Investments in wealthtech continued to climb last year, with 300 deals completed in 2023, according to wealthtech consulting firm F2 Strategy. Comparatively, only 181 deals were completed in 2018, 203 deals in 2019, and 205 deals in 2020, the company wrote in a new report on 2023 wealthtech trends.
“In our ever-evolving industry, the dynamics of growth and change persist,” said Doug Fritz, co-founder and CEO of F2 Strategy, in a statement. “While initial perceptions pegged 2023 as a potentially slow year, our findings suggest otherwise. Reflecting on the past, it appears that we are on the brink of accelerated growth in 2024.”
According to investment bank Echelon Partners, many companies were driven by the need to future-proof technology and develop comprehensive end-to-end platforms, which led to an 8.3 percent increase in wealthtech deal volume compared with 2022.
F2 Strategy periodically surveys a working group of about 85 wealth and asset management CEOs, CTOs, and other C-suite executives or decision makers. The consulting firm does not disclose specific members of the invitation-only group but says the companies collectively manage more than $61 trillion in assets.
M&A was not the only aspect of wealthtech that grew last year.
More than 50 percent of wealth management firms also increased their technology operations’ headcount last year, a concrete sign that more companies are interested and invested in increasing their technology output.
Additionally, 77 percent of wealth management firms incorporated new technology into their tech stack.
Artificial intelligence was on the minds of most wealth management firms last year. According to F2, 51 percent of firms are currently working on AI projects, with a focus on predictive analytics, optical character recognition, workflow automation, natural language processes, and chatbots.
In fact, 70 percent of the firms surveyed improved their data architecture and governance in 2023, a 20 percentage point increase from the 50 percent of firms that said in 2022 they wanted to make data architecture a priority.
“This is a good sign as data sets the stage for success in all other areas of technology implementation from AI to reporting to marketing automation,” wrote F2 Strategy.
However, despite the interest in AI, very few firms have been able to successfully incorporate generative AI technology on a large scale.
FTV Capital’s Adam Hallquist, a prominent wealthtech investor, told RIA Intel in December that while he thinks there will definitely be use cases for generative AI in the future, no wealthtech company has reached a maturity stage that would require significant investment from a PE firm like FTV Capital.
F2 Strategy puts down the lack of rapid investment and expansion in AI technology to factors such as budget constraints, issues with data quality, and competing priorities.
“To date, the impact of AI projects has been small and exploratory,” the consulting firm stated in the report. “This year they will expand beyond these first experiments. As the industry implements more advanced AI projects, we expect that some will fail, and some will pay off.”
One area of improvement most firms will need to undertake is education. According to the report, 62 percent of wealth management firms rated themselves a 5 or less on a scale of 1 to 10 on their knowledge of AI.