Amazon AMZN is transforming into a major threat to the wealth management industry based on its Sumerian virtual reality (VR) and augmented reality (AR) platform, Artificial Intelligence (AI) expertise and trove of consumer data & spending patterns.
The company in collaboration with Fidelity Labs recently created a digital financial advisor Cora that people interacted with using a VR headset.
Amazon plans to lure enterprises in utilizing its VR/AR tools to develop company specific apps. The recent VR demonstration reflected its technological capability, which enhances the possibility of entering into the investment advisory and consulting field, and eventually financial services domain.
The company has been looking for ways to enter the financial services to continue its growth momentum. Amazon’s scintillating growth over the last decade can be attributed to its capability of disrupting retail, grocery and cloud computing market. Shares have returned 1921.1% over the period, significantly outperforming S&P 500’s gain of 113.4%.
The company has also shown active interest in providing healthcare services. Amazon has teamed up with Warren Buffett’s Berkshire Hathaway and JP Morgan JPM to create a non-profit organization to address the needs of their U.S.-based employees.
Wealth Management Totters from AI Threat
Investment advisory and consulting functions are important because these facilitates cross-selling of different financial products under wealth management domain. Penetrating into this field should ultimately help Amazon to expand its financial services offerings in the long haul.
Amazon’s foray into the wealth management market doesn’t bode well for wealth managers and consultants. They are already under tremendous pressure due to rapid evolution of AI and tools like machine learning, which has been promulgating roboadvisors (automated investment solutions).
Business Insider Intelligence estimates that 10% of all global assets, or $8 trillion, will be managed by robos by 2020, significantly up from $200 billion in 2016.
Leading asset managers and banking firms like The Charles Schwab Corporation SCHW, Morgan Stanley MS and Wells Fargo WFS are already using roboadvisors. Blackrock, the largest fund manager in the world has been using machines and algorithms to pick stocks for its actively managed funds.
Overstock OSTK, an e-commerce provider, with almost 40 million active users has already rolled out a roboadvisor supported by tZERO Advisors.
Amazon’s Data Trove & Popularity Provides an Edge
Nevertheless, Amazon’s entry is especially threatening given the trove of information it has about consumers and their spending habits. The company has the ability to harness AI, machine learning tools and the Sumerian platform to offer customized wealth management products based on this data.
Although this is quite a far-fetched thought, if it clicks with people, a digital investment advisor from Amazon may send jitters across wealth management firms.
Notably, Amazon’s digital assistant Alexa has the ability to answer economic questions thanks to a partnership with UBS Wealth Management. The company has been focusing on expanding fintech services to provide more facilities to Prime members, which is now more than 100 million.
Reportedly, Amazon has already held discussions with several large banks, including JP Morgan, to launch a checking-account like product primarily for underserved customers and millennials. A checking account would help it to provide further benefits to Prime members, persuading them to buy more on Amazon’s e-commerce platform.
Moreover, the millennial focus is significant. Per comScore's 2017 US Mobile App Report, Amazon App is more popular among millennials (aged 18-34) compared with Gmail and Facebook.
Notably, millennials as prospective customers hold most potential for any wealth management firm due to their need for retirement savings. They are also more likely to switch investment advisors as compared with older investors. According A.T. Kearney, in 2017, “53% of mass affluent investors aged 18 to 24 switched primary investment firms.”
Moreover, per consulting firm Bain, 75% of responding millennials in a recent survey stated that they are likely to test a technology firm’s deposit account, credit card and other products.
Hence, Amazon’s popularity gives it an edge in this regard over legacy financial services providers.
Currently, Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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