Secondly, although the technology/entrepreneurial/professional mass affluent segment in the US forms a small percentage, any small amount of success by the online WM firms could spread like rapid-fire with the strength of social-media that is very abundantly used by such clients. If handled with care and marketed with caution, online WM firms do have the capabilities to attract more revenues from other sub-segments in the Mass Affluent and Retail segments. Thirdly, online wealth management firms lack the strong experience possessed by traditional WM players who have even withered the storm, in 2008. Though the true strength of online WM firms is yet to be tested for a complete economic cycle
Advisory, by its very meaning invokes a personal touch. Online wealth management firms are attacking this aspect of personal touch by forming focus groups of advisors who can be reached via web communication channels. This model has been launched by the online WM players to tackle the growing need for financial planning advisory. But, how dose a model address the other majority of the advisory aspects, still remains gloomy. The major players in the Advisory market are Family Offices (SFOs and MFOs), Boutique firms, RIAs, Insurance Companies and Private Banks. Although advisory fees is one aspect that swings the pendulum in favor of online WM firms, there are many crucial aspects that would keep the wealthy clients away from online WM firms for advisory and concierge services.
C.Full Service Platforms:
Technology has enabled seamless integration and has transformed client service deliveries from kiosks to self-service platforms to full-Service platforms. End Client Portals and websites have been launched by major traditional WM players to keep the tech-savvy client segment transparent with all the books of client’s assets. These initiatives, have also taken a step forward with integration of such channels to the back-office systems of their WM platforms in order to provide for a STP (Straight Through Processing) flavor to the services. If the right resources are garnered by such initiatives to fully integrate and automate the Front-Office to BackOffice activities, they could very well spell doom for online WM firms. To name a few, Deutsche Bank’s dbWealthPro and Northern Trust’s Private Passport have already made a high impact on the existing clients of these firms.
D.Online Brokerage Firms:
The likes of Fidelity, Schwab, and TD Ameritrade have successfully revolutionized the Brokerage industry in the US market through their online delivery of services. They are also slowly and steadily foraying onto the Wealth Management arena by reckoning their existing highly satisfied client-base. Although, their clients are mostly Mass Affluent and the HNW segments, they have the strong base and experience to shake up the mindset of the young-talented technology mass affluent software professionals targeted by the online WM firms. Although the current momentum is clearly towards the online WM firms, some aggressive Wealth Management marketing/sales pitch (such as bringing down the account minimums and the fees) for the retail clients by the online brokerage firms could very well turn the momentum towards them.
With the technological innovations in Cloud, Social Media, Analytics and Mobility, there has been a huge rush of tools, utilities and apps that are being pushed to the youth segment. There has been a sizeable number of personal finance online tools and utilities such as Mint.com, Wesabe, Geezeo, Jwaala, Goal Investor, Microgen etc., which could very well shrink the market share of online wealth management firms. The online WM firms will have to play their cards very carefully by isolating their business models from those of online tools.
Figure3 below is a pictorial view of sample online WM firms that have been battling to win the young minds and shape their financial plans. By and large, Wealth Front, Betterment and Personal Capital share a major market share due to their early entry into this arena. New firms are being launched and few firms are also going defunct. For instance, Fi Life had closed their shop within few years of their launch. One of the new entrants that are trying to foray into this field is Wealth Bar.