2,000 Wealth Management Firms Representing $10 Trillion in AUM Are Targets for Wealth Tech Expansion

February 23, 2022 — Boston

Portfolio accounting, financial planning, and tax optimization are the top-three applications licensed

While many wealth firms use technology solutions—proprietary or third party—as a point of differentiation for investor and advisor acquisition, the true market opportunity for financial technology firms lies in the hands of 2,000 wealth management firms controlling roughly $10 trillion in assets under management, according to Cerulli’s latest report, State of U.S. Wealth Management Technology 2021: Aligning Firm Strategy with Technology Decisions.

The segment of the market most likely to license market-leading vendors consists of broker/dealers (B/Ds), registered investment advisors (RIAs), and bank/trust firms looking to distinguish themselves to advisors and investors by controlling the client experience and building what they believe to be a best-in-breed tech stack. These firms are not at scale to do massive internal development like the wirehouses, but are at scale to sign meaningful enterprise agreements with wealth tech vendors, according to the research. These firms are constantly in search of organic growth through client acquisition or inorganic growth through advisor recruiting or M&A.

According to the research, three-quarters of these firms state that their tech philosophy is to license market-leading vendors and to maximize integration between tools. “There is a meaningful segment of firms that is seeking to leverage top external vendors while also optimizing integration,” states Bing Waldert, managing director. As noted for many of these firms, their value proposition revolves around optimizing the advisor experience, in part through technology. “Market-leading tools in categories such as performance reporting or financial planning should help the advisor create a better service experience for his or her clients,” he adds. Portfolio accounting (75%), financial planning (58%), tax-optimization (56%) are the top-three applications licensed from external vendors by wealth managers, according to the research.

For wealth managers working in the high-net-worth (HNW) and ultra-high-net worth (UHNW) segments, the complexity of more affluent clients dictates more specialized solutions. This will be most true in categories such as performance reporting and financial planning. Performance reporting systems will need to support private investments that are not valued daily and often not held at mainstream custodians. Likewise, a firm might offer a standard offering, such as a homegrown goal and financial planning system, but still offer connectivity to other third-party solutions for more complex clients. “HNW investors are trying to solve for issues such as illiquid business interests, minimization of taxes, and estate planning. Financial planning for this segment must be able to support the necessary complexity,” states Waldert.

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