Fintech (financial technology) has come a long way since its development for back-end technology to support established financial institutions – by Zak Boca, CEO, AltExchange
Today, fintech has completely revolutionized the financial services industry, engaging a whole new generation of DIY investors and arming investors with endless tools to participate in markets that previously required much more resources, and knowledge.
Fintech’s democratization of financial services
One of the most valuable aspects of fintech is the fact that it has helped democratize the financial services industry. Investing through a financial advisor at a major institution typically requires a portfolio minimum, ranging from $5,000 on the low end, up to millions of dollars on the higher end. In addition, investors using advisors via traditional institutions have to pay a management fee. A typical financial advisor fee is about 1% of assets under management (AUM).
No account minimums: For most online investing platforms, there is no account minimum. You can open an investment account online for $0. Portfolio minimums aside, investing itself has become more affordable as well.
Fractional share offerings: Most major online investing platforms offer fractional share ownership of investments, meaning if you have only one dollar to invest, you can still buy just one dollar worth of a share of stock.
No management fee: And last but not least, if you’re a DIY investor, there is no management fee. You’re in charge of managing your own money, and it’s entirely yours to keep. Additionally, through tools like Trendspider, you can access advanced charting tools, which were previously only reserved for the much bigger players.
Fintech and alternative investments
The traditional 60/40 portfolio is dying, and more investors are looking to add alternative investments. And while 81% of Institutional Investors are planning on increasing their allocation to alternative investments by 2025, what about the rest of investors? Historically, alternative investments were only offered to accredited investors, but that’s changing as well.
Through the rise of fintech, now even alternative investments are becoming more accessible for retail investors. Via platforms such as Coinbase, Robinhood, and more, investors can invest in fractional shares of cryptocurrency such as Bitcoin and Ethereum.
More interested in real estate? You can invest in fractions of real estate without actually having to buy a property, through platforms like Fundrise. Even private equity is on its way to becoming more accessible to non-accredited investors via online technology platforms.
Managing your investments via fintech platforms
One of the major benefits of using a financial advisor is that they have the knowledge and resources to track your portfolio performance that you may not have had otherwise. But fintech has changed that as well.
Via alternative investment reporting platforms, DIY investors can track metrics in real-time, and have an experience much like you would expect by logging in to your brokerage account; consolidated documents, easy to understand performance tracking, consolidated view of investments, and the ability to have your advisor manage your account for you.
But what we covered here are only the basics. Fintech has brought far more benefits to the financial services industry, with only more to come. But most importantly, it’s empowering an entirely new generation of investors and making financial services more affordable and accessible to anyone interested in getting started.