If financial advisers aren’t already paying attention to the ways in which traditional retailers are wedging into financial services, they should be, and they should be concerned, according to a new report from consulting firm Celent.
The best example of the trend can be seen at Walmart. The nation’s largest private employer and biggest grocer is leveraging its size and new technology to build deeper relationships with its more than 100 million weekly shoppers in the U.S.
The retailer’s new digital programs, called Even and One, might appear innocuous, offering consumers an app to help with banking and budgeting on their phones, but the “embedded finance” is seen as a move toward wealth management.
While financial advisers may shrug off what might seem like scrambling for entry-level clients roaming the aisles of Walmart, the point is the way that consumer-facing companies are using financial technology to innovate in a space that’s no longer exclusively owned by the wealth management industry.
Jean Sullivan, Celent’s head of wealth management, said fintech’s next stage of evolution is toward “embedded wealth management.”
Financial advisers need to pay attention and model their fintech strategies around the way the giant retailers are helping consumers link all their various shopping, banking, investing and rewards accounts, Sullivan said. “As a financial adviser, you want to know where all your clients’ accounts are.”
Celent defines embedded finance as a model in which consumers can acquire financial services products such as banking, investing and insurance at the point of need, curated by a third-party provider. The consulting firm defines embedded wealth management as the discovery and acquisition of tailored wealth products and services at the point of need within the digital experience, curated by a third party. This includes trading, investing, financial planning and other components of the wealth management stack.
Embedded finance is reshaping the way customers engage with financial products and expanding the distribution of tools and services that banks, insurance companies and wealth managers offer, Sullivan said.
“It is an important emerging trend that will have significant influence on the delivery of financial services over the next few years, potentially disrupting existing distribution models,” she said.
In addition to enabling advisers to develop technologically deeper relationships with clients, Sullivan said embedded wealth also has the potential to expand the reach of wealth management.
“Embedded wealth reaches all demographics, but it also provides low-cost access to the underinvested, underbanked segment of the market,” she said. “It democratizes wealth management. And as this happens, wealth distribution becomes more decentralized and financial relationships become increasingly fragmented. An individual’s wealth may be sprinkled across the industry based on what apps they use.”
Even as Sullivan advises a wider embrace of embedded wealth technologies, she admits it will take effort and there are potential pitfalls.
In terms of opportunities, she lists rapid acquisition of new clients, new revenue streams, lower client acquisition costs and brand building. The tradeoff, however, is the introduction of risks, including third-party conduct risk, the loss of customer engagement, the loss of access to client data, and brand dilution.
“In addition to understanding the benefits and risks of embedded finance, wealth management providers must understand the landscape, evaluate potential partners and business models, and develop a cogent approach to this emerging trend,” Sullivan said. “This is a trend. It won’t just influence one segment of the population; it will influence the entire population.”
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.