The growth of wealthtech is coinciding with a boom in the digital asset market. Here’s what you need to know:
With almost all aspects of finance today undergoing major technological disruption, traditional wealth managers – usually, the largest banks and financial institutions around the world – are being threatened by a new generation of technology-powered fintech startups.
The world of wealthtech is well and truly making a comeback from the highs of 2017, with record funding of $13.6 billion being recorded in the sector through the first six months of 2021.
Wealth + Technology
“The words “wealth” and “tech” have come together to give rise to a new generation of financial technology companies that create digital solutions to transform the investment and asset management industry” – BBVA
Swiss startup 3rd-eyes analytics was, for example, set up in 2015 to develop a solution that “integrates professional asset and liability management methodology and sustainable investing.”
German aixigo was set up in 1999, and is currently “the world’s fastest API-based wealth management platform for investment advisory, portfolio management, portfolio risk management, portfolio analysis and portfolio monitoring. The platform, which is equipped with more than 100 digital services, delivers constant trend-setting and real added value innovations to aixigo’s customers and their savings and investment customers. aixigo’s international customers including Bank Vontobel, BNP Paribas, Commerzbank and Hargreaves Lansdown (…)”
Indian AIFMetrics, set up in 2019, is a digital platform that distributes, markets and reports Alternative Funds inaccessible in the public domain. Their closed, secure, white-labelled cloud-hosted platform connects fund managers and users through an enhanced digital experience in both India and Singapore.
[The aforementioned are three of the entries featured in the 2021 WealthTech100 list released by Fintech Global. Read here.]
A recent survey released by US-based Bitwise Asset Management claimed that “81% of financial advisers had been questioned about crypto in the past year. Furthermore, it claimed that 36% of advisors said at least some of their clients were investing in digital assets by themselves.”
The increasing attention that the digital asset space has been receiving in the recent past is aptly reflected by the fact that the percentage of advisors now allocating crypto as a part of client portfolios has gone up from 6.3% in 2019 to about 9.4% in 2020. Here’s where wealthtech firms like AlgoTrader come in.
“If you look at the growth of the market, it is very nascent in the wealth management space,” according to the chief revenue officer of Swiss algorithmic trading software firm AlgoTrader, “but it is growing and the technology that supports it is growing at a rapid pace.”
How AlgoTrader is transforming wealth management:
Digital assets, unlike traditional ones, are not bound to a single exchange or venue. For example, if you wanted to buy bitcoin, you could do so from any of the 300+ crypto exchanges offering it globally, not just have to look for it on a single exchange. Each of these exchanges has their own unique fee structures and their own mediums of exchange as well – either crypto to crypto or fiat currencies to crypto. This, however, causes fragmented liquidity; thereby posing an extra challenge to portfolio managers who must look to maximise profits by consistently executing best price-trades.
The AlgoTrader platform, in this regard, combines technology like smart order routing (SOR) and execution algorithms to take an order and break it up across different exchanges offering best prices at optimal periods of time. According to Petersen, “the AlgoTrader platform integrates most major liquidity venues and data providers into a single platform, enabling the wealth manager to understand the best strategy, find optimal liquidity and execute with the best prices for its clients.”
Additionally, AlgoTrader also aims to help managers manage market volatility by using opportunity and risk management tools and to automate the buying and trading of assets at optimum times by leveraging systematic quantitative trading technologies.