Can Fintech Startups Replace Typical Financial Advisors?

Financial technology, popularly Fintech, has been around since 2008. But it’s only in the last couple of years that the once fledgeling offshoot of the banking industry finally came into its own. Fintech, in 2017, has largely evolved as an umbrella term that includes all types of companies operating in asset management, payment, insurance, lending and even banking. Regardless of the business, fintech companies have a common agenda: a niche strategy. They are slowly taking over the small pieces of the finance industry, eating into what your financial advisor, bank, and the mutual fund does.

The rise of fintech

People working in the financial services domain were confident that heavy regulations and complex laws would prevent the internet from affecting their business. Soon after the dotcom bubble burst in 2008–09, there were only a handful of fintech startups in the industry. The banks never bothered. They took time in embracing the change that the internet had forged. Traditional firms didn’t understand the importance of new technology, fintech ideas, and good timing. They never anticipated that demanding millennials and agile strategies would usher in the current revolution in fintech.

Fueling the demand

Tech-savvy millennials are now the largest demographic section in the US and UK and have been the biggest patron of fintech. According to industry figures, millennials hold about $1 trillion in wealth with only $250 billion invested. Over the past several years, venture capitalists have poured in $11.4 billion in technology-driven asset management businesses that they believe will be popular among millennials. These include AI bots like Claire, and robo-advisers that offer automated, low-cost online investment solutions and other businesses that offer a far cheaper option to trade and invest, cutting out humans in favor of technology.

Versus traditional advisors

A greater part of the financial advisor community is questioning whether fintech would be a boon to their trade or a rival. A recent survey revealed that globally more than 3,000 chartered financial analysts are worried that conventional asset management faces the biggest threat of disruption from fintech. It is followed by the banking, insurance, and securities sector. But at the same time, advisors are largely treating fintech both as a probable threat and a potential opportunity. However, the impact of fintech on advisors will depend on the particular industry they are working in.

The future of fintech is bright. While it may not entirely take over the human involvement in financial advisory services, the technology is certainly expected to mature by 2020. In fact, the very premise of whether fintech will replace the traditional financial advisor could be wrong. Both will continue to grow in their respective spaces. While advisors have to adopt the technology, fintech companies have to add more human capital to their operations. It’s after all the human mind that will drive technology. Let’s not forget, conventional advisors are plying their trade because they are earning, while fintech has just begun to make its presence felt.

Neither competition nor replacement is the correct word here. Collaboration and coexistence should be the formula here to ensure a healthy growth for all stakeholders.

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