Global WealthTech amid COVID-19

Way forward on Indian Urban Mobility by Sam Ghosh 19th July 2020

Global WealthTech amid COVID-19 by Sam Ghosh 2nd January 2021
Wealth around the world
Executive Summary
● As per the Credit Suisse Global Wealth Report 2020, global wealth stood at US$ 399 trillion as of the end of 2019. Most of the global wealth is primarily controlled by older men in North
America and Europe.
● As per BCG, the Asset Under Management (AuM) for the global asset management industry stood at US$88.7 trillion as of the end of 2019.
● The pandemic found the wealth management industry dealing with margin pressure amid the popularity of passive products, on the verge of a great wealth transfer from the Baby Boomers to
the younger generations, a rising share of women’s wealth, and increasing regulatory pressure. Revenue from beta is quickly diminishing due to the popularity of passive products. The focus
is shifting from margin to increasing AUM.
● As per Credit Suisse Global Wealth Report 2020, global wealth decreased by US$ 17 trillion between January and March of 2020. Recovery in the capital markets Q2 onwards led to the
recovery of household wealth in Q2 to the levels of the end of 2019. Though the loss of growth represents a more than US$7 trillion loss from expected wealth levels by the end of the first
half of 2020. Lower economic activity, lower consumption, and lower investments by both households and corporates likely to restrain household wealth growth for many coming years. The
growth rate may not recover to pre-pandemic levels before the end of 2021. Global wealth per adult decreased by 0.4% in the first half of 2020. China is the biggest gainer and Latin America
along with Africa are the greatest losers.
● Though low-interest-rate environment, making time deposits less attractive, likely to boost funds flows to capital markets and demand for wealth management services.
● At the same time, social distancing is forcing digital adoption in wealth management. Apart from that, the great wealth transfer will mean that the wealth management sector needs a
paradigm shift in their client engagements. The expectations of tech-savvy millennials are very much different from the older generations. Instant gratification, higher involvement in the
process, and constant monitoring are some of the features Millennials expect.
● Micro-Investment platforms and Online Brokers are expected to be immensely beneficial as tech-savvy Millennials control more and more wealth. Self-service platforms that specialize in
passive products (MF, ETF) are especially lucrative.
● Hybrid services that combine human touch with tech efficiency will likely to become mainstream as wealth management firms push for cost-cutting and younger generations control more and
more wealth.
● As many traditional wealth management firms will look to increase their digital capabilities, WealthTech firms with proven business models are expected to be seen as attractive acquisition
targets.
Global Wealth Management WealthTech Primer Way forward

Global Wealth Management WealthTech Primer Way forward

Wealth around the world Global Wealth Management WealthTech Primer Way forward
Wealth around the world: Global Wealth
● The global wealth stood at US$399 trillion by the end of 2019. Around 1/3rd of global wealth is concentrated in North America, followed by
Europe (~1/4th) and China (~1/5th).
Data: Credit Suisse
Global Wealth HNWIs and UHNWIs Wealth by Generation Wealth by Gender

Wealth around the world: Global Wealth
● By the end of 2019, the average global wealth per adult stood at US$77,309. North Americans are on an average ~6 times wealthier than
the global average and Europeans are ~2 times wealthier.
Data: Credit Suisse

Wealth around the world: HNWIs and UHNWIs
● As of the end of 2019, there were ~52 million High Net Worth individuals (HNWIs) globally, ~39% of them were from the USA, and ~11%
from China. HNWIs are defined as having a net worth over of US$1 million.
● As of the end of 2019, there were ~176K Ultra High Net Worth (UHNWI) individuals globally, ~50% of them were from the USA, and ~12%
from China. UHNWs are defined as having a net worth over of US$50 million.
Data: Credit Suisse

Wealth around the world: Wealth by Generation
● Wealth belongs to the older age groups. Millennials have not been lucky with wealth yet.
Source: Infosys

Wealth around the world: Wealth by Gender
● Wealth controlled by women is increasing at a faster pace than the wealth controlled by men.
Data: BCG

● The wealth controlled by women is expected to keep growing at a faster rate.
Data: BCG

