WealthTech to the Rescue: How Incumbents are Leveraging Digital Solutions to Meet the Evolving Needs of Modern Wealth Clients

As Citi increases its investment in and focus on a global wealth management market that is projected to reach $3.43 trillion by 2030, investments and partnerships in the fast-growing wealthtech segment of the fintech industry will play a key role in meeting the changing needs and evolving expectations of wealth clients.

Traditionally, those individuals have relied on human guidance to protect and grow their wealth. But as younger generations begin to inherit their parents’ wealth, they increasingly will demand digital solutions that can be difficult and costly for wealth managers to fashion in-house. Citi and other major banks are thus seeking to partner with wealthtech companies that offer the tools, services, technology, and innovation they need to seize the vast opportunity emerging in the wealth management space.

At Citi Global Wealth Investments: Platform Development & Innovation (CGWI PDI), we have been tracking these developments throughout 2022 and see them falling into three main categories:

1. Client Empowerment
   
   

   Thanks in part to the COVID-19 pandemic, modern wealth clients have grown more knowledgeable, engaged, and active in their money management of late. As a result, their expectations have risen: beyond investing products, they want to be empowered to take control of their wealth. High-net worth individuals (HNWIs) in particular increasingly seek a mix of digital and direct services, with 34% of HNWIs in 2021 actively leveraging wealthtech services.

   At every step of their wealth management journeys, clients expect technology to advise and support them. Citi and other incumbents are working to meet those expectations in areas such as:

   • Goals-based advice: Rather than simply seeking returns, clients are looking to formulate financial strategies based on their desired outcomes for their individual scenarios and plans. To help accommodate this important shift, in 2021 JPMorgan acquired 55ip, a wealthtech startup that helps financial advisors automate the construction of tax-efficient portfolios for their clients.
   • Integrated financial planning: Today’s clients want holistic advice and planning that integrates wealth management into their lifestyles and preferences. They also want products and services that extend beyond investment management to banking, insurance, real estate, commodities, taxation, cryptocurrencies, and more. Moreover, they want all these offerings to be integrated into one platform—which is why wealth manager Edward Jones is making Envestnet’s popular financial planning software available to its nearly 19,000 advisors.
   • Self-directed functionality: Clients are increasingly comfortable with digital tools that give them greater, lower-risk control over their investing and other financial decisions. In recent years, Citi has launched two such tools: Citi Wealth Builder, a low-cost digital investing platform we built in 2020, and Citi Self Invest, a no-fee, self-directed digital investing product we developed in partnership with wealthtech firm Jemstep. Several of our competitors have launched similar platforms, including J.P. Morgan (J.P. Morgan Online Investing) and Bank of America (Merrill Edge Self-Directing Investing).
2. Personalization and Engagement
   
   

   Hand-in-hand with empowerment goes the need for personalization and engagement with each individual wealth client.

   A recent Accenture survey of 1,000 people in the U.S. and Canada who have a financial advisor found that more than half of them feel the advice they receive is too generic. Similarly, about a third said they would like to receive more personalized product recommendations from their advisors, and that they would increase their investment if they received a hyper-relevant wealth management experience.

   Thus far, the wealth management industry has been slow to adapt to these new desires. The 2022 Capgemini World Wealth Report found that most firms lack segment-specific products and services, with only 37% providing offerings for women, 22% for Millennials, and 53% for tech-wealth HNWIs.

   WealthTech investments and partnerships are helping close the personalization gap in the following areas:

   • Personalized servicing: At a time when tech-driven, personalized solutions abound across industries, wealth clients have come to expect the same from their banks. In response, many advisors are seeking to better tailor their advice and to match their clients with optimal wealth-management strategies and products based on behavioral cues and individual preferences. This process can be enhanced through technology partnerships, as RBC has sought to do by partnering with API-powered data aggregation and analytics platform Envestnet Yodlee, which will accelerate financial data access for more personalized connections to third-party applications.
   • Customized portfolio solutions: Today’s better-educated, more sophisticated wealth clients are no longer satisfied with cookie-cutter investment portfolios—instead, they desire customized solutions. Technology that enables such customization is changing the game for many in wealth management, driving growth and setting up clients for long-term success.
     
     In pursuit of these capabilities, many incumbents are making significant moves. Franklin Templeton has invested in crypto Separately Managed Accounts platform Eaglebrook to help its advisors manage their clients' digital asset holdings within a secure and unified ecosystem. Meanwhile, Goldman Sachs is acquiring Next Capital, a robo-advisor that specializes in corporate retirement plans—giving Goldman another tool to offer to clients who have such plans.
   • Content and Education: The growing demand for financial education and content has become an effective lever firms can pull to drive client engagement. By clarifying obscure topics, speaking in plain language, and teaching clients about market trends in digestible, timely ways, wealth firms can deepen the client relationship and establish themselves as a go-to source of vital information. On this front, UBS recently launched UBS Circle One, a digital platform that connects clients to an investor community forum as well as to UBS investment insights and strategies, which they can act upon via a mobile app.
3. Interest-based Investing
   
   

   Finally, next-generation wealth clients want more ways to put their money where their interests are—whether they be in ESG, digital assets, or other top areas of focus for HNWIs under 40 (per the 2021 Capgemini World Wealth Report).

   Reflecting this shift, U.S. fund managers launched 149 mutual funds and ETFs with ESG characteristics or objectives in 2021—comprising about 22% of all fund launches. Similarly, alternate investments (e.g., hedge funds, private capital, natural resources, real estate, and infrastructure) under management grew from $3.1 trillion in 2008 to more than $10.2 trillion in 2019, and are expected to reach a record $14 trillion by 2023. Meanwhile, digital assets ballooned from a combined valuation of $100 billion in 2018 to a market capitalization of around $1 trillion as of September 2022.

   Incumbent banks have followed suit. In June 2022, Citi partnered with Swiss cryptocurrency firm Metaco to launch Bitcoin custodial services for our clients (as did BNP Paribas in July). Morgan Stanley and Goldman Sachs have also begun to offer their HNWI clients access to the digital asset ecosystem through a variety of means.

Seizing the Moment to Transform Wealth Management at Citi

The digital revolution that has disrupted so many industries has officially reached the world of wealth management. We are observing a continued focus on data-driven insights and analytics, as well as the rise of platform ecosystems that will incorporate a comprehensive digital wealth offering and establish networks of producers and consumers. As technology reduces entry and switching costs while better serving the needs and expectations of increasingly sophisticated customers, the price of inaction is growing.

Thus, we at CGWI PDI believe that Citi should strive to embrace these changes in the near-term, by exploring collaboration and partnership opportunities with the wealthtech companies helping to shape this evolving landscape. In this way, we can chart a new path forward for our firm and ensure that we will remain at the forefront of wealth management for years to come.