective ?nancial advice and
cross-sell new products and services — enabling more
effective share of wallet strategies. Another potential use of
account aggregation is to offer services to families and other
groups of individuals, where different members would have
different levels of access to the ?nancial picture.
Social networks
Since the ?nancial crisis, retail investors have become more
skeptical of the advice they receive, while at the same time
realizing they need this advice more than ever (See Figure
4). One way to mitigate the perceived risk of advice is to
provide customers with access to a variety of different
sources. Investor want to know what their peers think and
Figure 4: Why the mass af?uent left their advisors
Digital Disruption in Wealth Management 8
how they invest, not just learn from investment specialists.
Furthermore, they value interactions with their peers beyond
addressing their own immediate investment needs. Forums
that began as chat groups and online discussions have
quickly evolved into full-blown social platforms that allow
for an open exchange of ideas and the ability to form af?nity
groups.
People & Picks, founded by Zack's Investment Research, is
an example of a company that has created a social platform
and online community for users to interact with one another.
The platform allows users to rate any stock as a buy/sell
and tracks performance against the market. Users can share
ideas with fellow users, and keep track of past selections.
The platform can also be used to blog and share ideas and
opinions about the market, and it aggregates the data so
people can review user sentiment for a particular stock.a
Family Of?ce Exchange is a company in the social category
that focuses on providing wealthy families (or their agents)
with a ?nancial education about how to effectively pass
wealth onto future generations. Founded in 1989,
the company has become a platform for sharing leading
practices in family wealth management. It provides a global
online community and listserv that gives members a place to
network and have discussions. It also uses the relationship
with wealthy families to connect them with advisors when
needed.
For major ?nancial institutions, social platforms can be an
effective acquisition tool and increase client retention. These
platforms can provide access to a wide range of qualitative
and quantitative investor data that can be used to better
design and target products and services. In particular, private
banking arms can transform a client base into a valuable
internal network of high net worth clients who have been
vetted through Know Your Customer/Anti-Money Laundering
processes.
Client/advisor matching
Although some clients want to make their own investment
decisions, many would still like to ?nd an advisor that is
the best possible match in terms of competence, personal
af?nity, and/or cost. WM ?rms are often reluctant to help
a client seek out an advisor who is a better long-term match
for fear of upsetting the sales force. Digital startup ?rms have
stepped in to ?ll this gap by building databases of ?nancial
advisors and matching engines that use targeted questions
to connect clients with particular advisors based on a broad
range of factors, including everything from ?nancial needs
and preferences to backgrounds and hobbies.
Garrett Planning Network is an example of one such ?rm.
The company, which has been around since 2000, allows
individuals to search for an independent advisor in their
area and then read about the advisor’s experience and
background. Any customer can contact an advisor for
answers to simple questions or for full ?nancial planning
services. The site provides a list of critical questions that
customers can ask an advisor to help assess if there is a
good ?t.
“My Financial Advice” is a business that further automates
the selection process by providing a list of initial questions
that an individual might ask, and then providing a list of
local advisors that can resolve those questions. Prospective
customers can learn about an advisor’s cost and ratings
from previous customers, and can read the advisor’s pro?le
to see their certi?cations and past experience. The platform
reinforces the idea of getting independent ?nancial advice
from the convenience of home via a telephone or email.
Established WM ?rms might be able to differentiate
themselves by deploying more robust client/advisor
matching. Currently, matching is mostly based on
proximity and short-term needs (e.g., retirement planning
or tax optimization). Enhanced matching could identify
commonalities between clients and ?nancial advisors
(e.g., personality pro?les, backgrounds, interests) that might
help foster a long-term relationship.
The matching process is also a prime opportunity to capture
additional details about current and potential customers,
and could give traditional ?rms the option of leveraging
analytics and big data to improve client acquisition strategies
and on-boarding processes, and to better understand and
respond to client needs. This analysis could also help ?nancial
advisors better understand their market.
9
Investors have always been interested in advice about
their assets and investments that could help them manage
their ?nances more wisely. But with the move to online
platforms, digital interactions have naturally become as
an important extension of the overall client experience.
Clients today expect their Wealth Managers to provide the
same level of experience and ease-of-use as other online
businesses, such as Amazon and Google. New analytics
technologies enable ?nancial planning and portfolio
allocation tools to automatically deliver tailored advice
directly to retail customers. Armed with more data from
client pro?les,
?rms can better understand the psychology of the investor.
And while a ?nancial advisor might still be the preferred
solution, these new technology-driven insights provide
investors with a useful amount of automated advice
tailored to their unique goals.
Financial Planning
Online wealth management startups have entered this
market and successfully attracted ?nancial planning
customers by setting up digital storefronts based on
well-designed platforms that have a low learning curve.
These companies can form a complete picture of a client’s
?nancial situation by taking into consideration personal
?nancial goals, risk tolerance, diversi?cation, and/or
investment strategies.
