Private companies in the wealth management industry are beginning to chip away at barriers to entry for lower-income consumers. From promoting financial literacy to lowering fees, we take a look at how wealth tech companies are making the space more accessible.
Wealth management services have historically been limited to high-income customers. High minimum account balances and fees often prevent many from entering the market. But with the global middle class expected to reach 4.9B people by 2030, wealth tech companies have a huge incentive to make their services more accessible to other income groups.
Startups in the space are increasingly targeting millennials, the emerging middle class, and the larger underserved market, which also includes:
- the unbanked
- the underbanked
- the gig economy
- the self-employed
- the lower-middle class
- minority groups
One of the most well-known wealth management companies is Robinhood, which focuses on making trading accessible to customers between the ages of 18 and 29. Others, like Warren and Finhabits, aim to bring minority and low-income consumers into the investment landscape.
Prioritizing relationships with consumers ahead of wealth generation not only helps the underserved build financial literacy and wellness — it could also boost future client retention for wealth tech companies.
Using CB Insights data and our Wealth Tech Collection, we identified 3 ways wealth management is addressing the underserved market.
1. Wealth management increasingly focuses on financial literacy to transform investing habits
Wealth tech companies are providing platforms to help users improve their financial health by building good investing habits over time.
For example, Warren wants to redefine the investment landscape in Brazil by allowing anyone to invest in sophisticated products regardless of their level of financial expertise. Its business model focuses on two challenges in the industry today:
- Conflict of interest – advisors and account managers are commissioned by products and don’t always provide the best one for a client.
- The investment experience – people today rely on outdated banking interfaces that have poor customer experience.
Warren charges a flat fee on assets under management (AUM) without any commissions or hidden fees. This contrasts with the typical Brazilian registered investment advisor (RIA) model, where a company receives profit from product sales rather than portfolio performance. Despite Covid-19 and the Brazilian financial crisis, Warren doubled the size of its AUM, securing R$2B ($372M) in AUM and reaching 130K clients after 3 years in operation.
Similarly, Canada-based personal finance platform Wingocard aims to empower teens to take control of their personal finances by developing financial literacy from a young age. The company is launching a mobile banking app and debit card that allow parents to transfer money to their teens and keep track of their spending. Wingocard recently raised $2M in seed funding.
Incumbents are also becoming more aware of the importance of financial literacy and financial independence, and they are making moves to address these issues.