Industry research
Scope
Europe
Companies
55
Table of contents
Key takeaways
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.
Company benchmarking
Market growth
Statista estimates that total AUM of robo-advisors in the EU-27 countries will equal ~€122.2bn in 2023 and projects it to reach ~€164.0bn by 2027, registering a ~7.6% CAGR (Statista, October 2022)
The European neobrokers segment is anticipated to yield ~€107.1bn AUM in 2023, growing at a ~5.0% CAGR to reach ~€130.2bn by 2027 (Statista, August 2022)
Positive drivers
Increasing total addressable market driven by the Great Wealth Transfer and democratisation of finance. Firstly, baby boomers are expected to transfer ~$30tn in wealth to younger generations more willing to use digital tools (Surf, January 2023; The Fintech Times, September 2022; Forbes, November 2019). Secondly, the greater convenience and affordability of digital brokerage apps will attract novice investors (Sifted, October 2021)
Ongoing consolidation of the wealth management industry will boost demand for the front- and back-office automation segment. Specifically, larger wealth managers with sufficient AUM are more likely to make radical changes and invest in innovations that make internal processes more efficient (interviews by Gain.pro; KPMG, August 2021)
Rising complexity of IT landscapes forces the sell-side (i.e. banks) to implement cost-cutting measures, thereby favouring the outsourcing of non-core administrative tasks. This is expected to further fuel the demand for automation tools in the wealth management space (interviews by Gain.pro)
Negative drivers
Aggressive competition and R&D requirements will keep pressuring cash-generative capacity. As customer acquisition costs continue to crawl up, major robo-advisors and trading platforms continue to spend heavily on marketing (CNBC, January 2022). Paired with limited product differentiation and continuous R&D investments, identified players are projected to continue their cash-burning trajectories into the foreseeable future
Personnel shortages across all market segments are expected to cap organic growth and pressure bottom-line margins, with incumbents being forced to spread development teams across countries to get access to a larger talent pool (interviews by Gain.pro)
Increasing regulatory requirements for financial institutions are limiting automation potential, therefore curbing the growth of automation specialists (interview by Gain.pro). Furthermore, digital brokers may also be harmed by potential regulations, for example relating to payment for order flow (i.e. digital brokers selling trading data to market participants; Sifted, October 2021)
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With the full report, you’ll gain access to:
Detailed assessments of the market outlook
Insights from c-suite industry executives
A clear overview of all active investors in the industry
An in-depth look into 55 private companies, incl. financials, ownership details and more.
A view on all 227 deals in the industry
ESG assessments with highlighted ESG outperformers