Data: BCG

Global Wealth Management

Global Wealth Management: Global Asset Under Management (AUM)
● The total Asset Under Management (AUM) for the global asset management industry as of the end of 2019 stood at US$88.7 trillion.
Around half of that belonged to North America, ~26% to Europe, and ~13% to Asia (ex. Japan).
Data: BCG
AUM Revenue Sources Pain Areas

Global Wealth Management: Global Asset Under Management (AUM)
● AUM in North America was also fastest-growing in 2019. Followed by Europe.
Data: BCG

Global Wealth Management: Global Asset Under Management (AUM): By Product
● Passive investment products such as Mutual Funds, ETFs, etc. gaining rapid popularity. The popularity of alternative assets is also
increasing steadily.
Data: BCG

Global Wealth Management: Revenue Sources
● When it comes to the revenue of asset management companies, alternatives are the most lucrative.
Data: BCG

Global Wealth Management: Pain Areas: Margin Pressure
● The asset management industry is dealing with sustained margin pressure amid decreasing revenue.
Data: BCG

● COVID-19 is likely to exacerbate the margin pressure.
Data: BCG

● Although AUM for the asset management industry recovered from the 2008 crash, the popularity of the passive assets kept the profit pool
relatively small.
Data: BCG

Global Wealth Management: Pain Areas: Regulatory Pressure
● After 2008, Capital Markets are facing more and more regulatory scrutiny.
● Two recent major pieces of regulation - the Second Markets in Financial Instruments Directive (MiFID2) and the Fundamental Review of
the Trading Book (FRTB) both require collection and interpretation of data.
● Apart from that, GDPR and other regulations are putting forward varied regulatory challenges.
● KYC requirements originating from Anti Money Laundering (AML) regulations (ex. EU Money Laundering Directive IV) are increasing the
cost burden on the wealth management firms.

WealthTech Primer

Variation of
Robo-advisors
specializing in
retirement planning.
Platforms allowing
investors to invest
small amounts of
money without
charging any
commission. The
goal is to make
investment simple
and accessible for
tech-savvy young
earners.
Provides
user-friendly tools to
allow digital-savvy
young earners to
research and invest
in financial assets.
Social Trading is an
forthcoming
innovation in the
sector.
Other tech-enabled
tools and services
that do not fit into
other categories.
Automates financial
planning, risk
assessment,
portfolio creation,
and management.
Uses technology
such as machine
learning and Big
Data etc. to replace
or complement
financial planners
and portfolio
managers.
WealthTech Primer: Business Models
Robo-Advisors Robo-Retirement
Micro-Investment
Platforms
Digital Brokers Others
Business Models Players

WealthTech Primer: Players
Player Location Business
Wealthsimple Toronto, Ontario, Canada
Wealthsimple offers financial tools to help investors grow and manage their money.
Betterment New York, New York, USA
Betterment is a goal-based online investment company, delivering personalized financial advice
paired with low fees and customer experience.
Personal Capital Redwood Shores, California, USA
Personal Capital combines online financial tools with registered financial advisor expertise to
enable people and grow their net worth. Acquired by Empower Retirement.
Wealthfront Palo Alto, California, USA
Wealthfront is a next-gen banking service that helps in managing the money for both the short
term and long term.
Nutmeg London, England, UK Nutmeg is an online investment service that specializes in investments, ISAs, and pensions.
MoneyFarm London, England, UK Moneyfarm is a digital wealth manager that offers advice and investments.
SigFig San Francisco, California, USA
SigFig is a financial services firm that dedicates to making high-quality investment advice to
investors of all wealth levels.
Scalable Munich, Bayern, Germany Scalable Capital is a digital asset manager.
Ellevest New York, New York, USA Ellevest provides an engaging investing experience to help women meet their financial goals.
Micro-Investment
Platforms

Guideline San Mateo, California, USA
Guideline is an all-inclusive 401(k) and full-stack solution that automates plan administration and
compliance to growing businesses.
ForUsAll San Francisco, California, USA ForUsAll fixes retirement plans for millions of small and medium-sized businesses.
FutureAdvisor San Francisco, California, USA
FutureAdvisor is a registered investment advisory firm that manages a user's existing IRA, 401(k),
and other investment accounts. Acquired by BlackRock
blooom Leawood, Kansas, USA
blooom is an online investment advisor that manages employer sponsored retirement accounts
(401k, 403b, TSP) for individual clients.
Micro-Investment
Platforms

