The embedded finance opportunity in wealth management: 3 key takeaways from our latest research

While wealth management has historically lagged behind other financial services verticals when it comes to digitalization, the gap is narrowing.

Since 2020, when the sector made five years' worth of digital progress in just a few months, wealth managers have been investing more and more in both customer-facing and back-office technologies. In 2023, they collectively spent $53.7 billion, projected to rise to $56.1 billion — a 4.47% increase — in 2024.

This push couldn't have come at a better time.

Wealth management customers are getting younger, more diverse, and more digitally savvy.

But preferences are changing across the board. 46% of respondents to a Refinitiv survey reported accessing their accounts via mobile, and 57% picked it over face-to-face meetings or email as their preferred communication channel.

More to the point, 64% are willing to pay more for personalized products and services. And the level of personalization today's consumers expect is only achievable if providers have access to technologies that generate detailed, real-time data about their behaviors and preferences.

In our white paper, Opportunity knocks: Why embedded finance is the next big thing in wealth management, we've taken an in-depth look at the changing face of wealth management, and how technological developments, particularly embedded finance, can help the industry better adapt to shifting customer needs and priorities.

Here are the three key takeaways from this research.

1. More consumers are interested in wealth management than ever before

Despite what its name suggests, wealth management is no longer the exclusive province of ultra-rich, older, typically conservative types.

In part, this is down to wealth being transferred from aging baby boomers — by 2030, the youngest boomers will be 66 years old — to millennials and gen Z. Goldman Sachs estimates that, in the coming decades, around $30 trillion will change hands.

But, age aside, the demographics of wealth management are also changing in other fundamental ways.

Case in point, where high-net-worth individuals used to be overwhelmingly men, 40% are now women, with the percentage expected to rise even further in the coming years.

At the same time, digital-first platforms such as RobinHood and Trade Republic have put saving and investing within reach of a much broader range of consumers, including those who wouldn't be able to afford the fees and minimum investment requirements of legacy firms.

87% of those who receive an inheritance fire their financial advisor. More importantly, whether they're high-net-worth individuals or people on average salaries, the financial priorities of men and women are poles apart from the stereotypical wealth management customer: an older man with millions in the bank.

Put more simply, wealth management customers have increasingly disparate — sometimes even contradictory — needs. And firms need to cater to all of them, or risk losing out permanently to more agile and responsive competitors.

2. The meaning of wealth management is changing

The expansion of the wealth management customer pool has also broadened the definition of wealth management itself.

Traditionally, consumers sought out wealth managers to help them preserve and grow existing wealth. But modern consumers have markedly different backgrounds, financial situations, and priorities. And this is reflected in what they want to get out of wealth management services.

Saving and investing are still at the sector's core, but customers don't necessarily want help with tax and estate planning. Their goal may be to pay for their children's education, manage their day-to-day finances more effectively, or save for their first home.

At the other end of the spectrum, they may be seeking guidance on how to pay off debt and put their finances on a sound footing.

Even among those whose main goal is growing wealth, the dynamics are shifting.

In 2023, as much as 23% of all trading activity on the stock markets was by retail investors, a trend driven by the proliferation of robo-advisors and educational resources such as online courses and forums.

But, while consumers are more informed and empowered than they've ever been, wealth managers still have an important role to play. Consumers may be happy to dabble on the stock exchange on their own when the amounts involved are small, but most will seek out professional advice before making important decisions.

That said, wealth managers still need to tailor their approach.

As Fidelity Institutional's vice president of practice management and consulting Anand Sekhar observes: "younger investors look for an advice model that is different from what worked for their parents and grandparents...".

And, when it comes to women, our own research found that the traditional wealth management model isn't just unfit, but often disempowering and off-putting.

Products may have minimum requirements that exclude women whose income is low or irregular because of their care-giving responsibilities. Worse, respondents told us they avoided seeking out professional advice for fear of being patronized or disrespected.

3. Embedded finance enables greater personalization and increases customer stickiness

With the wealth management landscape getting more complex, embedded finance — integrating financial products into non-financial customer journeys — is an opportunity for wealth managers to step up and stand out.

Our research found three embedded finance products that may be especially valuable to wealth management consumers: cards, accounts, and open banking, particularly variable recurring payments.

Cards: Embedding your brand into the customer's everyday

Cards may seem antithetical to the concept of wealth management. But they increase the number of touchpoints with the consumer and create more opportunities for them to interact with the brand.

The typical consumer-wealth manager relationship is fairly passive. There's an initial consultation to discuss objectives and goals. The customer then hands over the money, and the wealth manager periodically reports on performance.

Issuing cards benefits wealth management firms in three significant ways.

First, the firm is front of mind not only when the consumer is deciding which firm to go with and reviewing their investments, but whenever they make a payment.

Second, our research found that consumers use cards issued by wealth managers as "top of wallet" cards, that is to pay for groceries, restaurant meals, and other day-to-day purchases. This means there's a wealth of data to be gained about their spending patterns and behaviors. Data that firms can use for more accurate personalization.

Third, cards don't just make it easier for consumers to withdraw their investments. According to our research, they also encourage consumers to reinvest or invest more. In other words, the consumer becomes more valuable and is also more likely to stick around long term.

Accounts: Becoming the wealth management consumer's financial hub

Once a consumer has a card, an account is the logical next step.

Our data shows wealth management clients tend to deposit money into their accounts more frequently than they withdraw or spend.

Accounts also deepen the relationship with the consumer, especially if the consumer uses it as their main account — the account in which they receive their salary and from which they pay their bills.

Most significantly, an account can become a springboard for additional services that enable wealth management firms to give customers more value and, in turn, boost loyalty and trust.

"Once the customer has an account, you can build a whole ecosystem around it," explains Solaris' VP Marketing & Communications Baha Jamous. "You can expand from brokerage to loans and credit cards — sticky products that can become healthy additional revenue streams."

Open banking: More transparency and control

The more data wealth managers have on their customers, the better they can serve them. And, by aggregating consumers' entire financial history in one place, open banking provides firms with a holistic view of their circumstances, to the point where they might be able to anticipate their needs.

This data is especially powerful when combined with variable recurring payments (VRPs), a technology that makes it possible for the consumer to automatically transfer money from one account to another in accordance with predetermined parameters, because it gives the consumer much more control and flexibility.

Say the consumer pays $400 a month into an investment account. During a particular month, they need to make an essential home repair, so paying out the $400 on top of that would put them in difficulty.

VRPs can automatically detect when the consumer has overspent and reduce or temporarily stop payments into the investment account.

By the same token, during months when the consumer spends less, a VRP can transfer the surplus into the investment account, or in other ways that help them reach their goals, such as a mortgage overpayment.

To attract the new breed of consumer, wealth managers need a new approach

By 2030, the typical consumer of wealth management services will be almost unrecognizable from the one of today:

• Under 50
• Primarily women
• Not necessarily high-net-worth
• Tech-savvy, well-informed, and empowered

The bad news is that the current way of doing things won't be fit for purpose. In fact, it already isn't.

But, for those firms that embrace digital technologies and, particularly, embedded finance, there's a bright future up for grabs: more value, a stronger, more trusting relationship with consumers, and, most importantly, greater resilience and adaptability in the face of constant change.