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A Roadmap for WealthTech | money management

Lion’s share of technology coverage Focuses on the daily iterations of technology relevant to financial advisors and money managers—as well as it should.

While this focus does a great job of keeping track of what’s new, it is a short-sighted view of how broader society is progressing when it comes to innovations in money management.

For this year’s annual technology issue, we did something a little different. We reached out to top-notch thinkers in academia and think tanks who are themselves tracking or working on issues of wealth creation, management and conservation.

We each asked the same question: where will money management technology be in mid-century five years from now and in 2050? Which aspects of this are going to have the most profound impact on the industry and how will it grow?

“Competition and technology have democratized investment and reduced costs, which are very positive developments for the individual investor,” said Burton G. Malkiel, emeritus professor of economics at Princeton University in New Jersey.

“In the wealth management business, we see that the absolute transformation we have seen in the mutual fund industry is happening,” he said of the drastic reduction in costs over the years.

“Property managers previously charged one to three percentage points of the amount managed, which had large minimum fees and while many needed advice, it was too expensive,” Malkiel said.

“The wealth and wellbeing of the world is its beginning and not the end; we will see a lot of hybrid models,” he said of the two automated investment and financial firms, noting how the firms offered many features that only ever existed before. These include international diversification and a variety of assets that are not fully correlated with each other, as well as tax management, rebalancing and now direct indexing, all at comparatively lower costs. .

In the longer term, looking to 2050, Malkiel, now 89, said he couldn’t be so specific. “What I’m seeing is a drastic compression of fees. I can’t tell you what the technological innovations will be like, but I’m sure there will be more clever ways for people to save—not many people ready for retirement.” are,” he said.

“What you will continue to see is that fintech will replace legacy institutions, and they are probably more likely to buy the technology than to build themselves. The resilience of a young startup that is willing to take risks is Where a lot of innovation will keep coming,” said Malkiel, who is currently working on the 50th anniversary edition of his bestselling book on investing, A Random Walk Down Wall StreetFirst published in 1973.

Aspen Institute’s Karen Biddle Andres says the data will spur innovation in the near term and in the future.

“On the money side, I think what we’re going to see is convergence,” she said. Andres is director of policy and market solutions at the institute and project director of the Retirement Savings Initiative.

“Wealth management will become indistinguishable from financial management,” meaning the end of tacit data and decision-making, and the next dollar of financial decisions in terms of spending and debt reduction to promote long-term investment strategies and better lives. Collecting data to automate- time results.

While existing firms in the industry have worked toward solving these problems for the wealthy over the years, for the affluent and the mass market at large, debt is probably the single biggest factor determining financial outcomes, including students. loans and auto loans, which she said are at an all-time high and rising.

Andres said, “If you step back and think about how you’re going to close the regional, racial, generational wealth gap, that means a wide range of tools to help everyone build wealth.” To make access more democratic.”

“We have 45 million people” [in the U.S.] who do not have access to a retirement plan and another 45 million who have access to one but do not use it,” she said.

“We are at the beginning of seeing how blockchain technology can help with this,” she said, adding that there is an immediate use case for the technology.

“Transfer money across borders. A world where that transactional friction is brought down to zero,” she said, is one means by which technology can free up huge potential savings for a section of the population.

Andres added, “There are also talks about how distributed ledgers can help record keepers, whether by tracking ownership of accounts and reducing costs, increasing speed and making data more real-time and accessible. I want to help.”

“I think in 2050 we will have used better user experience and personalization to close part of the gap, and this will have a huge impact on next dollar savings, emergency savings, loans and retirement savings,” she said.

Scott, director of the retirement savings project for The Pew Charitable Trusts, singles out the integration of different sources of data as a key development. He envisions something along the lines of a typical advisor’s account aggregation service, but on steroids and available to everyone, including an investor’s advisor, if they have one.

“In my own little retirement world, for example, we know that when people quit, there’s a lot of retirement money left over, and the system hasn’t done a good job of keeping track of that,” he said. Referring to orphaned 401(k) and IRA accounts.

A step in this direction, he points out, is already well underway with the ongoing development of the Pension Dashboard program in the United Kingdom. The UK government estimates that people will have an average of 11 jobs over the course of their careers – and this will likely mean 11 different pension accounts. A version of such a dashboard, first convened by the UK government’s Financial Conduct Authority in 2016, could be fielded for evaluation by early adopters later this year.

“It’s one of the promising things I can see happening [here]But it may require some regulatory support to make it fully functional,” he said.

Part of the work that is being done in the UK is the plumbing needed to offer accounts with a basic dashboard available from the government, while still allowing providers to build a robust framework on top of which they can build their own accounts. Features can be created. Capitalize, a startup based here in the United States, estimates, using data from the Center for Retirement Research and others, that 24.3 million forgotten 401(k)s had $1.35 trillion in assets in 2021, including An additional 2.8 million accounts were left. Behind the job changers every year

Beyond the topic of substantial savings, Scott said researchers will have to apply advanced technology to favor the fallout of retirement.

“There are a host of complicated decisions to make on the decumulation side, from when a couple should start taking Social Security, to predicting health care costs and long-term care needs and income requirements – these are the right problems for artificial intelligence to solve. for,” Scott said.

“I think it will be better sooner rather than later, because many employers today want to help put their older workers out of work,” Scott said, adding that another growth to see is the impact on the industry. This is when the DOL issues its final mandate. Lifetime income disclosure is required on the retirement account statement.

Massachusetts Institute of Technology EdgeLab director Joseph F. Coughlin said the future of wealth management has to go beyond just questions about money.

“The tech world is really good at clicks and efficiency, but not quite as great with engagement, which goes deeper; It’s emotional and that’s where technology has to go,” he said, noting that a slider telling you you’ll need X number of dollars in retirement is absolutely valuable; but anticipating old age, planning. A new approach is needed to create and prepare.

EdgeLab is exploring the types of services that will be desired by an aging population and their families and care providers. Unlike previous generations, Coughlin said, we have entered an era where retirement is now likely to comprise a third of a person’s adult life.

“Building a client’s portfolio is the price of entry, but going beyond what we call longevity planning helps the client plan for the rest of their life,” he said.

“And this is why the future of AI and Deep Machine Learning enables consultants to better imagine what life can become for their clients and gives advisors the ability to have deep conversations,” he said.

Coughlin elaborates on understanding this change in lifespan The Longevity Economy: Unraveling the World’s Fastest Growing, Most Misunderstood MarketPublished in 2017.

“The last generation, Gen X, and especially the younger generation, are omnivores of mentoring, who have grown up knowing what to expect,” Coughlin said, noting that a lot of mentoring funds are AI-enabled. Let’s look at Management Tools. There is a danger, but that is that better people will see these advances in the frame of how much they can do to help advisors continue to help their clients well into the future.

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