Robinhood Menlo Park, California, USA Robinhood is a ﬁnancial technology company that offers commission-free investing.
Stash New York, New York, USA
Stash is a personal finance app that helps make investing easy and affordable for millions of
Americans.
eToro Tel Aviv, Tel Aviv, Israel
eToro is a social trading and investment marketplace that allows users to trade currencies,
commodities, indices, and stocks.
Acorns Irvine, California, USA
Acorns is a finance company that allows individuals to round up purchases and automatically
invest the change.
Public.com New York, New York, USA
Public.com is a social investing network company that allows companies and individuals to buy
public stock with any amount of money.
Micro-Investment
Platforms

TD Ameritrade Omaha, Nebraska, USA TD Ameritrade is a finance company in online stock trading. Acquired by Charles Schwab
Charles Schwab San Francisco, California, USA Charles Schwab is a financial institution that provides brokerage and banking services.
Trumid New York, New York, USA
Trumid is a financial technology company bringing efficiency to credit trading through data,
technology, and innovative products.
Fidelity Boston, Massachusetts, USA Fidelity is a privately-owned investment manager focusing on a diverse set of customers.
Tastyworks Chicago, Illinois, USA Trade options, stock, and futures at one of the premiere brokerage firms in the industry.
Zerodha Bangalore, Karnataka, India Zerodha is an online website with stock trading information and capabilities.
Micro-Investment
Platforms

Folio Tokyo, Tokyo, Japan Offers theme-based investments and Robo-advisory platform.
AdvisonEngine New York, New York, USA
AdvisorEngine is a next-generation wealth management platform for investment advisors to help
grow their business. Acquired by Franklin Templeton Investments
InvestCloud West Hollywood, California, USA Investment and practice management solutions to financial service professionals.
Vestmark Wakefield, Massachusetts, USA Technology solution provider for financial service providers
Envestnet Chicago Heights, Illinois, USA Investment and practice management solutions to financial service professionals.
Micro-Investment
Platforms

Way forward

Forces at Play
WealthTech
Changes in
wealth
demographics
Funding
Environment
Regulatory
Burden
COVID effect on
Global Wealth
Forces at Play Impact
Social
Distancing
Economic
Forces
Changing
product choices

Way forward: Forces at Play: COVID effect on Global Wealth
● As per Credit Suisse Global Wealth Report 2020, global wealth decreased by US$ 17 trillion between January and March of 2020.
Recovery in the capital markets second quarter onwards leads to recovery of household wealth in Q2 to the levels of the end of 2019.
Though the loss of growth represents a more than US$7 trillion loss from expected wealth levels by the end of the first half of 2020. Lower
economic activity, lower consumption, and lower investment by both households and corporates likely to restrain household wealth growth
for many coming years. The growth may not recover to pre-pandemic levels before the end of 2021.
● Global wealth per adult decreased by 0.4% per adult in the first half of 2020. China is the biggest gainer and Latin America and Africa are
the greatest losers.
Data: Credit Suisse

Way forward: Forces at Play: COVID effect on Global Wealth..
● The number of High Net Worth individuals decreased by 56K in the first half of 2020. Again China is the biggest gainer and UK, Canada
and Brazil are the biggest losers.
Data: Credit Suisse

Way forward: Forces at Play: Changes in wealth demographics
● The great wealth transfer is upon us. Wealth wise Millenials have not been lucky yet. But, an estimated US$ 68 trillion is expected to be
transferred from Baby Boomers to their heirs in the next 25 years.
● This is enormously important for Wealth Management and the WealthTech firms.
● Products and services designed for the older generations are often not appealing to the generation X and especially for Millenials.
● The impact is not likely to be limited to just service delivery but extends to the choice of assets and purpose.
● Another important trend is faster growth in wealth controlled by women. This requires new approaches to wealth management as financial
priorities may be different for women.

