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Best practices to select a WealthTech

Exclusive article from Pierre Dupont, Managing Partner at WIZE by TeamWork, which aims to share some best practices to select the right WealthTech solution.

FinTech or WealthTech are the new buzz words in the Wealth Management Industry. Today, if you manage assets without relying on a WealthTech using AI (Artificial Intelligence) and connected with API (Application Program Interface), you cannot be taken seriously since you are old fashioned…

Such new buzz words appear every decade: virtualisation, e-business, cloud, …, have often been new words to describe existing technologies continuously evolving. They also testimony a major and inevitable trend in our society and in finance in general: digitalisation.

Banks were the first to adopt computers more than 50 years ago and have since then continuously invested in IT to increase their level of automation generating more profit and lowering their operational risks.

Regulators, like FINMA in Switzerland or CSSF in Luxembourg, also understand that IT can help them achieve their mission. A good example is the recent Swiss law on the Financial Services Act (FinSA) also called LSFin, FIDLEG or LSerFi depending on the language used. This law, inspired by the European equivalent MiFID II, aims at protecting investors by imposing financial intermediaries to perform pre-trade checks on appropriateness (knowledge & experience) and suitability (risk) based on a prior classification and profiling of each of their clients.

Each Swiss External Asset Manager (EAM) has the obligation to go through an extensive application process to get the required authorisation. Even if, in theory, performing the mandatory pre-trade checks could be done without dedicated tools, it is highly probable that EAM’s will have to implement an external solution to operate efficiently and receive their licence.

Nearly 2’000 EAMs confirmed to the FINMA their intention to apply to get the licence by committing to operate in line with FinSA regulations by 1st January 2023. Experts estimate that around 700 EAMs did not apply and many will give up during the application process due to too many questions received by the FINMA therefore leading to an important consolidation of players in this industry. As a consequence, this new regulation generated a massive demand on the Swiss WealthTech market by EAMs often not used to select IT tools.

No matter your location, this article aims at sharing some best practices to select the right solution since it will become the EAM’s core IT system for many years, reason why it is crucial to take the necessary time to select the right solution since there is no “one solution fit all”. Here is therefore a suggested list of to do’s or questions to ask to the different suppliers:

1. Are you profitable?

Many WealthTech companies are not profitable and this is very important to know before making a long-term choice. Developing a new solution is indeed extremely capital intensive since there is a big upfront cost to finance developers during multiple years before onboarding enough clients to reach breakeven.

Very interestingly, some software companies do not have a business plan where they intend to become profitable. It is indeed very common in this industry to apply very low prices to gain the biggest possible market share before making a cash event by either selling the WealthTech company to a bigger player which will force clients to migrate to their system or selling to a Private Equity firm which will optimize profitability by often increasing pricing and making cost savings on support and development.

2. Who are your shareholders?

The first point above on profitability naturally leads to this question.

EAMs remain small companies led by entrepreneurs. They will therefore feel comfortable being in front of likeminded suppliers, particularly if they share long term relationship vision and goals.

Nevertheless, since all WealthTech companies need to finance their launch and growth, many of them often raise capital from external shareholders. A new trend recently appeared in Switzerland with some EAMs and Private Banks entering in the capital of WealthTech companies.

If this can be perceived as a non-event, it is crucial to know that a vast majority of EAMs will select a solution after discussing with other EAMs or with their custodian Private Banks. The risk of conflict of interest in the advice and feedbacks they will receive is therefore very high and must be addressed.

3. How many years of existence and employees?

WealthTech companies can be bizarre animals: if they are too young, there is a risk they are unmature, unprofitable, with not enough functionalities and therefore a risky choice in terms of long term sustainability. On the contrary, the eldest ones may have a mature functional scope and team, are often profitable but may have a legacy system with older technology refraining them to easily adapt to the latest trends in terms of connectivity and user experience.

The youngest WealthTech may therefore have the most attractive bodyshell since their “look & feel” seems attractive while older ones often have a much more powerful engine.

Knowing since how many years the development of the solution started and how many full-time equivalent employees are employed by the WealthTech will give you precious information to compare competitors.

4. How many reference clients like me do you have and where?

Vendors may have thousands of users within hundreds of clients in dozens of jurisdictions which can be good for their sustainability. This information is of course interesting to know but the most important is how many clients like you the WealthTech has in your region to make sure you perfectly fit into its core business and market.

You will therefore ask a few reference clients with the same characteristics as you to perform reference calls that are crucial to share experience and collect additional information on each competitor. Remember you are going to make a long-term choice and these reference calls will be an additional important element to feel in good hands with the selected WealthTech since you will be collaborating with the company for many years to come. Migrations of systems are always a painful exercise that you will tend to avoid as much as possible.

5. Where is development and support located?

This is one of the key elements to take into consideration since Wealth Management requires an extensive knowledge of banking operations. Nearshoring or Offshoring of development or support functions can make sense to offer extended support hours particularly useful for daily reconciliations of data for which you will still need to enquire on the WealthTech language coverage.

Your focus will need to be on development employees of the WealthTech. Many companies have brilliant IT engineers is Eastern Europe or Asia with very good expertise in latest technologies but unfortunately dramatically lacking knowledge of banking operations which is essential to develop functionalities related to your core business. This will therefore be an important element to take into account.


Pierre Dupont, Managing Partner at WIZE by TeamWork


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