When it comes to reports on disruption facing wealth management from big tech firms, it’s a tug of war.

Earlier in April, Cerulli Associates published an analysis that compliance concerns and investor preference would ward off Amazon and other big tech firms from entering wealth management.

But last September, a Capgemini report reached the opposite conclusion: It’s inevitable they will enter the space and grab high-net-worth clients, of whom 56.2% in a survey expressed interest in working with Google, Amazon, Apple, or Facebook.

With industry opinion split, observers suggest wealth management incumbents should examine how the grocery business and other industries are being upended by Amazon and its tech brethren and draw lessons from those experiences to make their practice more resilient and prepared for any revolution in wealth management.

“My take is that companies like the FAANGs (Facebook, Amazon, Apple, Netflix, and Google) will look at the wealth management opportunity differently too,” says Steve Dunn, innovation lead for F2 Strategy and founder of Itero Labs, a corporate innovation and digital advisory firm. “I think the pundits and wealth managers don’t see it through the eyes of the FAANGs.”

Where owner Jeff Bezos takes Amazon will have significant tax implications.
In a Capgemini survey, 56.2% of wealthy clients expressed interest in working with Google, Amazon, Apple, or Facebook. Bloomberg

Dunn says wealth managers should look at the grocery business as an analogous case study. When Amazon bought Whole Foods last year, some business pundits looked at the acquisition poorly, he says.

“But if you look at it through a business model lens, Amazon has AmazonFresh (the company’s own online grocery store). It’s been around for a decade, and it hasn’t quite worked out. Amazon continues to invest in it. The perishable nature of groceries restricts storage time and quality is impacted during transit. The challenges to scale for Amazon were clear,” says Dunn, citing Silicon Valley analyst Ben Thompson’s blog post on the purchase.

Thompson writes that Amazon’s Jeff Bezos saw the grocery business differently and looked at Whole Foods as the customer in the transaction, not a retail operation. Whole Foods would serve as the warehouse or the factory for Amazon and help the tech company scale its grocery business. This would be a similar setup for the manufacturers and third party merchants who use Amazon’s Prime and Fulfilled By Amazon services. As clients of Amazon, they give a cut to Amazon for each transaction.

Cerulli researchers however stood by their report. "I don't think [wealth management] is their most attractive opportunity," says Scott Smith, a director at Cerulli. "I don't think we can rule them out. But it doesn't seem the most appealing opportunity for them. There are too many regulations and it is a very splintered market."

That's not to say a tech giant can't get into wealth management elsewhere, Smith adds. "The return on investment for them seems greater if they expand their businesses in new countries and doing the same thing they do and not doing something different in this country. Why would they get into a market where services are already free?"

Still, other observers see avenues for tech giants even in the U.S. market.

“The 'we-built-it-here' attitude bogs down large global banks and enterprise wealth management firms. It’s simply the way they operate. They have huge IT departments. They are used to having everything in-house,” says April Rudin, founder and CEO of The Rudin Group, a global wealth marketing firm. “But in Silicon Valley, they approach things from a completely different point of view. Big tech firms become more of a distribution channel for products and services rather than thinking they have to originate everything. Amazon is not a manufacturer. They are a distribution platform.”

Rudin surmises that such firms may become the aggregators of wealth management businesses in the future, in much the same way Facebook, Twitter, and Google have co-opted the news business. Amazon or Facebook could conceivably have two types of customers, she says: retail clients who use the tech companies’ robo advisor that is a white label product from a fintech. The other customer could be incumbent wealth managers, who need access to customers.

Morgan Stanley, Fulfilled by Amazon, perhaps?

Rudin points out that Amazon is in discussions with big banks like JPMorgan Chase to offer checking accounts to its customers. Facebook has opened its Messenger platform to financial services’ chatbots. Charles Schwab and Fidelity have been added to Amazon’s Alexa.

“These partnerships make sense,” says Rudin. “These partnerships amplify brands, as well as gain new prospects. It shortens the client acquisition cycle.”

It's a matter of time before Amazon and other big techs enter wealth management, says Vikas Bansal, former principal at CAPCO and strategic advisor for FinTech Connector, a membership-based networking group for fintech entrepreneurs, business leaders and investors.

"Basically, these are broad trends," Bansal says. "They are already moving towards financial services, such as the payments space. It won't happen in the near future.
There are trends pointing towards that happening in the long-term."

But for incumbents who don’t want to be co-opted, Dunn says they need to take a page from tech companies’ playbook by providing superior user experience and allow third party developers through open infrastructure to create useful applications for their institution. Incumbents should also take seriously the work being done in innovation labs within their firm and actually integrate promising products from these labs, he adds.

“Incumbents are well-positioned. Existing wealth managers are well-positioned to fend off FAANGs,” says Dunn. “Incumbents still have a chance. They just have to think and act like the FAANGs."

Sharon Adarlo

Sharon Adarlo is a Financial Planning contributing writer. She has also written for the Wall Street Journal, Al Jazeera America and The Daily Beast. Most recently, she wrote about science and engineering for Princeton University.