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Autopilot Investment? Wealthfront’s New Weapon – Wealth Tech Digest #3

Key takeaways

✅ Autopilot Investment? Wealthfront’s New Weapon

We start today with a look at Wealthfront, the California-based automated investment service founded in 2011. Wealthfront offers a cash account with a checking account feature, a Robo-advisory investment account, and a portfolio line of credit. Cash accounts come equipped with a .35 percent APY, early paycheck access, and a debit card. And they have recently announced the roll-out of an automation tool that moves user funds between additional in-app accounts. Named “Autopilot”, the new tool monitors a user’s Wealthfront cash account or third-party checking account for excess cash. It then automatically transfers the balance to their investment account. Users can now set Autopilot to transfer the cash to a wider range of accounts including Roth IRAs, traditional IRAs, and 529 College Savings Plans.

The goal of Wealthfront is to become a one-stop-shop for users’ financial needs. But other US Robo-advisors are beginning to offer a very similar set of wealth management tools. In fact, 59 percent of US consumers are using more fintech apps to manage money than before the pandemic. This means competition between digital wealth managers is becoming fierce. Some experts believe that the next step for Wealthfront should be the inclusion of an insurance marketplace. They may be able to stand out among the competition by adding access to an online marketplace where users can compare and access different insurance products. Insurance is often a large financial commitment for consumers, making this a sensible next-step in the Wealthfront arsenal of tools.

✅ ESG Investments: Do We Need Definitions?

Next we have an update from Nordea, the largest financial group in Northern Europe. They currently oversee about $425 billion dollars in assets, and they’ve just made a huge announcement. Their entire wealth and asset management business will soon exclude all investments that aren’t deemed sustainable. And this shift towards environmental, social, and governance goals (or ESGs) will be complete in as little as 5 years. Nordea says it is already very close, with about 70 percent of fourth-quarter flows tied to ESG goals. But their plan is to be 100 percent ESG in 5 to 10 years. ESG investments are growing, but questions remain about what constitutes a sustainable asset. Asset managers are increasingly focused on transition products.

These are companies that aren’t green yet, but that have committed to cleaning up their processes. Because of their stated commitment, they can be added to portfolios marked as sustainable. But some definitions here are so broad that even chemical shippers are included. And the “social” investments included in ESGs are even more difficult to delineate. Nordea is focused on investments in digital infrastructure for this category, but no definition has been made clear. Nordea’s commitment to ESGs is one key reason that its asset management soared in value at the end of last year. It recently closed a $7.4 billion dollar climate fund to new investors. But Nordea’s Stars funds has $12 billion in assets under management and remains open, with sustainable investments available. Issuance in sustainable assets will soar to more than $1 trillion dollars worldwide this year. And Nordea is on track to increase its ESG focus, even if the definitions of those investments aren’t particularly clear yet.

✅ Is Wealth Management Like A Navigation App?

Our final article today offers an interesting analogy for the future of wealth management. In it, Forbes author Anthony DeChellis likens the future of financial services to the Waze navigation app. Waze is a trusted resource for helping users get where they want to go. The app provides info on the best routes to get from point a to point b, taking into account real-time conditions like traffic and construction. And it provides this valuable service through a sleek and intuitive user interface.Waze does not replace human judgment or decision making. But it does use data to help take the guesswork out of traveling from one place to another. This navigation app provides a great metaphor for what the wealth management industry should be striving towards. When it comes to investments and wealth, there are many paths for people to take. But those paths vary widely based on time horizons, risk tolerance, and other factors.

Like Waze, financial services need to focus on getting clients where they want to go. Meaningful advisory relationships need to focus on client goals without concern for corporate sales goals or commissions. Imagine if Waze prioritized its advertisers and took every opportunity to route users out of their way to pass one of these sponsors. Such manipulation would defeat the purpose of the app and undermine users’ trust. Instead, Waze uses massive amounts of qualitative and quantitative data to provide actionable insights. And this is where financial services still have a long way to go. Empowering advisors with the right tools and analytics helps to deliver timely advice. Focus should be placed on preparing the next generation to effectively manage family wealth, businesses, and trusts. Yes, it is about dollars and cents. But it is also about mission, vision, and values. Winning wealth managers will use knowledge from tech leaders to deliver high-value advice. And technology will empower clients to get from point a to point b in their wealth trajectory with trust, ease, and efficiency.

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