Digital Wealth Management: How Fintech is Transforming Financial Planning

A combination of AI and human expertise are transforming the financial planning industry

Key takeaways:

  • Digital wealth management creates a faster, more seamless financial planning process than traditional financial planning.
  • There is an increase in investor digital tools.
  • Fintech can help secure and grow investments.
  • While AI is driving this change, a human touch is still important.

Traditional financial planning has always included an investment strategy for growth, along with retirement and tax projection. Digital wealth management takes this a step further to use artificial intelligence (AI) to support and create a more seamless process for the financial planner. Since traditional financial planning is sometimes replaced with digital wealth management today, financial services are impacted by technology that predicts every need at the speed of light.

Fintech has been instrumental in fulfilling the need for digital, customized, investment AI-driven strategies. Although investment in global fintech fell by 46% to $75.2 billion in 2022 from 2021, there was still an increase of 52% compared to 2020, making up 18% of all funding worldwide.

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It’s not surprising then that investment firms and banks are racing to give their customers digital tools and upgraded services to harness fintech’s power.

Below we walk through fintech’s significant impact on financial planning as well as what’s in store for its future.

Streamlined financial planning

A majority of wealth managers see fintech’s rise as an opportunity for growth. The technology grows every day and customers can turn to hybrid advisors as an affordable, accessible path to solid financial guidance. In the not-too-distant past, financial advisors were typically stockbrokers with exclusive information not available to the general public. But this model has dramatically shifted, with information now widely available to anyone with solid Wi-Fi and a thirst for knowledge.

With this vast increase in economic literacy, the financial planning software market is booming, worth an estimated $1,458 million in 2022, with expected growth to $3,507.2 million by 2029. Key players in the industry include eMoney Advisor, Advicent, PIEtech, Inc., and Money Tree.

Personalized investment strategies

The most successful and popular fintech startups all have at least one thing in common – they aim to take a significant share of business from traditional financial advisors by providing faster service, the flexibility to shift and change with the times, and by catering to underserved populations. This shouldn’t come as a surprise – digital tools are now commonplace in so many areas of life, from booking a flight to ordering dinner or getting a ride. It seems natural to have similar tools when planning retirement or saving for college.

Here are just a few examples of the fintech revolution at work:

  • Tala provides micro loans to consumers in the developing world with the goal of improving upon what local banks and unregulated lenders offer.
  • Better Mortgage can get prospective home buyers a verified, digital-only, pre-approval letter within 24 hours of their mortgage application.
  • Affirm offers immediate, short-term loans for consumers to make on-the-spot retail purchases (and build their credit history), effectively bumping credit card companies out of the picture.
  • GreenSky connects home improvement borrowers with banks so consumers don’t have to go through lenders to get needed funds.
  • Other mobile-only trading and lending apps include Robinhood, LendingClub, OnDeck, Kabbage, Lendio, and many others.

These upstart platforms are powered by new technologies including AI, machine learning (ML), data-driven marketing, and predictive behavioral analytics, which take the guesswork out of daily financial choices. The platforms can learn users’ habits to recommend investment and savings decisions that more closely align with their personal goals.

In addition, fintech uses AI interfaces and chatbots to answer simple questions without forcing users to navigate a frustrating phone experience. These companies are also on the front lines of fraud prevention by using their extensive knowledge of customer payment histories to flag unusual transactions.

Powerful data security

Since financial planners have access to valuable financial data, they are primary targets of many cybercriminals. Cyberattacks increased by 238% in the early months of the pandemic and 74% of financial institutions saw the number of attacks on their firms increase in that same timeframe. Not surprisingly, 48% of CEOs in the wealth management industry believe that cyberattacks are the single greatest threat to their future growth.

Fintech companies use a variety of techniques to keep data secure:

  • Independent cloud storage. Cloud storage is nothing new to the casual internet user. Fintech firms need to keep track of enormous amounts of data and require an exceptional form of security to protect them. This is why many fintech firms create their own private clouds which allow them to strictly control access and install rock-solid security protocols.
  • Blockchain networks. This allows data to live off main servers, which are easy targets for hackers. Blockchain systems are designed to be decentralized, and each transaction requires a combination of security keys and cryptographic access.
  • AI and ML. These tools let fintech companies quickly process and study large quantities of data to catch unauthorized users.

Information is fintech’s single greatest weapon against cyberattacks, and the best firms invest the time and resources to stay current on the latest compliance policies.

Challenging regulatory norms

Due to the sensitive nature of their work, financial services are one of the most heavily regulated industries in the world. Just as fintech firms open up new technologies and opportunities, they also bring with them new risks.

Last year, the U.S. Treasury expressed a need for increased oversight of consumer financial activities. It is understandably challenging to adopt a single regulatory solution considering how wide ranging and diverse fintech can be. But there are some proposed solutions out there like:

  • Advocating for safe harbor provisions
  • Establishing regulatory “sandboxes” that let fintech companies experiment with new technology in a controlled environment
  • Engaging in selective enforcement actions to discipline bad actors while still allowing for growth in the sector

Ideally, regulators and fintech firms will work together to balance the need for consumer protection with the ever-increasing pace of innovation.

AI innovation

As mentioned above, AI, ML, and similar technologies are the fuel that powers the fintech engine. They give individual investors the information and tools to manage daily financial choices and plan for the future. They can provide answers to basic questions and protect users from fraud when transactions fall outside of normal patterns.

Indeed, nine out of 10 financial advisors trust that AI can help them grow by as much as 20%. 87% want more AI tools at their disposal and more than half believe that AI will revolutionize the business of financial advice in the next few years. That said, wealth management firms have some concerns, namely that too many products exist without enough data to measure which are the most beneficial for their clients.

Human/digital integration

The rise of AI and its ability to provide financial independence with a simple click of the mouse or tap on the phone makes it all the more vital that wealth managers and advisors remember that high-touch can go with high-tech.

Digital innovations can help advisors provide better, faster service. Instead of spending time crunching numbers, analyzing data, and doing manual research, they can actually have conversations with clients, providing real-world insight to go along with the tech-driven numbers. One of the higher profile examples is Chase Bank, offering J.P. Morgan Personal Advisors, a program that lets clients talk to an advisor as often as they want by phone or video, and get personalized financial advice, all via the Chase app.

Embrace the tools of the future

Fintech’s evolution continues to test our capacity for change and flexibility to let it happen. And real-life human advisors are more important than ever to help investors make sense of an increasingly complex landscape.

Whether it’s financial planning or offshore software development, you want a roster of professionals who can harness the power of digital tools to take your business to the next level, and FolderIT will do that. Drop us a note and see what’s possible.


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