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Open Wealth: unlocking the future of wealth management

By Raghid Nami, Business Product Leader, Croesus

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Croesus provides innovative, high-performance, and secure wealth management solutions that include portfolio management systems, portfolio rebalancing tools, and application programming interfaces

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by Croesus
| 25/12/2024 18:00:00

An extract from The Wealth Mosaic’s recently published US WealthTech Landscape Report 2024 focused on the wealth management sector in the United States.

Open Banking is rapidly gaining momentum in the United States and worldwide. This approach enables the secure sharing of financial data between institutions. While its initial focus was on retail banking, the wealth management sector is poised to be the next big beneficiary through a concept known as Open Wealth.

Open Wealth applies the principles of Open Banking to the world of wealth management, enabling the secure sharing of client financial data with authorized third parties, typically through the use of Application Programming Interfaces (APIs). This means that with client consent, financial information can be accessed by providers of their choice, fostering a more holistic and integrated approach to wealth management, and in turn a better service to investors.

“Data is going to be considered a core asset, and firms that can leverage data effectively will be best positioned for success,” said Raghid Nami, Business Product Leader at Croesus and a seasoned expert in the WealthTech space.

“The future of wealth management lies in a collaborative ecosystem where financial institutions, FinTechs, and other stakeholders work together to deliver seamless, personalized, and value-driven services to clients,” he adds.

The rise of Open Wealth
Open Wealth enables wealth management firms to easily enhance their services by integrating specialized tools into their existing systems.

“For example, a firm with limited access to client accounts can gain insights through Open Wealth APIs into all accounts held at different institutions to feed their cutting-edge Portfolio Management System (PMS). The advisor seeing all this information in the PMS can make better decisions regarding the client's financial situation, because they have a better understanding of their asset allocations across all their holdings," explains Nami.

This new tool could factor in regulations, tax optimization, and currency fluctuations, improving the rebalancing process without requiring a complete system overhaul.

Although the U.S. doesn't have yet a formal Open Banking framework, the Consumer Financial Protection Bureau's proposed rules are expected to be adopted this year. Therefore, Open Wealth is poised to reshape the wealth management landscape in the coming years. This rise is being fueled by a confluence of factors, outlined below.

Ever-evolving client expectations
First, client expectations are evolving, with a growing demand for personalized advice, transparent fee structures, and real-time access to financial information.

“Investors are demanding more transparency, more control on multiple levels", said Nami. He emphasizes that clients today crave a holistic view of their financial situation and expect their advisors to provide tailored solutions that align with their unique goals and values.

This shift in client expectations is being driven by several trends, including the increasing adoption of digital technologies, the rise of FinTech startups offering innovative financial services, and a growing awareness of data privacy and security. Clients are demanding the same level of convenience and personalization in wealth management that they experience in other aspects of their lives.

“The underlying assumption of open banking is that customers have access to and control of their data," Nami explains. “So firms that invest in platforms that are backed by open data help their clients get a complete idea of their financial situation."

In its World Wealth Report 2024, the Capgemini Research Institute reported that 65% of high-net-worth investors expressed concern over their current wealth management firms' lack of personalized offerings. This dissatisfaction underscores the urgency for firms to adapt and embrace Open Wealth to meet the evolving needs of their clientele.

Relentless technological progress
Technological advancements are also playing a crucial role in enabling Open Wealth. Cloud computing, APIs, and advanced analytics have created a fertile ground for innovation, making it easier for firms to securely share data and integrate with third-party platforms. Nami points out that the increasing availability of these technologies has "propelled us light years" in terms of our ability to deliver sophisticated financial services.

However, it's not just about technology. As Nami notes, “most high net worth millennials expect their advisor to have a holistic understanding of their needs, and these investors expect their advisors to act in a socially and environmentally responsible manner in accordance with their values." This highlights the importance of combining technological innovation with a deep understanding of client values and preferences.

A game-changer for wealth management firms
Open Wealth presents numerous opportunities for firms seeking to gain a competitive edge in this evolving landscape. These advantages include enhanced client experiences, greater efficiency, new revenue opportunities, and improved risk management.

By aggregating data from various sources, including bank accounts, investment portfolios, and even non-financial data, firms can offer truly personalized advice and tailored investment plans.

“This addresses the growing demand for individualized services, facilitating personalized investment advice and improving financial planning", said Nami. “Ultimately this is leading to stronger client relationships and increased loyalty.”

