Brace for fintech war against banks, wealth managers told

From robo advisors to online banking apps, the advance of fintech has generally been considered a win for clients as they enjoy unprecedented convenience in their financial transactions. But the benefit isn’t so clear for banks and wealth managers, who will end up having to compete for customers’ dollars.

That was the fearless forecast of Barron’s contributor Steve Lockshin, who said that banks will soon be using robo-technology, aggregation tools, AI, and other fintech to try and wrest customer assets away from financial advisors and brokers.

“Many players will get a late start and, thus, are likely to be left behind. But the winners will … eviscerate advisors without the means to invest in similar technology,” he said.

Wealth managers such as Goldman Sachs have been adding banking-customer assets with online savings, loan products, and other solutions. But Lockshin predicted that commercial banks will fight back, with an aim to acquire billions of dollars sitting in brokerage accounts.

“The best positioned wealth managers for this coming era of competition are likely firms like Morgan Stanley, Merrill Lynch and JPMorgan,” he said. Aside from offering banking, credit-card, loan, and wealth advisory products, they also have robo platforms and widely recognized brands.

But many firms, including independent advisors, are exposed to potential danger. Bank-acquired fintechs can make a grab for wealth-management assets, particularly as “open banking” data sharing rules gather momentum across the world. The rules, which compel financial institutions to divulge a customer’s data to rivals upon his or her request, have been implemented in Europe and Australia.

Lockshin also predicted that open banking will reach the US in time. Financial firms in the country have traditionally been able to wall clients in with closed data systems and friction in moving accounts — both of which will be massively eroded with the arrival of open banking.

Earlier this year, the Canadian government set up an Advisory Committee on Open Banking. The four-person group has been charged with parsing the results of a broad consultation with stakeholders on the potential merits of such a measure. While the government believes it will give rise to more tailored financial products and services, the Canadian Bankers Association has warned that letting third parties access customer data could “give rise to contagion, reputational and other types of risks with broad-ranging consequences.”

“Between technological innovation, banks’ eternal search for cheap assets, and the government-mandated democratization of information, a challenge to the wealth management industry’s assets is taking form,” Lockshin said.

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