Why is the USA leading the Digital Wealth revolution?

This is an excerpt from AltFi’s Digital Wealth State of the Market Report 2020, which is available for free here.

By being nimble of foot, relatively cheap and digitally focused, so-called digital wealth or “robo” advisors have stolen significant market share from established investment giants in recent years.

The US is widely seen as a pioneer in this digital wealth market, far ahead of Europe, and with numbers that highlight the stark divide across the Atlantic. 

US digital wealth giant Betterment, for example, has over 500,000 accounts and $23bn (£17.6bn) in Assets Under Management (AUM), while its Californian rival Wealthfront has 400,000 accounts and $20bn (£15.3bn) in AUM. 

By comparison, leading European players like UK-headquartered Nutmeg has only over 80,000 accounts and over £2bn in AUM, while its rival Moneyfarm boasts 50,000 accounts and over £1bn in AUM. 

Despite the disparity in size, Europe is not entirely in the US’s shadow, and experts increasingly say Europe is outflanking America in areas like Open Banking and cross-border payments. 

Meanwhile, several leading European digital wealth management companies believe Covid-19 has presented them with a unique opportunity to play catch up. 

America’s appetite for investment 

While the US is undoubtedly a bigger investment market compared to individual European counties, and its digital wealth businesses were quicker to market, there are other reasons the US is ahead of Europe, says Giovanni Daprà, CEO and co-founder of Moneyfarm.

Among them, says Daprà, are the cultural differences of US citizens inherently being more willing to invest online compared to Europeans. 

“We [Europeans] definitely have lower financial knowledge and participation in the financial markets,” he says. “I would say the understanding that participation in the financial markets is as important as eating good food.”

A 2020 poll by Gallup showed that 55 per cent of Americans own stock investments of some kind, compared to around a third of British people who own a stocks and shares investment that isn’t a company pension. Meanwhile, GlobalData’s 2020 Banking & Payments survey revealed that just 4.2 per cent of mass affluent investors have used robo-advice for investments in the UK, compared to nine per cent in the US.

Caroline Murphree, the European CEO of Wealthsimple, agrees with Daprà. “In the US, digital has long been a way that people have managed their own investments. I think that a lot of that is down to the fact that the responsibility for managing those investments has more often sat with the individual.” 

Murphree, who took over her role from Wealthsimple’s longstanding European CEO Toby Triebel earlier this year, remembers her first job in Silicon Valley in 2008, when she was told to set up her 410k retirement account with Fidelity. 

“That was already all being done online and so I had to login, choose my funds and start investing,’ she says. “I think here in Europe, often when you join an employer, you are kind of told you have to sign up for the group pension plan. But other than that, you don’t necessarily do much in terms of self-selection of funds.” 

But, Murphree contends, Europeans are becoming more investment-savvy, amid the current low-interest environment as they look for better returns on their money...

Want to keep going? Read the full feature in AltFi’s Digital Wealth State of the Market Report, out now!