The big-tech threat to the private wealth business
- November 1, 2022: Vol. 9, Number 10

The big-tech threat to the private wealth business

by Carolyn Marshall

Big-tech companies have been muscling their way into the world of finance for more than a decade, offering digital payment apps, mobile wallets, branded credit cards and lending services to millions of customers. Never satisfied and loath to leave money on the table, big-tech firms are at it again, this time making strategic moves into wealth management.

Amazon, Apple, Google and other global tech giants already have a foothold in financial offerings, and several key players are snaking into the wealth services sector. Industry researchers tracking the timing and trajectory of big-tech’s pursuit say it is more a matter of when, not if individual tech firms will wholeheartedly enter wealth management. Most expect them to infiltrate the industry in steps, one nation at a time.

“There is a consensus that big-tech’s entry into wealth management will be led by Asia Pacific, followed by North America and eventually Europe,” notes a report by the Capgemini Research Institute for Financial Services.

Amazon fulfilled the Asia piece of the prophecy in 2021, investing $40 million in Indian wealth management startup Smallcase Technologies Pvt. Wall Street analysts see the deal as a watershed moment, opening new frontiers for Amazon’s venture into wealth management. Asia Pacific also is known to have the fastest wealth growth, in a corner of the world absent of wealth services, not to mention a fluid banking system. Wall Street may be excited, but industry watchdogs remain concerned, viewing Amazon’s maiden investment as a dress rehearsal for big-tech’s opening salvo onto the global wealth stage.

“If this isn’t a wakeup call to the industry nothing is,” Ian McKenna, director of the Financial Technology Research Centre, an international think tank and advisory firm, told reporters after the Amazon announcement. “Its reach with consumers and understanding of behavior are both spectacular and frightening,” he added. “This move may look tentative and remote, but it’s the direction of travel that people need to recognize. It would be an incredibly brave person who bet against it developing the capability to understand exactly what would make different types of investment products attractive to consumers.”

Although big-tech lacks legacy financial systems, its collective edge stems from global brand recognition and a devoted following, writes Scott Reddel, head of the North American Wealth Management practice at Accenture. Each brand has sophisticated internal technical expertise and a vast reservoir of data on consumer buying, spending and lifestyle habits, he notes. They act fast, they move fast, unlike traditional wealth firms, and all have aggressively advanced into the banking and financial services sector.

J.P. Morgan CEO Jamie Dimon also weighed in on big-tech’s finance prowess. During a 2021 earnings call, he was asked about fintech and big-tech threats to the financial services industry. They pose “brutal competition,” Dimon reportedly said. Should wealth managers worry? “Absolutely, we should be scared s***less.”

Apple is credited with making the first blatant wealth management play in 2005, creating the U.S.-based subsidiary known as Braeburn Capital, a financial and advisory service provider established to manage the bulk of Apple’s bottomless cash coffers. Aside from Apple Pay and Apple Card, things appeared to be relatively quiet until this past year when Apple went rogue on finance partner Goldman Sachs, announcing plans to handle lending for its new buy now/pay later service in-house. Apple plans to underwrite, pocket all fees and offer loans directly to consumers through its wholly owned subsidiary Apple Financing LLC. The program will launch in the United States, but Apple says it pulled back from Goldman to advance its financial offerings in international markets.

Historically, wealth management has been the purview of legacy, blue chip firms serving high-net-worth and ultra-high-net-worth individuals. Their investment products are tailored to serve the richest of the rich, often requiring a buy-in well above the pay grade of average HNW individuals. It also means their elite services completely overlook the fastest-growing and potentially most lucrative class of global investors: mass affluent and emerging affluent individuals. Taken together, they are the largest affluent group in America, controlling 26 percent of the nation’s wealth.

Big-tech is expected to cater to the mass affluent nouveau investor, the mostly young (25- to 50-year-old), still working and holding liquid assets of between $100,000 to $1 million. Big-tech may tap the low end of high-net-worth individuals eventually, experts say, welcoming investors of $1 million to $5 million. Now served by top-tier wealth firms, there are ample reports to suggest investors in this layer of the money pyramid are unhappy with high fees, erratic returns and wealth advisers fussing over their richest and best clients.

Blue chip wealth advisers asked about big-tech recently said the Amazons and Apples of the world pose no threat to cream-of-the-crop wealth management advisers. Big-tech products and computer algorithms, they said, will never have the ability to create the personal touch, understanding of the investor psyche, one-on-one relationships and that ephemeral thing called trust.

A recent Accenture survey raises doubt. The report found 69 percent of U.S. and Canada investors would trust Amazon, Apple, Google or Facebook for advice or to manage their money, if services were available. The overall numbers jump when you tease out North America’s younger demographic. Nearly 80 percent of millennials and 96 percent of Generation Z investors would trust financial advice generated instantly by an algorithm, more than advice from a human adviser. Not surprisingly, only 38 percent of baby boomers surveyed shared the sentiment.

The pandemic cemented many attitudes about tech investing. Industry research shows daily use of fintech rose 30 percent in one year during the COVID lockdown, increasing from 37 percent in 2020 to 48 percent in 2021. Roughly 75 percent of U.S. consumers say the more they use digital wealth tools, the more they trust them.

There is no dearth of industry research on the big-tech threat and the quickening pace of its encroachment on wealth management. There also are a growing number of clarion calls to just about everyone in the wealth management industry, especially to Blue Chip wealth advisers urging them to expand their horizons. In June, Morgan Stanley and Oliver Wyman reported the mass affluent and lower end of the high-net-worth class are poised to create new investable assets of more than $45 billion over the next five years. This is big-tech’s sweet spot, some might argue. A lot of money is being left on the table when you consider only 15 percent to 20 percent of the mass affluent investors work with wealth managers, according to the report.

The fear is many wealth management firms will refuse to change and instead stick to who and what they know to their own detriment, says McKinsey, the research and management consulting firm.

“We expect that many traditional firms will fail to integrate downward and will remain completely upmarket, with a family-office/private-bank model serving only the wealthiest clients and continuing to charge premium fees justified by highly bespoke products and services,” McKinsey reports. Should wealth managers stay the current course, “wealth management firms will miss out on a golden opportunity to take over a larger share of the market by winning over the mass affluent customer who occupies the middle of the spectrum.”


Carolyn Marshall is a freelance writer based in Florida.

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