Examples of these digital storefronts include Personal
Capital and Learnvest. Personal Capital offers an
investment platform with multiple options, from tracking
and analyzing investments to ?nancial advisor services
(for investors with over $100,000 in assets). Account
aggregation enables users to monitor their ?nances
as part of a single, integrated dashboard that shows
asset allocations, potential portfolio risks, and how
different product fees might impact their goals. Personal
Capital aims to merge online money management with
personalized case-by-case guidance.
It features an integrated dashboard and also provides
personal advisors to help investors navigate their ?nancial
data and challenges.
Learnvest goes even further by acting as an online coach.
The company provides an online tool that helps users track
their spending, visualize their budgets, and attain their
?nancial goals. It also facilitates discussions by allowing
users and their ?nancial planners to both view the user’s
dashboard at the same time. In addition, Learnvest
offers ten-day boot camps on ?nance-related subjects
such as becoming a parent, shopping for clothing, and
navigating one’s career. Learnvest also offers ?nancial
education by connecting users with Certi?ed Financial
Planners (CFPs) who can answer questions and perform
complimentary evaluations. For young adults interested in
working one-on-one with their assigned ?nancial planner,
a variety of service bundles are available to help them
accomplish their life goals. CFPs use information about a
person’s spending habits, budget, and ?nancial goals to
offer speci?c advice and help individuals understand how
money, expenses, and debt will continue to affect their
lives as professionals.
Advise
Digital Disruption in Wealth Management 10
Portfolio Allocation
Some digital startups offer customized investment
portfolio allocations, based a person’s unique needs, using
pre-de?ned proprietary algorithms. They also provide
user interfaces with interactive controls that dynamically
illustrate a variety
of scenarios, making goals-based investing much easier.
Startups that provide tailored portfolio allocation services
include Betterment and Hedgeable. Betterment is a
relatively new company that offers automated investing
to the public. For a monthly fee, Betterment automatically
creates a customized asset allocation based on clients’
?nancial goals and then invests their money in a blend
of two baskets: Bond Exchange Traded Funds (ETFs) and
Stock Market ETFs. Betterment gives clients control over
their level of investment risk by letting them adjust the
proportion of money invested in each basket.
Hedgeable is an online portfolio management company
that provides retail investors with an accessible method
of growing their portfolios in ?uctuating markets by
recommending portfolio allocations. Based on a client’s
unique pro?le, the company sends out alerts when a
trade is recommended. After executing the trade, risk and
performance analytics are both calculated and delivered
to the user to provide guidance.
Today, many wealth managers have a robust online
presence, and a few ?rms have already begun to establish
online platforms that aim to pair the advisor experience
with online details and transparency. However, the
remaining ?rms have an opportunity to leapfrog the
competition by delivering advice both to the mass market
and to af?uent clients that fall below the wealth tier
where truly personalized advice is economical. The key
is to provide a rich, digital experience that complements
person-to-person advisory relationships and increases
advisor productivity. Real-time trading ideas and access
to market and company research can be delivered by the
advisor to enhance the client relationship. Each of these
components can also be provided directly to customers
online in order to attract investors who are more
self-directed.
11
Invest
In the current low yield investment environment, investors
are constantly looking for better risk/return opportunities.
In response, startups have emerged that provide mass
market access to sophisticated, institutional-like trading
strategies. Whether by copying the trading strategies of
professional portfolio managers (PMs), or using automated
trading strategies developed by hedge fund managers,
companies are ?nding ways to give retail investors access
to services that historically have been the purview of
institutional or high-net-worth investors.
Startups in this segment fall into two main categories:
those offering non-traditional investment strategies, and
those offering access to esoteric asset classes.
Non-Traditional Investment Strategies
Startups focused on non-traditional investment strategies
offer individuals access to strategies that can help them
invest like professionals. Covestor is a company that allows
its members to view, study, and mirror the portfolios of
professional PMs — and will help match investors to PMs
that share their risk tolerance. Covestor offers access
to over 150 PMs, and once a client selects a PM, the
company will automatically recreate that PM’s account
with the client’s assets and then mirror all subsequent
trades that the executed. Covestor earns money by
charging a fee based on the assets invested with PMs.
Another company in this segment includes Collective2,
which uses trading algorithms originally developed
by hedge funds for ultra-high net worth individuals.
Collective2 brings a previously exclusive product to the
mass market, and is particularly appealing to investors
looking for new, complex investment strategies.
Additionally, the company will connect investors to a
limited number of brokerage ?rms that provide auto-
trading. Investors are charged a monthly ?xed fee set by
the system developer, plus a ?at monthly fee to
auto-trade stocks and options.
These investment products could help established wealth
management ?rms capture a larger share of wallet. In
general, traditional WM ?rms already have all of the
underlying components needed to address this gap in
the market. Their in-house trading desks already design
high end strategies and share them with the ?rm’s most
pro?table clients. Now, ?rms have an opportunity to
market a subset of these pre-de?ned trading strategies to
another tier of digitally savvy customers.
Alternative Products
In addition to gaining access to advanced trading
strategies, some investors may want to diversify into
exotic asset classes. A number of startups have emerged
that offer investors access to investments that were
previously unavailable. These startups fall into two types:
(1) platforms that allow investors to become creditors and
offer direct loans to borrowers for a ?xed rate of return,
and (2) platforms where investors “crowdfund” a company
and own a portion of the equity. Both types essentially
serve as a central point for bringing investors together with
people that need funding.
