WORKWEEK

Wealth tech is bringing humanity back to financial advice by opening access to financial planning that helps a diverse and growing demographic reach higher levels of self-actualization. 

We’ve explored this topic in 2 parts. First, wealth tech has mainly catapulted thanks to the evolution of the financial advice industry (read part 1 here) and consumer behavior expecting everything personalized so they can better understand their psychology while aligning money management with their values (read part 2 here). 

So wealth tech platforms have emerged in new and innovative ways to help financial advisors focus on the emotional and behavioral side of money. 

At the start, wealth tech looked like platforms such as eToro for digital brokerage, Stash for micro-investing, and Betterment for 401(k), which became household names. 

But newer platforms are hyper-focused on behavioral finance, like Bolder Money which helps millennial women achieve their financial goals, or Facet Wealth, which focuses on a hybrid approach to human-centered financial planning at a fixed rate. 

And investors are pouring money into these platforms. According to CB Insights, wealth tech companies brought in $1.7 billion across 164 deals in the fourth quarter of 2022. That makes wealth tech the third hottest subsector of fintech behind payments ($3.4 billion) and banking ($1.8 billion). 🔥

Here’s where the money is going 👇🏽

Human-Centered Wealth Tech 

Viva Republica, an operator of South Korean finance super app Toss, finalized a $405 million Series G in November, making this round the largest amount raised by a wealth tech in Q4’22. 

On a smaller scale, Savvy Wealth closed an $11 million series A-1 funding in November to humanize financial advice. 

In October, eToro raised $38 million in venture capital, and GoHenry, the prepaid debit card and financial education app for kids and teens raised $55 million.

Not long ago, some of these investing platforms were called “robo-advisors,” The narrative that swept the financial advice industry was that these automated investing platforms would wipe out human, financial advisors. 

But it was about something other than replacing the human, financial advisor. Instead, automated investment platforms opened access to investment services usually only available to the super-rich to the masses. 

And once consumers had access to automated investment advice, they wanted a taste for more. So robo-advisors became a stepping stone for consumers wanting human financial advice. 

In that light, wealth tech has a lot of customers waiting in the wings. 

Young Investors

During my time as a reporter at InvestmentNews, it was pretty standard for me to hear advisors say they don’t see value in working with younger investors yet. 

Undervaluing the upcoming generation just exacerbated the need to leverage technology to understand that they are worthy of financial advice more holistically. 

Gen Y and Gen Z now collectively represent 47% of the U.S. population, and it’s estimated that they already inherit $541 billion each year (which is 30% of the wealth transferred annually today—and that percentage is projected only to grow), according to a report by Fidelity. 

The generations are just different. They are more progressive, values-driven, and willing to take action on those values. This impacts whom they choose to hire as a financial advisor. Fidelity identified six hallmarks of Gen Y and Gen Z: 

1. Diversity 
2. Life Path
3. Values
4. FOMO
5. Mental Health
6. Technology

Despite the growing number of investors and wealth tech platforms democratizing access to investing and wealth building, there are glaring wealth disparities in the U.S. with women and BIPOC. 

For example, 65% of low-and moderate-income working women are interested in investing, yet only four in 10 are currently investing, according to research from Commonwealth. 

When it comes to the democratization of investing and financial advice – a huge byproduct of the wealth tech revolution we’re seeing today – it isn’t a true democratization until 50% of the people (i.e., women) use the technology. 

It’s worth acknowledging the barriers that have historically made it more difficult for women and BIPOC to start investing and wealth-building. For example, with market access, the wealth tech ecosystem has done a great job of lowering minimum requirements and cutting out trading fees. 

But participation is not nearly where it should be. According to Jenny Just, the billionaire fueling a wealth tech empire via Apex Fintech Solutions shared, out of 20 million clients, 29.5% are women. It’s not where we need to be.

So we have to examine the next barrier: investor identity aligning with the industry. 

Wealth Tech Steps In 

B2B-focused wealth tech companies are designed for financial advisors to work smarter, faster, and with more clients (thus perpetuating a cycle of access and increasing diversity) to move the needle on developing systemic change. 

Even with the best technology out there, the industry needs to increase its diversity numbers to break the cycles of financial exclusion and create real generational wealth for women and marginalized communities in order to reach its full potential. 

Wealth tech powerhouses like Orion and Envestnet play a significant role in the future of space – and both companies recently made announcements to solidify their commitment to evolving wealth tech further. 

Wealthtech juggernaut Orion is doubling down on its commitment to the Foundation for Financial Planning and announced this week that it would be the exclusive sponsor for the FFP’s digital volunteer program ProBonoPlannerMatch.org. 

The program aims to connect 10,000 CFP professionals to pro bono service opportunities, bringing free financial advice and planning to underserved individuals and families, including low-income workers, seniors, cancer patients, military and veterans, and many others. 

Envestnet, a wealth tech giant and one of the biggest names in the industry, also announced it is sponsoring Broadridge Financial Solutions so the company can extend its Fi360 Accredited Investment Fiduciary Designation Training to financial professionals from underrepresented groups at no cost.

An initial group of 100 advisors representing underserved populations like women and people of color will receive free training through the program, which is sponsored by Envestnet and supported by Choir, a diversity-tech platform and conference diversity certification (co-founded by two of my favorite people, Liv Gagnon and Sonya Dreizler). 

Choir, a platform that aims to lift the voices of the underrepresented in the financial services industry, will help identify the candidates. One of the ways candidates can be eligible for selection is to sign up for Choir’s Voices platform, which connects people of color, women, and non-binary financial professionals with speaking and media opportunities. Interested individuals should also apply directly with Envestnet.

Envestnet sponsoring this initiative means: 

• Increasing the likelihood that underrepresented individuals will stay in financial services
• Help them be recognized for career advancement opportunities.
• Financial advisors from diverse demographic groups generally have a higher percentage of clients from those groups, and more AIFs in that equation will help increase access to advisors acting in the best interest of investors.

“This partnership makes us hopeful about the future of financial services,” said Liv Gagnon, co-founder of Choir. “For this industry to represent the world we live in, it will require intention and action from organizations like Broadridge and Envestnet who are committed to change at a systemic level.”

So the next time someone says “fintech is dead,” remember that there’s still a ton of whitespace left in sub sectors like wealth tech. 

We’ve barely scratched the surface regarding the vast number of people out there still needing technology to make financial systems work better for everyone.