Fintechs are disrupting personal financial planning and wealth management. Digital banking, robo-advisors and mobile applications such as N26 and Revolut have started to gain market share. This article discusses what is the difference between fintechs’ offerings, and how this trend has affected the future of personal finance planning.
Personal Financial Planning (PFP) has seen its share of the global financial advisory industry decline from 58% in 2014 to 52% in 2016 (source: Cerulli Associates). At the same, time fintech companies have been growing and are now threatening to displace traditional banks as key financial intermediaries. The World Economic Forum predicts that between 2023 and 2025, fintech applications will displace 10 million jobs (1.6 million financial services). By 2020, it is estimated that fintechs will have assets under management of $4 trillion. Goldman Sachs predicts that 8 out of the top 10 banks will start using robo-advisors by 2025.
While PFP has seen its product offering and fee structure being commoditized by fintech applications, the digital age has seen a surge in the variety of fintech applications. At the same time, institutions are looking for more cost-effective ways of growing their business. As such, financial advisory firms are increasingly interested in marrying the digital capabilities of fintechs with their own personal touch.
In 2016, 38% of large US and UK banks planned to integrate digital capabilities into their operations over the next three to five years; 46% plan to offer robo-advice (source: Global Finance Magazine). However, only 1% of the global population used a robo-advisor in 2016, with numbers rising to 8.9 million by 2026 (source: Logan Frank from wealthmanagement.com). While around 30% of financial advisors use technology for administrative purposes, the focus by institutions is moving towards robo-advisors and artificial intelligence.
The investment management industry is adapting to fintechs and digital disruption as assets under management (AUM) are projected to increase 10-fold over the next decade (source: PwC). Fintechs are also expected to add 50 million new customers by 2020. Even if their number of users remains flat, their average client balance will have grown 14% by 2026. The number of fintech users has risen by 10% each year since 2014, and is expected to reach 250 million in 2026.
At the same time, millennials have been adopting fintechs as ways to manage their money, with 3 billion millennials estimated to be connected to the internet by 2020 (source: World Economic Forum). Traditional banks are starting to introduce digital platforms and services such as Apple Pay Cash and Android Pay. As Millennials grow older, they tend to prefer using technology over speaking with human advisors.
The future of PFP will be influenced by how firms adapt to the digital revolution and how they can use the best of what fintechs have to offer. The best way to meet these demands is to adopt a collaborative approach and look for opportunities to partner up with fintechs. PFP firms will have to accept digitization and become more agile, innovative and flexible.
Fintech applications such as N26 and Revolut are trying to gain a foothold in the personal finance space, but their offerings remain limited. They offer banking services that traditional institutions already offer at cheaper rates. Furthermore, they lack personal touch, which many customers still value greatly. Even if they have gradually started to add some financial planning capabilities, this is currently not enough for them to significantly affect PFP as the end-to-end solution for retail clients with complex financial needs.
PFP is also in a state of transition, with the combination of fintech and traditional institutions being common. PFP firms can look into how to carve a niche as part of the financial advisory and wealth management ecosystem. There are opportunities for them to provide end-to-end services over digital platforms that have been tailored to their clients’ needs.
As millennials turn into the main source of wealth for families, they are embracing financial technology (FinTech), highlighting its impact on personal finance planning in the decades ahead. A more collaborative approach to PFP is required among firms and fintechs in order to meet market demands without losing their individual customer touch.
The global index will analyze the developments of fintechs’ offerings, the impact they have on the personal finance industry, and the role PFP firms play in this process. This will include examining trends in fintech’s offerings and application, shifting customer requirements and strategies by institutions, as well as review how traditional institutions are adapting to the need for better end-to-end services.
As a result, this article aims to construct a vision of how PFP firms and fintechs can collaborate over digital platforms to offer better end-to-end services for retail clients that want to manage their money in a digital fashion. The article also looks at how retail clients can benefit from the combination of fintechs and PFP firms.
What is Personal Financial Planning?
Personal financial planning (PFP) is a personal financial planning professional’s view of their client’s needs in terms of financial objectives and risk management. The individual’s goals should account for the full range of opportunities available to them, including investments, insurance products, retirement income, and cost-of-living adjustments. Financial planners offer alternatives so that clients can consider all the options available to them in order to create a personalized plan that fits their unique situation and objectives. Professional financial planners help clients design and implement financial plans based on their current and future needs and goals.
Personal finance is the management of money and other wealth. It may involve paying the bills, maintaining a budget, maximizing profit through expenditures, and making decisions about investments or savings.