Moore’s Law is the observation and prediction that the number of transistors in an integrated circuit doubles approximately every two years. Named from a 1965 article by the co-founder of Fairchild Semiconductor, Gordon Moore, it’s more of an observation than a law, though one that has both guided and driven the exponential growth in semiconductor capacity ever since it was coined.
It’s been a baseline belief behind massive amounts of tech investment over the last decades and has helped facilitate not just technological innovation but economic and social change. While this law doesn’t technically hold true anymore, the rapid growth in semiconductor capacity continues.
Wealth tech is already a +$5bn industry and expected to be three to four times that size by 2030, not quite the same growth rate as Moore’s Law, but within the family office ecosystem the growth in the number of wealth tech service providers certainly seems exponential.
Accelerated by the increased tech expectations of clients and the desire to enhance process efficiencies, cut costs, and improve profits, wealth tech may be a nascent part of fintech but it’s one that’s already shaping the future of wealth management. Looking at the key drivers of this growth from a family office perspective, there are four areas that stand out.
1. Digital transformation everywhere
Simply put, managing a multi-billion dollar family office using a spreadsheet program is a bit like finding your way to the nearest gas station with a compass versus Google Maps. Family offices have recognized the need to move away from outdated systems and operate on integrated digital platforms, the best versions of these being powerful, yet easy to learn, and with advanced cybersecurity features to prevent unwanted sharing of information.
Embracing digital transformation can be a drawn-out process for many family offices with some costly wrong-turns, which is why finding the right service provider at the start is crucial.
Increased digitization has shifted not just how family offices operate but also brought accessibility to private markets, facilitating more direct investments, co-investments, and a host of new investment tools aligned with an overall fintech industry shift of power to investors.
2. Demand for customized solutions
While there are certainly commonalities amongst family offices there is also a diverse set of needs and structures, meaning family offices often require complicated financial solutions. Wealth tech has not only allowed easier creation of personalized investment portfolios to meet this need but also the development of automated portfolio balancing systems to manage them more easily.
Some of these advancements in wealth tech products are being driven by the increase of tech-driven entrepreneurs within the ultra-high-net-worth individual (UHNWI) and family office space, seeing an opportunity to disrupt the ecosystem and develop offerings themselves.
3. Increased regulation & compliance
Increasing regulations across the financial sector create a growing need for technology solutions that help compliance. For family offices that do business globally, differing tax requirements and regulations have motivated technology offerings that enable effective process management, easy access to data, and safe sharing of documentation to effectively manage this with a singular tech solution. The increased demand for transparency and geopolitical motives to move wealth between jurisdictions are adding to this need even further.
4. Data analytics & insights going mainstream
Perhaps the most common driver across all family offices is the need for advanced data analytics that can help drive investment decisions. With the analysis of big data informing so many aspects of life, the ability to implement this into investment intelligence and enable predictive analytics is not just for the institutions any more.
Family offices want these insights, but they also want agility, to achieve more with fewer resources. They want to analyze the market and forecast accurately without having to hire a full team of quantitative analysts, which is where Intuitive solutions that help optimize portfolios and give forward-looking insights, are in growing demand.
Beyond these four drivers, the adoption of big shifts in technology itself will help drive the growth in wealth tech. If that sounds a bit like saying ‘technology drives technology’ it’s not untrue – just like mobile accessibility, cloud computing, and big data have enabled significant leaps before it, artificial intelligence advances have already started to completely reinvent how we interact with all other technology.
Growth in wealth tech presents enormous advantages for family offices that begin to embrace it, while for some, they’ve been reaping the benefits for years. As science fiction writer William Gibson suggested:
“The future is already here – it’s just unevenly distributed.”
Image by: Pexels