Inside the Royal Bank of Canada’s machine-learning labs

Strong demand for digital services is providing an opportunity for fintech firms to branch out into other services. Many of the top Fintech 50 list for 2020 released by Forbes, included six blockchain companies among the top financial technology companies. These include companies such as Coinbase, Axoni, Ripple, and Everledger that are offering investments in cryptocurrency. Many other fintech companies are now broadening out into the investment category. There is an increase in the number of fintech companies that are now focused on wealth management. While the concept of Robo advisors has been around for a decade, the increase in artificial intelligence in the fintech investment space has created new opportunities.

Demand for New Products are Rising

According to consulting firm Price Waterhouse Coopers (PWC), the majority of wealth managers, approximately 75%, view the impact of FinTech to adapt to changing customer needs. Approximately 50% of wealth managers think new entrants can enhance interactions and build reliable relationships. Most of the focus is on the digitization of asset management. Asset managers see the largest potential for fintech as an improvement of the customer experience. Most interest is focused on data analytics and automation of asset allocation. Despite the proliferation of fintech in the investment management space, only 45% of asset managers believe that fintech at the heart of their investment strategy.

Artificial Intelligence Begins to Proliferate

Artificial intelligence, known as AI, has created several tools that allow a broadening of the wealth management landscape. There have been several new tools that have predictive ability such as Einstein and Salesforce. While investors are used to digital pictures of the performance of their portfolio, the increase in the number of tools that can be directly used by clients is accelerating. Investors don’t just want to have a phone call with advisors about how their portfolio will potentially perform, they want to see options that are becoming the case with the use of AI tools. Fintech has not only benefited advisors it is also helping to reduce costs and increase productivity for clients.

The advancement of competition in the investment advisor space has reduced costs significantly. Robin Hood was one of the first investment firms to offer no commission on stock transactions. The digital tools are removing overhead and the cost of offering several investment advisors. The no-commission transaction concept has become the norm with companies like Charles Schwab, TD Ameritrade, and E-trade offering no-fee transaction. Charles Schwab is now also offering a robo+advisor called Schwab Intelligent Advisory targets affluent investors for a low cost to make sure that this concept is understood and relaid to their clients. What is clear is that investors want software that is smart and easy to use at a very low cost.

TransferWise is also a fintech start-up looking to take on the investment industry. TransferWise says it has received permission from the U.K.’s Financial Conduct Authority to deal with investments. TranferWise has swiftly risen to become one of Europe’s top fintech start-ups, securing a $3.5 billion valuation in 2019. The company says that its client base has increased to 8 million users globally and processes £4 billion worth of transactions each month.

White Labeling Products Adds to Customization

One of the most innovative fintech concepts in the investment-space is the concept of white labeling. A fintech called Bambu provides a standard assets allocation model along with a dashboard that can provide talking points. The most impressive part of the new product is that it can be white-labeled and customized to meet the asset managers’ needs. By providing the ability to customize a product for your clients, an investment company does not need to go through the process of programming advisor software from scratch. Algomi helps investors look for products available for individual bonds and has a customized product. Its Honeycomb bond-trading information system helps buyers see which banks hold inventory of bonds they want to buy.

Fractional Shares See a Boom

The concept of fractional shares has been around for a while. When a company offers a dividend, many times the actual amount of share provided is a fraction of a whole share. Stock splits also generate fractional shares. For example, if you own 7-shares of Apple and the company has a 2-1 split, you are entitled to receive 3.5-shares. Mergers and acquisitions also create fractional shares of stocks. Dividend reinvestment plans also create fractional shares. Companies like Robinhood and Charles Schwab have started to offer fractional shares on companies with high stock prices which has generated a new market. In 2019 Interactive Broker became the first online broker to offer fractional shares.

The Bottom Line

The bottom line is that fintech continues to proliferate into several different areas of the investment management sector. From asset allocation to new customized tools, advisors and clients are relying more on artificial intelligence to drive client interaction.

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