10 wealthtech predictions for 2022

December 28, 2021 1:05 PM

It was a busy year in the world of wealthtech in 2021. Meme stocks blew up, SEC chair Gary Gensler took aim at online brokerages, crypto and more, and direct indexing started to enter the mainstream.

What does 2022 hold? We asked wealthtech insiders just that question. Here are the predictions they offered for the coming year.

Embracing direct indexing strategies with clients

Pershing’s new ETF platform is only available to its clients.

After

several firms

acquired

direct indexing technology

in 2021, some industry executives expect 2022 to be

the year financial advisors embrace technology

that lets them manage client portfolios using the strategy. This will also start to change investor purchase patterns and expectations as they seek more personalization, said Erich Holland, executive managing director of client engagement for SEI’s financial advisor business.

“Personalized wealth management has always been an advisor’s primary function,” Holland said. “With technology now powering the ability to offer a more customized investment solution that matches clients’ values, tax and fee preferences, and wealth goals, direct indexing will likely continue to establish a stronger foothold as a key element of a personalized approach in 2022.”

Investment in client experience

Forthcoming research from Broadridge Financial Solutions finds that 65% of Americans said businesses need to improve customer experiences, but the numbers are especially dire for wealth management. Only 15% said their brokerage firm provides the best overall experience, while only 12% said the same of their retirement firm, according to Broadridge Managing Director Matt Swain, who thinks firms will invest more in client communication technology in 2022 to improve client experiences.

“Investors are drawn to companies that communicate clearly, simplify online account navigation and have excellent customer service,” Swain said. “Investor expectations continue to rise and will require wealth firms to take action in 2022 to not fall further behind.”

Funding in wealtech hit an all-time high in 2021 to address the problem, and Gaurav Sharma, CEO and co-founder of Capitalize, expects continued growth in the new year. Specific investments will be made in digital onboarding, eSignature and digital portfolio reporting, said Munish Kumar, Wells Fargo’s chief information office of wealth and investment management technology. While many firms offer advisors this technology, it needs to be expanded so clients can electronically view and sign documents seamlessly.

More data aggregation

The most successful client communication tools will be

portals that use data aggregation

to bring together all aspects of clients’ financial needs, said SEI’s Holland. With this data, advisors can seamlessly collaborate with clients on investment advice, financial planning and cash flow.

“For such tools to work, the collaboration will need to be educational, personalized and engaging, giving users at all connection points in the value chain the ability to interact,” Holland said.

AI arrives

Wider embrace of data aggregation can also set the stage for firms to successfully roll out next-generation technology like next-best-action recommendations and automated high-touch services, added Broadridge Vice President of Wealth Product Innovation Joseph Lo. Advisors who don’t adopt AI will find that they rapidly lose relevance with this next generation of investors, Lo said. “The industry has spent the past decade talking about digital transformation, data analytics, and, more recently, personalization. That is starting to bear fruit.”

AI will also let wealth management and financial planning firms employ biometric technology to verify client and advisor identities and reduce fraud, said Kevin Levitt, director of financial services at NVIDIA. And on the product side, AI will help firms develop better metrics to evaluate funds for ESG or other investor preferences.

“AI is critical to developing accurate scores, as the amount of information that is being published in real time is growing exponentially and the type of data that needs to be incorporated in ESG scoring algorithms ranges from structured data to unstructured,” Levitt said.

Greater demand for workplace savings technology

Following the so-called Great Resignation of 2021, employers will be looking for

ways to attract and retain talent

in an ongoing competitive job market, said Daniel Beck, CEO of 401GO. Small businesses need to offer benefits beyond just retirement plans, and technology offers financial advisors a chance to meet this demand and connect with the next generation of employees, Beck said.

Retirement savings products and processes across the industry will continue to get dragged into the modern digital world, said Capitalize’s Sharma. Low-cost providers like Guideline and Betterment will go after the large sponsors, and more digital IRA players will emerge around niche specializations.

“We’ll also see more focus on reducing the friction embedded in our retirement savings market because of a lack of portability,” Sharma said. “The Great Resignation will continue to expose these friction points, like the unnecessary difficulty of rolling over 401(k) assets when leaving a company. We’ll continue to see companies chip away here.”

Consolidation of retirement technology providers

This year, Ascensus rolled up Newport group, Empower bought MassMutual and

Prudential’s

full-service retirement businesses, and Integrated Pension Services acquired Benefits21. The demand for a more digitized retirement savings systems will only push the trend along in 2022, according to Vestwell CEO Aaron Schumm.

“The race for scale is on,” Schumm said. “The consolidation is great for sponsors and participants as it improves the industry’s archaic technology, driving efficiencies and improving the experience for all.”

Customization of workplace retirement plans

“The logical step once the bitcoin futures market exists is to reevaluate whether it’s suitable to refile the ETF” listing request, said Gabor Gurbacs, director of digital- asset strategy at VanEck.

Retirement plans have historically been based on the investor’s age and expected retirement date, but new technology can help shift the emphasis from target-date funds to managed accounts, Schumm said. This will allow savers to choose retirement plans based on a greater number of factors and

preferences that suit their needs

. This could allow of ESG options, alternative assets or cryptocurrency in a portfolio.

While not everyone agrees that cryptocurrency should be a part of retirement portfolios, it could play a small role in diversification, Schumm said. “[I would] love to see a few crypto ETFs, CITs or mutual funds as true 40-Act products without the tracking error or direct brokerage requirement,” he said. “This could be a game-changer.”

Alternatives go mainstream

Non Fungible Token Exhibition at HOFA Gallery

Investors’

embrace of alternative assets

will go beyond retirement accounts, especially among younger investors who are no longer satisfied with “plain and simple” portfolios, said Capitalize’s Sharma. While the demand may be amplified by the ongoing bull market, these assets will likely remain attractive for a while, he said.

“Whether it’s crypto, angel investments or other alternatives, more investors are looking for non-traditional investments in their portfolios and retirement accounts — and technology is making this easier,” Sharma said.

Expansion of remote, location-independent advice

Despite those who started heading back to offices in 2021, the remote work trend is just getting started, said Wells Fargo’s Kumar. Good for more than meeting digitally during a pandemic, more streamlined remote work technology can help advisors serve investors across a more expansive geographic location, Kumar said.

“The best way to accelerate it further is by providing the clients the ability to schedule meetings and connect with their advisors via the [firm’s] digital channels, including the mobile app, the website or even via secure messaging,” Kumar said. “This service is further enhanced as customers leverage external account aggregation services and electronically share their goals with the wealth management companies.”

Adopting cloud-based services

While much has been said about digital transformation over the past decade, many of the largest wealth management firms remain tied to outdated technology and legacy infrastructure. While cloud technology isn’t perfect — an Amazon Web Services outage in late 2021 revealed the potential for trouble — it’s essential for firms to keep up with the accelerating rate of change and evolution of consumers’ needs, Kumar said.

“We need to be nimble to develop new capabilities and how we scale and manage them,” Kumar said. “We have a clear mission to move away from legacy services and platforms to cloud-native software and take advantage of modern platform capabilities.”