2023 showed the private banking sector that even the big boys needs to watch out, as the UBS–Credit Suisse merger showed. Does that mean 2024 will see a turn towards wealthtech for success and stability?
Adam Hallquist, growth equity investor at FTV Capital, believes that this year could be the one for wealthtech. Speaking to PBI, he explains the potential of wealth in 2024 and how the sky is the limit.
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Patrick Brusnahan: Every year, PBI is bombarded with emails about wealthtech and how next year is their year. Is 2024 actually going to be the year for wealthtech?
Adam Hallquist: On some aspects, I agree because wealthtech has a lot of solutions that are single-point solutions. There’s not a lot of platforms that can provide a more comprehensive set of solutions to companies.
I think changes can be tougher to implement due to regulatory restrictions or due to users that are less willing to adapt or change their technology on a regular basis because it can be so disruptive.
There are some exciting things happening, but it is more of an evolution than a revolution in wealthtech at the moment.
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By GlobalDataYou say there are quite a few firms that do one thing well, does that mean there is consolidation ahead?
I definitely think that there’s a big opportunity to do that. Coming at it the right way and doing it at the right time is key.
For some of these businesses, it is important to look at how many advisers are there in the US and which ones can you sell to? Where do you start? Where is a good size and stage for you to look at a partner to extend out what you’re doing.
For some companies, that is in the single digit millions in revenue. That should work for an acquirer, and it’s very rare for companies to hit 30-40 million in revenue. When they do, that is a signifier that they are more the central platform.
Those businesses end up being good acquirers of the smaller businesses, because they have the relationship as the central business tools for advisers.
What’s the biggest trend we should be looking out for in 2024?
People are going to focus a lot this year on really dialling in how they think about the unit economics, quality of revenue and the ultimate scalability of something. I know that is not one thing, but it is all connected.
Some ideas that have been really hot in the past, take robo-advising, we were all going to move to passive funds automatically allocated by robo-advisers. What did come about in that industry was once people got above $100,000 they wanted to talk to someone. That started more of an approach of “let’s look at how we can help the advisor allocate these accounts”.
Those robo companies got huge valuations because there was an assumption of, here’s the amount of assets that have been invested ever and let’s go after that whole group. In reality, if you looked at the economics and the exact target customer base, the asset base was quite a bit smaller than that, and I think there’s a lot of that logic to be applied.
In the US, there’s roughly 300,000 financial advisers. In the UK, it’s closer to 65 or 70,000, but my knowledge may be dated. When you go out and sell those solutions to advisers, these advisers are also different types of advisers in different places. And their needs are different. You have to be very thoughtful about what pockets of advisers will buy your solution.
There is just more scrutiny on investment costs, because burning capital is just a lot more expensive now than it was a couple years ago.
