Creating Wealth-Management Solutions For A Changed Market

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R. Srikumar is Senior Vice President, Head Portfolio Group at Mphasis.

Over the last couple of years, the wealth management space has witnessed an interesting development. There has been a gradual overlap between the self-directed or do-it-yourself segment and the mass affluent segment.

A direct outcome of the rising popularity of exchange-traded funds (or ETFs) and index funds that brokers began to offer a few years ago at low or no fees, this overlap of investing segments is leading to several interesting consequences. These could dramatically reshape the wealth management space.

For one, people who typically had an advisor now manage their money themselves. These individuals, usually Millennials, are more active in the market and aware of the availability of lower-cost products. They are single-handedly fueling startling growth in trade volumes due to the number of trades they make daily.

To add to this mix is the market volatility of the pandemic. Markets have seen a steady upward trend since its onset last year and a new generation of investors are both deeply invested and involved.

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All of this marks a significant shift from how the Baby boomers — Millennials’ parents — engaged in wealth management (WM). Earlier, the focus was on long-term goals, but the needle has now moved toward a preference for speculative options. Today’s tech-savvy, always-online investors are focused on staying up to date with market buzz and actively thinking about what they can trade in tomorrow. 

In such a changed scenario, wealth management firms cannot take yesterday’s approach to their clients, which was created to suit an earlier generation with different needs. Instead, these organizations will have to pivot to a new way of managing wealth that both understands its current generation of clients and works itself back to rethread what it offers, how it offers that and what technical functionalities it should keep in mind.

Taking Wealth Management To The Masses

Let us take a look at a brokerage service firm in the WM space to see what businesses can learn when it comes to how to ride the wave of change.

Consider Robinhood, a DIY investing platform. Since its launch in 2013, the app-based company has pioneered free trading. It has made a name for itself in the DIY wealth management space by offering commission-free trades of stocks and exchange-traded funds via a mobile app, which it introduced in 2015.

Offering a range of investments, including cryptocurrencies and stocks, the tech-driven company has made a niche for itself by offering an efficient interface to gamify an otherwise intimidating industry. It also encourages mass use.

The platform’s phenomenal success — it added over 3 million new customer accounts in 2020 — has to do with the way it has positioned itself. It is credited with being easily accessible to Millennials and having democratized the financial system. Over the years, it has aced its ability to build a trusted relationship with its core demographic by providing app users day-trading and the freedom to experiment with stock purchases without losing money or being penalized.

Expanding Reach Through Smart Tech And Intelligent Design

However, some of Robinhood’s popularity with its core user base — people in the average age of 28 to 41 — has also got to do with the important element of design. Its app has been created with a clutter-free screen in mind and just the bare minimum of information required for users.

It is no surprise then that the disruptions the pandemic created a perfect storm for both the brokerage service app and young new investors. Not only did Robinhood bring in 3 million users in 2020 through its zero-commission offer and user-friendly design, but it also witnessed a 4.3 million daily average in revenue trades.

What Robinhood proves is that when you are dealing with a different audience, you need to use a different tactic. None of this means that there are no other types of investors whose needs are similar to older processes and approaches. But it does signal that wealth management firms need to spend time strategizing: Who are you serving and in what way? What technology must you use to meet those needs?


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