The Global VC

Reinventing Private Wealth Management: Staying Ahead of Disruption in the Industry

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500 Global Team

500 Global Team






Over the last few years, technologies like smart portfolios and robo-advisors have moved from gimmicky concepts to genuine competitive threats. The financial services industry as a whole has long recognized that it faced the threat of disruption. However, before now, many private wealth managers argued that strong client relationships would shield them from serious harm.

There is now no question that technological innovation – coupled with shifts in client demographics and preferences – threaten to make traditional wealth managers obsolete.

In order to ensure a future for themselves, private wealth managers can and must reinvent themselves. Those that combine their deep knowledge of client service today with innovative new capabilities will be ready to embrace the next generation of clientele.

A Perfect Storm of Disruption

Even in the best of times, many wealth management firms would find it difficult to respond to the profound technological shifts impacting the financial services industry. But the combination of wealth-specific innovation, a momentous intergenerational wealth transfer event, and regulatory pressure combine to present an enormous challenge to the industry.

First, technological innovation now offers investors at reduced prices the personalized financial planning and investment advisory experiences previously accessible only to private wealth management clients. Even assuming that clients do not leave for new tech-enabled rivals, their existence in the market puts downward pressure on fees. Wealth managers now must ask themselves whether they can justify higher prices when competitors offer excellent service at a much lower cost. Vanguard’s Personal Advisor Services, for example, has now attracted over $112B in AUM based on a combination of high-quality service and low fees.

Moreover, investors with interests in niche areas such as sustainability, socially responsible investments, venture capital, and real estate previously needed the broad platforms of wealth managers to make their preferred investments. Now, startups offer all the tools and platforms investors need to strike out on their own.

EToro, for example, allows investments across asset classes in different global markets and new destinations. Investors can also tap into extensive online networks of investment professionals such as those put together by Trusted Insights. Those who intend on a more passive investing strategy can also invest through Ethic, which offers optimized passive portfolios through its own proprietary multi-factor optimization algorithms.

Meanwhile, a once-a-lifetime wealth transfer event is on the horizon. Dubbed “The Great Wealth Transfer” about $30 trillion in assets will flow from existing clients to their heirs, most of whom are Millennials and Gen X. Many private wealth managers have only a tenuous relationship with this younger demographic and are poorly prepared to serve them.

These intergenerational wealth transfers will lead to a dissipation of wealth per client. Based on current pricing strategies and service tiers, many inheritors will lose access to higher-end offerings and begin to see alternatives as more attractive. Private wealth managers are likely to be left with less AUM and a smaller client base in the long run.

Finally, in addition to technological innovation and wealth transfers, recent regulatory developments have raised the cost of doing business and have required fundamental shifts in operational approaches.

Regulations such as the Foreign Account Tax Compliance Act, FATCA, and the updated Markets in Financial Instruments Directive, or MiFID II have greatly increased compliance costs. Corporate finance firm Duff Phelps expects these costs to increase from 4 to 10 percent of revenues by 2022.

With pressure from all sides, how can private wealth managers get ahead of these trends and even more serious disruption?

Growth Demands a Digital Foundation

While technological innovation is eroding the wealth management business model, it offers opportunities to build on existing strengths as well. Social data analytics, influencer marketing, and financial technologies will enable private wealth managers to tailor their offerings for maximum impact by developing highly personalized insights into their clients – even beyond what the most experienced relationship managers can do today.

Catering to the next generation of client wants is not as simple as finding one high-end offering or product. Millennials prefer trendy investments and can be rather fickle clients. As digital media accelerates the pace of trend-making, firms will need to be similarly dynamic

First, wealth managers must develop strategies and processes to digitally mine information, develop insight, and capitalize accordingly; they need process and digital strategy. However, according to one study, 37% of wealth management firms do not even engage their clients on social media. Digital strategy is not a core competence of most firms. Startups can bring much-needed inspiration, expertise, and technology.

Digital technology can assist firms in attracting and understanding clients in several ways, beginning with social media analytics. Some 94% of younger investors use social media on a daily basis, making those platforms a crucial engagement channel.

Google and Facebook, for example, leverage personally identifiable information against web history to learn about customers and make ad-based recommendations., an analytics startup, goes further and helps firms grow by actively discovering and targeting new markets and clients. Such startups can connect firms with the right type of clients.

After identifying new prospective clients, private managers can develop new digital channels to collect more proprietary data. One possible channel is a client-manager communication platform. Besides enhancing clients experiences and helping with scaling in the future, client messaging platforms, such as those offered by Intercom, help businesses to develop social profiles and track each profile’s dynamic preferences. These profiles will ultimately enable relationship managers to identify how to best serve clients.

Activating new client acquisition and growth is the next step, once firms have deepened their understanding of clients. One promising tactic is influencer marketing. Influencer marketing is one of the fastest-growing online customer-acquisition strategies. Growing from $2 billion in 2017 to an expected $10B by 2020, it is frequently cited as the most cost-effective method of obtaining new customers.

Wealth managers are uniquely well-positioned to promote exclusive lifestyles to potential clients. To do so effectively in a digital age, firms should encourage clients to promote their own experiences across social media and other digital platforms.

Startups like Shareaholic and Privy can be helpful in this approach. Shareaholic’s platform alone tracks over 400 million users visiting its network of over 250,000 mobile and desktop sites. These startups help to amplify engagement with native content while garnering more data about audiences and promotional campaigns.

Additionally, wealth managers can capitalize on technologies to improve operational efficiency and scalability. As fees range from 0.02% to 1.0% for robo-advisors and 2.0% to 3.0% in fees for traditional wealth managers, reduced fee structures are probably inevitable – and cost-cutting through technologies such as automation and AI will be essential in enabling price competitiveness.

One key area of efficiency improvements is investment research and advice, typically a major cost center at wealth managers. Startups like Quantifeed, a Hong Kong-based wealthtech startup, enable firms to reduce spending by providing an entire library of customizable smart portfolio templates. These portfolios are systems compatible and integrate with core banking systems and insurance platforms, making them easy to build into client interactions.

Other Fintech startups like Addepar have made artificial intelligence solutions, which automate back-office operations on secure investment management platforms. Blockchain-based solutions such as those produced by CipherTrace and Coinfirm, for example, offer cheap and effective compliance solutions in Know Your Customer (KYC) and Anti-Money Laundering (AML), two key areas of compliance.


Come Join The Conversation Before It’s Too Late

As the industry faces an uncertain future, private wealth managers need to develop the right digital capabilities to stay relevant and win new market share. If you are interested in hearing more, come join us at the Geneva Wealthtech Forum and hear from Vijay Rajendran, Director of Innovation and Partnerships at 500 Startups. He will discuss how wealth management firms can pursue innovation strategies that will help them stay ahead of disruption. Please also contact us at for further discussion.

500 Global Team

500 Global Team