Insiders make their 2024 wealthtech predictions

December 26, 2023 4:00 PM

The wealthtech race hit a new gear in 2023.

With the emergence of generative AI as a major player, clients of all categories demanding better digital experiences and scores of research speaking to the importance of advisors having the tools to do the job, new ideas flooded into fintech at a rapid pace over the past 12 months.

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And while the true impact of all of 2023's innovations remain to be seen, Financial Planning turned to a crew of insiders to provide some clarity on what is coming next.

Scroll down to see what some of wealthtech's most tapped-in minds think is waiting for us just around the cutting edge.

Anders Jones, co-founder and CEO at Facet

The leader of the fintech firm that pairs digital financial planning with virtual access to advisors believes there will be a noticeable crop of startups founded that, rather than selling technology to incumbents in legacy industries, will remake them from within.

"This is a trend that will grow over time, especially as the power of first-party data for AI becomes increasingly apparent," Jones said. "Also, I think that consolidation of the wealthtech market will accelerate as companies that rely on venture capital aren't able to raise their next round.

"At the same time with interest rates on the way back down, strategic buyers will realize that valuations have bottomed and M&A activity will pick up substantially."

Ryan Beach, president at Orion Wealth Management

Beach thinks direct indexing will continue to dominate the wealthtech conversation in 2024 because of its appeal to investors seeking customization, tax efficiency and cost savings.

"This investment strategy allows individuals to own individual stocks or securities in an index, aligning their portfolios with unique financial goals and values, optimizing tax strategies, and potentially reducing fees compared to traditional index funds or ETFs," Beach said. "Technological advancements and the ability to buy fractional shares have made direct indexing more accessible, catering to investors' increasing interest in personalized and ESG-aligned investment solutions."

Justin Boatman, chief product officer at Nitrogen

Boatman said in 2024, wealthtech should prepare for the emergence of "micro-niches," stating that the one-size-fits-all approach belongs only to the industry's most embedded larger players.

"Their path toward real, integrated, reliable and user-friendly workflows will continue to move at the pace we all expect. In the meantime, the emergence of new tech from everyone else will get more specialized," Boatman said. "Think 'planning tools to illustrate the impact of a particular product in a particular way.' New providers will have a deep impact on subsets of verticals and make up for their limited (total addressable market) with sky-high retention and satisfaction.

"Get ready to keep slicing and dicing that map of yours, Mr. Kitces."

Rajat Deva, head of marketing at Savvy Wealth

While Deva expects to see a lot of hype around AI in the wealthtech ecosystem, the one trend that has staying power is the ability for firms to leverage AI to help their advisors run automated, hyper-personalized outbound marketing to prospective clients.

"Firms will use AI to marry and aggregate data from dozens of lead generation sources with information already available in the public domain about any individual or family to better inform their personalized outbound approach," Deva said. "Not only does the implementation of AI enable advisors to quickly identify the unique needs of prospects to use in their outbound messaging, but it also provides the potential for them to spend more time with actual clients while growing their practices intelligently.

"In my seat as a marketer, it's clear that all of the key information needed to craft a personalized outreach cadence publicly exists, but advisors need help with elegant solutions to aggregate and sift through the data to make the strongest first impression."

Matt Reed, co-founder, head of engineering at Opto Investments

Reed said in recent years, the investment industry has experienced a notable increase in demand for private investment opportunities.

However, he sees significant space for technological disruption in the general lack of quality data, absence of holistic portfolio construction tools and dependence on manual processes.

"We at Opto are seizing this opportunity by putting fiduciaries in the driver's seat, and arming them with the data, tools, and confidence to be able to navigate private markets to best serve their clients' needs," he said. "The key is to augment, not replace, the advisor by surfacing key insights, providing intuitive tools for customizing private exposures to meet investment objectives and automating tedious paperwork."

Reed added that the pace of innovation is only going to increase in 2024, fueled largely by the recent surge in the applicability of AI to the investment industry.

"For example, we are focusing on leveraging these advancements to enhance our ability to synthesize investment data and identify investment opportunities," he said.

Scott Lamont, managing director at F2 Strategy

For Lamont, change management is top of mind and mission is critical for firms.

"Over 75% of the firms that F2 Strategy surveyed last month underwent at least one major vendor change within their tech stack in 2023. We anticipate a similar volume of change in 2024," he said. "The challenge facing wealth management firms lies in managing the entire change process — from selecting the right vendor to building the appropriate implementation plan. There are numerous hurdles to overcome just to reach the starting point of using a new tool."

Lamont said given the multitude of fintech applications available and the competing priorities within wealth firms, there is significant risk to be managed within these projects.

"It begs the question, which projects should even be considered? In 2023, 70% of firms concentrated on data-related initiatives and reported positive outcomes, ranging from improved internal workflows to enhanced client and advisor reporting," Lamont said. "There is great value in establishing a data strategy (and platform, and governance model) and once established, it needs to be continuously invested in to ensure it evolves and matures as firms' business grows and the demand for more data-rich technology emerges."

Lamont added that AI stands out as particularly data-rich, and F2 anticipates that the use cases for AI will become clearer in 2024.

"How fintechs and wealth firms collaborate to harness the power of the technology for improved operational efficiency, enhanced business management and more personalized content will be fascinating to watch," he said. "We've seen early successes that will inspire more to engage in the opportunity."

Robert Sofia, CEO of Snappy Kraken

Sofia says wealthtech is set to undergo significant transformation, driven by rising consumer expectations, a challenging fundraising environment and the increasing visibility of AI solutions.

As a result, he thinks enhanced user experiences, simplified interfaces, more engaging content and firms adapting to changing customer behavior to be major industry trends in 2024.

"AI will lead to faster and more personalized outputs, resulting in a vastly improved user experience for both financial advisors and their clients. User interfaces will become more straightforward, making it easier for users to navigate dashboards and comprehend reports, ultimately reducing complexity," he said. "Companies that embrace and adapt to increasing consumer expectations will maintain their relevance in this dynamic landscape. Those that do not will fade into irrelevance."