WealthTech

WealthTech is technology used to deliver investment, savings and wealth-management services. It covers automated investment services known as robo-advisers, app-based brokers that let people buy shares and funds from a phone, tools for budgeting and retirement planning, and the software that professional advisers and private banks use to run client portfolios. It sits within the wider fintech sector, alongside payments, lending and insurance technology.

WealthTech grew rapidly after the 2008 crisis, helped by cheap index funds and exchange-traded funds (ETFs), smartphones and lower trading costs. Its pitch is to bring services once reserved for wealthy clients, such as a managed and regularly rebalanced portfolio, to people with modest savings. In most countries the activities it performs, giving investment advice, managing money and dealing in securities, are regulated whether done by a person or by software.

Think of the difference between hiring a personal trainer and using a good fitness app. The trainer is attentive but expensive. The app asks about your goals and fitness level, builds a plan, reminds you to stick to it and adjusts when you fall behind, all for a small monthly fee.

WealthTech does something similar with savings. A short questionnaire about your goals and how you feel about losses replaces the first meeting with an adviser. Software then picks a mix of funds, invests each deposit, and quietly rebalances the mix over time. Human advisers still exist, but many of their routine tasks are now automated.

• Robo-advisers. Online services that assess a client's goals and risk tolerance, recommend an asset allocation built mainly from low-cost funds, and then manage and rebalance it automatically.
• Hybrid advice. Services that combine an automated platform with access to a human adviser, usually at a higher fee.
• Digital brokerage. Apps that let investors buy shares, funds and sometimes crypto directly, often with fractional shares so small sums can buy part of an expensive stock.
• Micro-investing and saving tools. Apps that round up card purchases or sweep small amounts into investments, covered under micro investing.
• Planning and aggregation. Tools that pull a household's accounts together through account aggregation and open finance data to support financial planning.
• Adviser and institutional software. Portfolio management, client reporting, compliance and onboarding systems used by wealth managers and each portfolio manager inside them.

A typical automated service follows a fixed sequence. The client answers questions about age, income, goals and attitude to risk; the provider runs know your customer (KYC) checks; an algorithm maps the answers to one of a set of model portfolios; deposits are invested in those funds; and the system rebalances when weights drift, sometimes also harvesting tax losses where the tax rules allow.

The economic case rests on fees and diversification. Many robo-advisers use passive management through index funds with a low expense ratio, and charge a platform fee as a percentage of assets. Over decades, a difference of even one percentage point a year in total costs compounds into a large gap in final wealth, which is why fee comparison matters to investors.

Regulators treat software that advises or manages money in the same way as a human doing the same job:

• United States. Robo-advisers usually register as an investment adviser under the Investment Advisers Act of 1940 and owe clients a fiduciary duty. The Securities and Exchange Commission (SEC) staff issued guidance in February 2017 on how robo-advisers should meet their disclosure, suitability and compliance obligations. App-based brokers are regulated as a broker-dealer.
• United Kingdom. The Financial Conduct Authority (FCA) authorises advice, portfolio management and dealing, and its Consumer Duty, in force since July 2023, requires firms to deliver good outcomes for retail customers.
• European Union. MiFID II sets suitability rules for advice and portfolio management, applying equally to automated services.
• Elsewhere. Securities regulators in India, Pakistan, the Gulf and Asia license investment advisers and portfolio managers, and many have addressed digital or automated advice in guidance.

WealthTech has widened access, but it raises concerns:

• Questionnaire limits. A short online form may not capture a client's full circumstances, so the recommended portfolio can be unsuitable.
• Gamification. App designs that reward frequent trading with animations, notifications and leaderboards can encourage speculation; the SEC sought public comment on such "digital engagement practices" in 2021.
• Conflicts of interest. Commission-free trading is often funded by other revenue, such as interest on client cash or payments from market makers, which investors may not see.
• Untested models. Many robo-advisers launched during a long bull market; how clients behave in a deep, lasting downturn is less proven.
• Data and security. Holding identity documents and account access makes platforms targets for account takeover and fraud.

WealthTech overlaps with InsurTech in retirement and protection products, and with digital banks that offer investing inside their apps. Better financial literacy remains the investor's best defence against products that look simple but carry real risk.

• U.S. SEC Division of Investment Management: Robo-Advisers, IM Guidance Update No. 2017-02