The European WealthTech market comprises companies that develop, maintain and market digital tools specifically developed for Independent Financial Advisors (IFAs), financial institutions and retail investors. These tools address the full wealth management process from client acquisition and asset allocation to investment administration and customer service. We segmented the market into: (i) robo-advisory, (ii) wrap platforms, (iii) trading & investment platforms and (iv) front- & back-office automation.
The European market has a fragmented nature and is comprised of WealthTech specialists as well as traditional banks, wealth and asset managers and IFAs. So far, no pan-European champion has emerged due to differing regulations and investor characteristics across local markets. We expect the market to continue its consolidating trajectory going forward, mainly driven by buy-and-build activities of strategics acquiring wealth management specialists (e.g. JP Morgan Chase acquiring robo-advisor Nutmeg in 2021). Sponsor-led interest has been significant, with ~67% of identified assets being backed by financial sponsors (February 2023). Particularly, the robo-advisory segment has attracted the most interest from PE (~83% of assets being PE-backed). Investors bet on promising growth forecasts driven by incremental consumer adoption and high-return exit possibilities upon further market consolidation. However, the ongoing need for R&D in order to remain competitive, structural talent shortages and the unclear path towards profitability should be taken into consideration. Relevant ESG topics mainly revolve around potential social issues. Digital brokers and robo-advisors play a key role in providing investment opportunities to novice (retail) investors. However, such empowerment must be matched with cautious training and education, as the misuse of new FinTech platforms could trigger crippling financial losses for end-users. Furthermore, brokers indirectly contribute to environmental causes through the promotion of sustainable investing.