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A Trillion-Dollar Opportunity for Wealthtech

By Ana Sepúlveda - Fintual Mexico
Client Portfolio Manager

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Ana Sepulveda By Ana Sepulveda | Co-Founder and CEO - Mon, 10/17/2022 - 13:00

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If you look into the wealth management industry there is a constant fight among players for the same customers. They are fighting over high-net-worth or ultra-high-net-worth clients,  looking at this as their option to increase assets under management. 

High tickets have limited the number of potential clients for top-tier investment institutions, but these low-ticket clients represent a great opportunity for the market. There are a couple of initiatives to increase market share but very few competitors are looking into them. A great example would be trying to attract a higher percentage of women into investing, or looking into new generations like millennials as potential new clients. 

The latter have been getting a lot of attention lately as the group that has been able to grow their net worth at the fastest pace in recent years. Millennials, in the US alone, doubled their net worth during the pandemic. According to a MagnifyMoney report, millennials' net worth by the first quarter of 2022 was US$9.38 trillion, up from US$4.55 trillion two years earlier. 

So this is it? The trillion-dollar opportunity are the millennials?

Well the answer is yes and no. Let me explain: The pace at which millennials are able to expand their net worth is notable but more than what they are worth today, the key is what they will be worth in 20 to 30 years. 

With that being said, let's focus now on baby boomers, the richest generation of all time with an average net worth as of 2020 of over US$1.2 million. Together, this generation in the US is worth over US$30 trillion. Baby boomers were born between 1946 and 1964, meaning they are between 58 and 76 years old. 

In the next 20 to 30 years, this generation will pass away and Generation X and millennials will inherit their US$30 trillion (US$68 trillions in developed economies) making Generation X and millennials the richest generations, in real terms, of all time.

Focusing on millennials, specifically if we combine current net worth and growth rate and the amount they will inherit, we would be looking at the greatest wealth transfer in modern times.

I am not reinventing the wheel here, this is well known by most of the financial players out there; there is even a name for this: the great wealth transfer. If you google it, you can find plenty of articles helping baby boomers prepare for this transfer. 

But what are organizations doing to adjust for the change? This US$68 trillion will be transferred to generations that are more tech savvy and whose preferences and needs may differ in terms of value of money and using digital tools.

According to a study done by EY, only 31 percent of baby boomers have looked into using more digital and virtual tools for their investments, while 58 percent and 78 percent of Generation X and millennials, respectively, plan to use more digital and virtual tools. This data raises a  question: Is the wealth management industry prepared to cover future generations' needs?

Another study by Forbes indicates current wealth worldwide distributed by generation and industry: baby boomers got their wealth from finance, investing, and manufacturing, at around 25 percent. One-third of Generation X and millennial wealth comes from technology alone. 

It confirms the need to create and offer investment alternatives in a more digital and tech-savvy atmosphere.

The ability for a player to get acquainted with the younger generations could be a competitive advantage over others in the financial industry. That being said, the wealthtech industry is built on that same fundamental idea.

Using Tech to Manage Wealth 

Wealthtech, as the term itself implies, is the confluence of wealth and technology. So any digital solution designed to facilitate the process and management of someone's wealth can be considered wealthtech. 

Usually wealthtech companies are integrated financial apps, offering a high degree of customization. A key factor for wealthtech companies is that they are looking into making wealth management more accessible to a broader set of customers.

Being a key player within the wealthtech industry, attracting clients with smaller net worths, who usually would not be potential clients for top-tier financial institutions, focusing on younger generations (Gen X and millennials) and creating customer loyalty could lead to exponential growth, and turn a US$200 billion industry — wealthtech — into a trillion-dollar industry in the years to come.

Combining a generation with exponential growth, a higher customer base, and technology that is easy to use and cost-effective is certainly a threat to the current traditional financial system, which in many cases lacks innovation.

Although wealthtech as a whole includes several sub-industries, all aligned with managing someone's wealth, including taxes, compliance, digital wallets, robo-advisers, and portfolio management, I believe that platforms that offer investment solutions, such as robo-advisers, micro-investing and portfolio management, like Fintual, will be the industries that benefit the most because they will attract this younger generations that eventually will be worth over US$30 trillion in the US alone, and probably over US$100 trillion worldwide.

Photo by:   Ana Sepulveda

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