Investments in wealth technology (wealthtech) saw a significant increase last year, with 300 deals finalized in 2023, as reported by F2 Strategy, a wealthtech consulting firm. This marked a notable surge compared to 181 deals in 2018, 203 deals in 2019, and 205 deals in 2020, as highlighted in the firm’s recent report on 2023 wealthtech trends.
Doug Fritz, the co-founder and CEO of F2 Strategy, emphasized the ongoing evolution within the industry, stating, “In our ever-evolving industry, the dynamics of growth and change persist.” Despite initial expectations of a slower year in 2023, the findings suggest otherwise, hinting at an imminent acceleration in growth for 2024.
According to insights from investment bank Echelon Partners, the uptick in wealthtech deal volume by 8.3 percent compared to 2022 was primarily attributed to companies prioritizing the future-proofing of technology and the development of comprehensive end-to-end platforms.
F2 Strategy conducts periodic surveys involving approximately 85 CEOs, CTOs, and other C-suite executives or decision-makers in the wealth and asset management sector. While the specific members of this exclusive group remain undisclosed, the combined assets under management of these companies exceed $61 trillion.
Beyond mergers and acquisitions (M&A), other facets of wealthtech experienced growth in the past year. Over 50 percent of wealth management firms expanded their technology teams, underscoring a heightened interest and investment in enhancing technological capabilities. Furthermore, 77 percent of these firms integrated new technology into their tech infrastructure.
The adoption of artificial intelligence (AI) garnered significant attention among wealth management firms, with 51 percent actively engaged in AI projects focusing on predictive analytics, optical character recognition, workflow automation, natural language processes, and chatbots. Moreover, 70 percent of surveyed firms enhanced their data architecture and governance in 2023, reflecting a 20 percentage point increase from the previous year.
Despite the enthusiasm for AI, the widespread implementation of generative AI technology remains limited. Prominent wealthtech investor Adam Hallquist of FTV Capital noted the absence of any wealthtech company reaching a maturity stage necessitating substantial investment in generative AI.
F2 Strategy attributed the sluggish progress in AI investment and expansion to factors like budget constraints, data quality issues, and competing priorities. The firm anticipates a shift from exploratory AI projects to more advanced initiatives, acknowledging that while some may fail, others will yield significant benefits.
Education emerges as a critical area for improvement, with 62 percent of wealth management firms rating their knowledge of AI at a modest level of 5 or below on a scale of 1 to 10, as per the report’s findings.