Furthermore, Open APIs streamline operational processes, such as client onboarding, portfolio rebalancing, and reporting. By automating these tasks, firms can free up valuable time for advisors to focus on higher-value activities like relationship building and business development.

Nami suggests that this increased efficiency can also lead to cost savings, allowing firms to offer more competitive fees and maximize client returns.

Open Wealth also opens doors to new revenue streams. Firms can charge for premium data-driven insights, develop specialized services through API-based partnerships, or even create innovative investment products tailored to specific client segments.

Additionally, Open Wealth can improve risk management by providing a more complete picture of a client's financial situation. This allows advisors to better assess and manage risk, ensuring that investment strategies are aligned with individual risk profiles.

Embracing the Open Wealth revolution
For wealth management firms eager to embrace Open Wealth, Nami offers valuable guidance. He recommends starting with clear objectives, defining the specific client needs or pain points the firm aims to address.

It's also crucial to assess the existing technology infrastructure and determine if it's equipped to handle secure data sharing and integration with third-party platforms. Partnering with technology providers specializing in Open Wealth solutions can be a strategic move for firms lacking the in-house expertise.

Nami also emphasizes the importance of prioritizing cybersecurity and compliance. Robust security measures are essential to protect client data, and firms must adhere to all relevant regulations and industry standards. Establishing clear data-sharing agreements with partners is also crucial to ensure transparency and accountability.

“Open Wealth allows professionals to access their clients' external data securely without risking their credentials. And with clients' authorization, they'll be able to access details like accounts, credit, or any other data that they need, even non-financial data if necessary", said Nami.

However, he stresses the need for client education. “Firms should clearly communicate the benefits of Open Wealth to their clients, emphasizing the security and control they have over their data.

This can help alleviate concerns and build trust, paving the way for a smoother transition to this new paradigm,” he said.

The future of Open Wealth
Open Wealth is not just a trend; it's a transformative force that is redefining the way wealth management is delivered. By embracing this new paradigm, firms can unlock new growth opportunities, improve client relationships, and secure their place in the future of finance.

“Open wealth is a game-changer for wealth management firms. By embracing it, we can develop new partnerships and new business models, and firms can stay ahead of the competition", concludes Nami.

Interested in reading the US WealthTech Landscape Report 2024? You can read the report online here.

ABOUT THE US WEALTH LANDSCAPE REPORT 2024
The US WealthTech Landscape Report 2024 has been designed to showcase the pivotal role that technology plays in the evolving landscape of US wealth management.

With the rapid pace of change in financial services, understanding technology's impact on this sector is more crucial than ever. This US-focused Landscape Report features a series of insightful articles that explore the trends, challenges, and innovations surrounding technology adoption in wealth management. Contributions come from a range of organizations, including Advisor360, Alpha Tech Partners, Aureus Advantage, Croesus, Diamond Wealth, ERI, First Rate, J.P. Morgan Wealth Management, Malka Media, Pirker Partners, Seismic, and Transcend Capital Advisors.

The report also features a section dedicated to a series of solution provider showcases, offering insights into the offerings and capabilities of the firms featured. This section is designed to provide an overview of a selection of solutions available on the market today, showcasing some of the available technology tools and partners that might address your business needs. Finally, we culminate the report with the directory section that introduces our online Solution Provider Directory (SPD) and references the size of market relevant to the US wealth management sector.

Interested in reading the US WealthTech Landscape Report 2024? You can read the report online here.

ABOUT THE WTLR SERIES
Our goal with our WealthTech Landscape Reports (WTLRs), is to collate relevant, insightful content and comments from both wealth managers and vendors operating in a specific region. Each WTLR is founded on a curated directory of hundreds of relevant technology and related solution providers to the business needs of the wealth management community in focus. The directory is supported by a rich variety of thought leadership articles and interviews with industry participants from both buy and sell side, plus a section of Solution Showcases. We also look at country, regional, and sectoral trends.

If you are interested in contributing to our WealthTech Landscape Report series, don't hesitate to get in touch.

Discover our latest reports!

  • US WealthTech Landscape Report 2024 – read here
  • Client Experience Toolkit Report 2024 – read more
  • Swiss WealthTech Landscape Report 2024 – read here
  • WealthTech 2024 – read here