Private equity firms are key players in wealth management. About 77% of all transactions in the first quarter of 2023 involved private equity either directly or indirectly, according to Echelon Partners, which tracks wealth management M&A.

FTV Capital invests heavily in WealthTech, including a past investment in Riskalyze, a risk management software company now called Nitrogen, and a current investment in Docupace, a document automation software for wealth managers.

The firm has raised seven funds and invested in 139 companies since its founding. The company’s current fund is US$2.35 billion, with investments ranging in size between US$40 million to US$300 million.

Adam Hallquist, a principal on FTV Capital’s investment team with a focus on financial services, vertical software, and payments and transactions, sat down with RIA Intel to talk WealthTech trends. Hallquist currently sits on the boards of Docupace and ConnexPay and is a board observer at Xplor and LoanPro.

Responses have been edited for clarity and length.

What is it about the WealthTech/RIA industry that presents such a good growth opportunity?
That is a good question. There has been all these things that have changed in wealth, and it is moved relatively quickly. Take the move to index funds, for example. When you have movements like that in the industry, there are downstream implications for the approximately 300,000 financial advisors in the U.S., and that has created opportunities for technology to become a part of their everyday lives. Let us take the changeover to ETFs. That has pushed people to scrutinise stock picking because they have become more focused on what financial advisors are charging us’ and financial advisors in turn have said ‘I need to figure out a way to be more productive so that my income can stay the same or grow’ and that creates opportunities in the front, middle, and back office to really enhance what that advisor is able to do through technology.

What role do you take at the company after you invest?
We are growth investors, so we are not typically using any leverage upfront. We are investing in growing companies and hoping to help them enhance that growth: hire more people and expand to new geographies or new products. There are a lot of different ways we do that. We have this thing at FTV called our global partner network. We are connected to 150 plus large institutions. A lot of them are financial institutions like JPMorgan Chase, but Amazon and Walmart are members of that too. We know hundreds of executives across those organisations, and we have people at FTV whose full-time job is to help our portfolio companies sell into those organisations or find partnerships. We have a team called FTV Propel with marketing professionals, sales professionals, talent, and technology specialists who can help portfolio companies.

What type of technology are you seeing being created in WealthTech today?
Macroeconomic conditions like the rise in interest rates have created challenges for RIAs. Capital is more scarce, and debt is more expensive, and that has caused firms to be more thoughtful with spending money. They have looked at how they can be more efficient on the cost and revenue side. So, we have seen companies create technology to help streamline account openings, digitise paperwork etcetera. There are a thousand small, specific things that happen within an advisor’s workflow, and a lot of technology is looking at how to make advisors more productive and hopefully enhance their ability to manage clients.

What WealthTech trends were prominent in 2023, and what do you predict for 2024?
Over the last couple of years, there has been consolidation within the RIA space and then there has been broader adoption of technology solutions from the front office to the back. Going into 2024, I think there will be a focus on creating efficiencies in a business.

Even though Artificial Intelligence (AI) was a big topic of conversation last year, I am not seeing a lot of businesses out there that are completely changing with AI in wealth management. I am seeing businesses that are saying, ‘Hey, we are going to help you serve this particular client segment really well.’ Or ‘We know how to solve this one issue, and we can save you 30 minutes more every single day.’ I think that will be a focus. Also, this may be an unpopular thing to say, but I think that the focus on enhancement this next year will be more on the cost side and being efficient than it will be on the revenue side.

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