Wealthtech: a market poised for extended growth

(Fund Forum 365) -- Rapid changes are occurring in the wealth management space and the level of disruption in how advice and capital are managed is only beginning. Wealth management is a monumental industry. The players in the space run the gamut from gigantic hedge funds to individuals who manage their own investments. This changing wealth management landscape is driving a significant uptick in transactions.

Power Financial Corporation strengthened a partnership with Wealthsimple via a strategic investment of $37 million for its Series B, which will allow for expansion of Wealthsimple across Canada and the US and also spur the growth of Wealthsimple’s B2B platform for wealth managers. TIAA acquired MyVest, a cloud-based platform for wealth managers. BlackRock is wading into the sector with a recent investment in Scalable Capital.

Traditionally, wealth managers have operated with a relatively low-tech Infrastructure, but new-age customer needs, e.g. automated rebalancing, portfolio construction, and tech-enabled communication solutions, are driving the technology revolution at large banks and small advisory firms. Intensifying market competition and more stringent reporting requirements now require wealth managers to technologically reinvent themselves.

The advent of robo-advisors and other online disruptors who democratise wealth management is also pushing the need for technological reinvention. These digital players are actively competing with traditional wealth managers on pricing and level of market penetration.

Poised for growth

The period from 2006 to 2061 is expected to see a total of $59 trillion shifted from the baby boomers to the millennials, charities and the federal tax system. Millennial clients want greater transparency, more control over their investments, digital access, and customised service – a significant shift in the client profile for wealth managers today.

As a result, firms in the wealth management space are aggressively on the lookout to acquire technological capabilities through acquisitions, technological collaborations, and corporate venture investments. Both M&A and investment transactions are occurring more frequently. Several of the high-impact transactions include:

JP Morgan invested into InvestCloud and also created a joint partnership in September 2016 to help the firm interact more efficiently with its wealth managers.

Goldman Sachs acquired Honest Dollar for an undisclosed amount in March 2016 to penetrate the small business market that’s seeking to setup employee retirement programmes.

Incumbents are taking notice

Incumbents (banks, broker-dealers, RIAs, insurance companies) are faced with acquiring fintech companies or developing these capabilities themselves. They are uncertain about how to go about developing new technologies and are unwilling to support the high investment cost to do it in-house, which is often up to $50 million.

Early movers in the wealthtech and robo-advisor space, such as Acorns and Betterment, operate a direct-to-consumer model with a set of predefined funds investors can select (although in September 2015, Betterment entered the small business market to offer 401(K) accounts). The incumbents are sensitive to this disruption and have started to partner with other movers who have more of an enterprise approach and desire to drive down fees.

General wealthtech transaction trends

Investments in wealthtech have been in a general upward trend over the last five quarters.

In June 2016, TIAA acquired MyVest, which provides a cloud-based platform for wealth managers that will accelerate TIAA’s services offering. BlackRock further stepped into the sector in June 2017 by investing $34 million in Scalable Capital in an effort to improve their distribution model. Through July 2017, over 40 deals worth approximately $315 million have closed, with 65% of these being early stage (i.e. seed and Series A transactions). Financing activity is projected to intensify this year, with both transaction volumes and values surpassing 2016’s record of $796 million, according to Pitchbook.

The growing demand for data analytics, portfolio rebalancing solutions and machine learning capabilities have both wealth managers and tech companies lining up to acquire early-stage wealthtech companies.

Valuation considerations and predictions

Due to the early stage of the industry, the valuations of companies in the sector vary widely and proper classification of companies are still developing. Broadly speaking, in the emerging wealthtech space you have software platforms (e.g. Addepar), robo-advisors (e.g. FutureAdvisor or SigFig) and the more established asset managers (e.g. WisdomTree and Vanguard) at the mature end of the market.

The emerging robo-advisor players, which help drive assets under management (AUM), have seen valuations as high as 64% of (AUM) in the case of Acorns, and 143% of AUM for SigFig. These high valuations are due to the lower starting points of their asset base. Based on Evolve Capital Partner’s internal analyses, we see most wealthtech robo-advisor platforms garnering a valuation between 10-25% of AUM across financings and M&A transactions.

Wealthtech market trends

According to a poll by Vestmark, 70% of wealth management firms are embracing robo-technology to complement their existing service. However, running business-to-consumer platforms involves challenges including high customer acquisition costs and regulatory hurdles. “The biggest challenge facing B2C robo-advisors is the astronomical cost to acquire a customer,” noted Drew Sievers, CEO of Trizic. “Existing wealth management firms as well as banks and credit unions, already have millions of accounts that can benefit from the operational alpha created by digital wealth management and workflow solutions.”

Partnerships are key because of the long sales cycle selling directly to enterprises and high direct-to-consumer customer acquisition costs.  A slew of partnerships have formed in the space to help accelerate adoption of a company’s platform.

Select partnerships and/or investments:


  •           In June 2017, Trizic, a specialist in enterprise class digital advice and workflow technology, announced a $2.5 million investment led by PEAK6 Investments.
  •           In May 2017, Prumentum raised $25 million in a Series A round and acquired a minority stake in Plancorp, a registered investment advisory firm.
  •           In February 2017, Marstone, an enterprise financing technology company focused on wealth management, partnered with Fiserv’s Unified Wealth Platform so clients can implement a digital advice strategy, whether it be a self-service robo-advisor or a hybrid model.


Moving forward

Select emerging players such as Scalable Capital, Wealthsimple, InvestCloud, and AdvisorEngine have paired up with larger institutions to help drive volume and adoptions across large groups of wealth managers. The strong partnerships and strategic investments will continue as we are only scratching the surface of change in the wealth management industry.




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