Way forward: Forces at Play: Economic Forces
● The global economy is going through some unprecedented shocks due to the pandemic. As per IMF, the global economy is expected to
contract by 4.4% in 2020. The central banks reacted to economic distress by lowering policy rates to record low levels. These low-interest
rates make time deposits much less lucrative and likely to make capital markets much more enticing especially after the COVID delated
economic conservativeness fades away.
● Unprecedented low-interest rates and liquidity push more than salvaged the capital markets. But, the loss of corporate earnings especially
in Q1 and Q2 of 2020 sooner or later expected to catch up with the market valuations
● The lockdowns have caused a spike in unemployment rates. Although, the unemployment rates are improving after the economies
opened up. Many economies may still face fresh lockdowns for new COVID waves. Persistent unemployment is likely to cause a dip in
demand for wealth management services especially services targeting low and medium-income investors.
Data: IMF Data: US Department of Treasury Data: FRED

Way forward: Forces at Play: Changing Product Choices
● Passive assets such as mutual funds and ETFs are quickly gaining traction putting pressure on the revenue of the wealth management
industry.
Data: BCG

Way forward: Forces at Play: Funding Environment
● VC funding in the WealthTech sector recovered quickly after Q1 of 2020. Many mega-rounds in Q2 and Q3 of 2020 ex. Robinhood,
Greenlight, and Trumid.
Data: Cb Insights

Way forward: Forces at Play: Regulatory Burden
● After 2008, Capital Markets are facing more and more regulatory scrutiny.
● Two recent major pieces of regulation - the Second Markets in Financial Instruments Directive (MiFID2) and the Fundamental Review of
the Trading Book (FRTB) both require collection and interpretation of data.
● Apart from that, GDPR and other regulations are putting forward varied regulatory challenges.
● KYC requirements originating from Anti Money Laundering (AML) acts (ex. EU Money Laundering Directive IV) are increasing the cost
burden on the wealth management firms.

Way forward: Forces at Play: Social Distancing
● Social distancing forced financial advisors to turn to social media and other digital channels for business continuity and KYC norms.
● Digital adoption across age groups means that WealthTech companies can immensely benefit in the medium to long term.

Way forward: Impact
● The pandemic found the wealth management industry dealing with margin pressure amid the popularity of passive products, on the verge of a great wealth transfer from
the Baby Boomers to the younger generations, a rising share of women’s wealth, and increasing regulatory pressures. Revenue from beta is quickly diminishing due to
the popularity of passive products.
● As per Credit Suisse Global Wealth Report 2020, global wealth decreased by US$ 17 trillion between January and March of 2020. Recovery in the capital markets Q2
onwards led to the recovery of household wealth in Q2 to the levels of the end of 2019. Though the loss of growth represents a more than US$7 trillion loss from
expected wealth levels by the end of the first half of 2020. Lower economic activity, lower consumption, and lower investments by both households and corporates likely
to restrain household wealth growth for many coming years. The growth rate may not recover to pre-pandemic levels before the end of 2021. Global wealth per adult
decreased by 0.4% in the first half of 2020. China is the biggest gainer and Latin America along with Africa are the greatest losers.
● Though low-interest-rate environment, making time deposits less attractive, likely to boost funds flows to capital markets and demand for wealth management services.
● At the same time, social distancing is forcing digital adoption in wealth management. Apart from that, the great wealth transfer will mean that the wealth management
sector needs a paradigm shift in their client engagements. The expectations of tech-savvy millennials are very much different from the older generations. Instant
gratification, higher involvement in the process, and constant monitoring are some of the features Millennials expect.
● Micro-Investment platforms and Online Brokers are expected to be immensely beneficial as tech-savvy Millennials control more and more wealth. Self-service platforms
that specialize in passive products (MF, ETF) are especially lucrative.
● Hybrid services that combine human touch with tech efficiency will likely to become mainstream as wealth management firms push for cost-cutting and younger
generations control more and more wealth.
● As many traditional wealth management firms will look to increase their digital capabilities, WealthTech firms with proven business models are expected to be seen as
attractive acquisition targets.

Thank You

Global WealthTech amid COVID-19

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