LendingClub falls into the ?rst category of direct peer-to-
peer lending, and is one of the largest companies in this
niche market. Borrowers go on the company’s website
and, once screened, create a listing with their information,
including the desired loan amount and purpose of the
loan. Loan investors view the listings and invest in those
that meet their lending criteria. Once the process is
complete, borrowers make ?xed monthly payments and
loan investors receive a portion of those payments directly
into their LendingClub account. LendingClub makes
money by charging a loan origination fee to the borrower
and a servicing fee to the loan investor.
Digital Disruption in Wealth Management 12
In October 2013, the SEC opened private investments
to the general public in response to the crowd funding
provision (Title III) of the JOBS Act. This will enable
startups to reach a much broader investment audience
than securities laws used to allow. Although there are
still certain limitations based on income and net worth,
this law is expected to have a signi?cant impact on
?rms involved in crowdfunding. Companies such as
Crowdfunder provide an online platform for startups to
post company information and funding request. Investors
can then behave like venture capitalists by funding startups
looking for capital. The Crowdfunder website provides key
information about each company and shows how much
funding is currently committed to it.
Although WM startups have begun to establish a foothold
in these new areas, incumbent WM ?rms can leverage
their strong brand names to defend their market leadership
and capitalize on emerging opportunities. In particular,
they can retain client assets by offering new investment
opportunities similar to those described here.
Looking ahead, Title III of the JOBS Act is likely to create
new growth opportunities in marketing and ?nancing of
startups. Also, there may be a signi?cant opportunity in
niche crowdfunding (e.g., there has recently been a surge
in websites exclusively focused on the crowdfunding for
real estate.
13
Established wealth management ?rms have many reasons
to care about the new startups, technologies, and
solutions that are emerging in the sector. Although WM
startups probably won’t disintermediate ?nancial advisors
for all customer types, they may increasingly poach clients
who no longer feel the need to consult with a human
expert for basic investment decisions.
Startup ?rms in wealth management are targeting an
evolving set of client needs. These needs are increasingly
important for a new generation of clients, and as such are
driving fundamental changes for companies in the business
of providing ?nancial advice. WM startups are disrupting
the industry by democratizing access to tailored advice and
non-traditional investments — and mass market investors
are embracing the new offerings.
Established WM ?rms have traditionally focused on the
needs of their most pro?table (and most demanding)
customers. This focus has allowed digital startups to
establish a foothold by addressing the simpler needs of
customer segments that are less pro?table, but also less
demanding. In the future, these startups — enabled by
emerging technologies — will likely be able to improve
and expand their offerings to an ever-increasing audience
without sacri?cing the economic advantages that allow
them to be pro?table at the lower-end of the market
(Figure 5).
Although this report focuses on wealth management, the
?ndings also apply to other types of ?nancial services. For
example, insurance companies and asset management
?rms have their own unique distribution channels, and
some are already expanding beyond the sale of a narrow
product range (e.g., life and annuity insurance). Lessons
and insights from wealth management can equip these
other types of ?nancial services ?rms with new tools to
provide broader investment advice and more effective
?nancial plans.
Many leading ?nancial ?rms are taking notice of the trends
in wealth management and are looking to selectively
invest in building similar digital capabilities to broaden
their appeal to younger, digitally savvy clients. Account
aggregation could help make a ?rm the advisor of choice
in its segment, and provide an entry point for clients
looking to change or enhance their portfolios. Client/
advisor matching and social platforms can also serve as
entry points, and both enable a company to demonstrate
to clients that it places their needs ?rst and is willing to
provide them with a tailored experience.
All of these tools can be used to enhance the ?nancial
advisor relationship — not replace it. By empowering
advisors, incumbent ?rms can deliver a better client
experience, address needs that are not currently being
met, and capitalize on emerging market opportunities.
On the other hand, established WM ?rms that do not learn
from the digital startups and adjust their business models
accordingly could ?nd themselves at a signi?cant
competitive disadvantage.
Conclusion
Digital Disruption in Wealth Management 14
Source: Raynor, Michael; “The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth”
P
e
r
f
o
r
m
a
n
c
e
Time
Performance that mainstream
customers willing to pay for
Upward march
Foothold
1.
2.
3.
4.
Overshoot
Disruption
Incumbent Firms
Disrupting Firms
Client Expectations
Legend
Figure 5: While startups may provide a lower performance point, they can grow to disrupt
traditional WM ?rms.
Source: Adapted from Clayton M. Christensen and Michael E. Raynor, The Innovator’s Solution: Creating and
Sustaining Successful Growth. Boston: Harvard Business School Press, 2003.
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Contributors
Joshua Skelly
Consultant, Deloitte Consulting LLP
Authors
Gauthier Vincent
Principal, Deloitte Consulting LLP
[email protected]
Rohit Gera
Manager, Deloitte Consulting LLP
[email protected]
Robert Berini
Director, Deloitte Consulting LLP
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