Funds management and financial advice firms expect to lose over 20 per cent of business to ‘fintech’ operators over the next five years, according to a new global survey of industry leaders.
The PwC survey of almost 550 top executives in traditional financial firms, technology companies, consultancies and regulators, found asset management and financial advisory groups estimated standalone fintech providers could take over 22 per cent of their revenue within five years.
Over 80 per cent of those surveyed rated fintech as a threat to at least some of their revenue lines in the next five years, with the figure rising to 95 per cent in the case of bank-only respondents.
The survey found traditional financial industry players overall underestimated the amount of business at risk compared to their potential fintech usurpers: on average incumbents reported 23 per cent of their businesses were vulnerable while fintech providers thought they could capture 33 per cent of industry revenue within five years.
“Typically, disruption hits a tipping point at which just under 50% of the incumbent revenue is lost in about a five-year timeframe,” the PwC report says.
The survey also identifies a range of threats and opportunities in the wealth management space with ‘robo advice’ attracting particular attention.
“Automated investment advice (i.e. robo-advisors) poses a significant competitive threat to operators in the execution-only and self-directed investment market as well as to traditional financial advisors,” the report says. “Such robot and automatic advisory capabilities will put pressure on traditional advisory services and fees and will transform the delivery of advice.”
According to the PwC report, many wealth management firms are rising to the fintech challenge with in-house solutions “and advisors are likely to adapt with hybrid high-tech/high-touch models”.
Technology could also enable advisory firms to profitably service the lower end of the market, which has been a long-term conundrum for the financial advice industry.
“Robo-advisors provide a viable solution for this segment and, if positioned correctly as part of a full service offering, can serve as a segue to full service advice for clients with specific needs or higher touch,” the PwC study says.
The survey lists 12 major fintech trends to watch in funds management and financial advice:
- Technology to enable investments in new markets;
- Automation of asset allocation and wealth management;
- Products and services for traditionally unprofitable customers;
- Better identification and quantification of risk;
- Community intelligence networks leading to better investment decisions;
- Innovation to get to market and scale faster;
- Innovation in brokerage services enabling better investment;
- Standardisation of customer experience across all points of contact;
- Alternative distribution and marketing channels for awareness;
- End user-created investment solutions;
- Shift from technology-enabled human relationships to [fintech] experiences with human support [as needed];
- Blockchain