AI Boosts Wealth Management Startup Funding

Alpha
December 10, 2024

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AI Boosts Wealth Management Startup Funding

The wealth management industry is undergoing a significant transformation driven by AI and fintech. This has resulted in a surge of funding this year for startups providing innovative tech solutions to both clients and advisors. Traditionally, wealth management services were only available to the ultra-wealthy who could afford to hire financial advisors and invest in private funds. But a growing trend of startups is democratizing the sector by making these services accessible to a wider audience.

AI Powered Funding Surge

Investors are recognizing the potential of AI and fintech in the wealth management space. Crunchbase figures suggest that in 2024, seed- to growth-stage investment in wealth management startups has tripled y-o-y to nearly $1.8B. That includes some big US rounds like Human Interest’s $267M Series E and Farther’s $72M Series C.

A key reason for this shift is the rise of AI in the sector. AI-powered platforms can automate many of the tasks that were previously performed by human advisors, such as portfolio management, risk assessment, and financial planning. This makes it possible to offer these services at a lower cost, making them affordable for more people and to expand access to private funds, estate planning, and tax-minimizing investment vehicles. These companies are using AI and fintech in various ways, from automating back-office tasks to providing personalized investment advice,

A Wipro survey of 100 US wealth management executives reveals that firms are expected to more than double their AI budgets over the next 3-5 years, from 16% to 37% of IT spending as they seek to deliver more personalized services and deeper insights. Those who have adopted AI extensively already report significant benefits, with 73% experiencing a competitive advantage and 77% see it as crucial for improving decision-making through predictive analytics and enhancing operational efficiency. Key areas of efficiency include risk management and research and analysis.

Another factor contributing to this trend is the increasing complexity of the financial landscape which is undergoing a digital transformation with the emergence of Web3 and fintech. Investors are now faced with a wider range of investment options than ever before, including cryptocurrencies, private equity, and tokenized real-world assets. Fintech and Web3 platforms can also help investors better navigate this complex landscape by providing personalized recommendations and insights.

Wealth Management Startup Funding

California startup Arta Finance provides access to top-tier VC and PE funds, personalized investment themes, and tax-advantaged strategies. It is targeting accredited investors in the U.S., a group estimated to be over 24M strong and has raised well over $90M over three rounds including a round in September 2024.

New York fintech startup Yieldstreet’s platform provides access to income-producing debt funds and private investments. It has raised a massive $294.7M over nine rounds including a $66.2M round in Feb 2024.

SF-based Farther is a technology platform for investment advisers – combining expert advisors with cutting-edge tech to deliver an efficient, comprehensive, and elite client experience catered to high-net-worth professionals. In October it closed a $72M Series C round Co-led by CapitalG and Viewpoint Ventures.

Virginia startup Range aims to replace traditional financial advisors with an AI-powered engine called Rai. Services include investment management, tax planning, estate planning, and retirement planning at a fraction of the cost of human advisors. It just raised a $28M Series led by Cathay Innovation, with participation from Google's AI-focused venture fund, Gradient, which also led its $12M Series A in 2023.

Looking Ahead

Despite challenges like the lack of clear regulatory guidelines for AI in finance and a lack of transparency, the future of wealth management is undeniably intertwined with AI. As the technology continues to evolve and wealth management firms increase their AI spends, we can expect to see even more innovative solutions emerge, making wealth management more accessible, efficient, and personalized for everyone.

“Technology is finally getting to the point that you can take many of these financial superpowers and open them up to more people.”

— Caesar Sengupta, co-founder and CEO of Arta Finance

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