Y TREE on the rise of transparent wealthtech

The aptly-named Cash highlighted that there is clear transparency issue within the wealth management industry (no pun intended), and that solving that problem was a key driver in Y TREE’s inception. He calls their service “the expert’s expert”, referring to their role solely as a wealth advisor rather than a money manager. Describing Y TREE’s service as “a scientific process”, Cash emphasised that they “are not making our own product. We’re making money on the advice. We are pure advisors”.

In the wealth management industry, Cash says that good investments are statistically rare. To make gains, clients need to have the right currency and risk profiles to create value when investing.

Cash added that consumers are relying on “blind trust” in their wealth managers based on their reputation as a brand rather than transparency or efficiency. He reiterated that the incumbent wealth managers do not provide advice: “If you go into one of the household names in wealth management, you’re not going to walk out with somebody else’s product. That advisor might be giving you the best of what they have, but you have gone to them because you like the brand.”

Cash explained their operation: “We start with asking ‘what do I need?’ The service we built is a layer of data technology combined with human experience, interspersed with the product that sits on top of the industry. You can look at a bank, wealth manager, or an IFA – like a car rental company or hotel, or airline – and we are collecting the data on that [interaction]. We explain it to the client so they can understand it. We’re saying: ‘is it the right cost? Is the right performance? Are you managing it in the right way for you, given your family’s needs?’ No one is doing that for the consumer today, and to use technology means it’s being done systematically, all based on data with a human touch.”

Why is wealth management failing?

Y TREE’s ‘Plugged into Wealth Management Report’ revealed that 94.1% of UK wealth managers underperformed in 2023-24. 5.6% was the average global underperformance among the world’s top wealth managers, 90% underperformed against a benchmark, and UK wealth managers fell below the global average, underperforming at 6.4% measured against the same objective benchmark.

Cash indicated that the reasons for this are because of:

• Lack of benchmarks to measure what is a good performance
• Timing the market is not poor, especially considering the geopolitical and economic developments with tariffs and currency shifts
• Investors are inadvertently taking currency risks
• Costs are eating away at returns
• Overdiversification is leading to losses

Cash highlighted that while diversification allows people to have a varied portfolio, and ensure that they don’t blow all their money on only one betting horse so to speak, overdiversification does not yield results statistically.

UK wealth managers are underperforming as seen in the data because there are no independent benchmarks for what constitutes a good performance or not. Cash explains that there is nothing to measure a good performance against. “The benchmark is an equivalent risk. The starting point is, what is the risk you took in your portfolio? Did you get the right return relative to the risk you doing, and that process, we’ll start with that, then we can get into like, why does that process give you the benchmark.

“Not every wealth manager will get a benchmark, but they’re not measuring it properly. If you have hundreds, thousands, or millions of pounds invested, then you ought to have someone say, if this is good. No one is doing that. You don’t get the cost, you don’t get the performance. That’s the starting point. It’s a basic need for people to tell you it’s only good. In contrast to other industries, and this is where technology comes in, if I want to book a flight there’s many places that can show me how many stops and what’s the cost, etc. – but you cannot do that in wealth management.”

Comparing the wealth industry to travel, Cash pointed out how while in the past, people would rely on their travel agents to book and organize their travel expenses and just dispense the check, whereas now people find their own deals and sees what works best for them, having more control over their travel if they do it on their own. Similarly, he sees wealth management going in the same direction. Wealth management as an industry moving towards financial planning, value not in investments, but in understanding client needs, he stated.

The traditional asset managers do not have the technology to innovate their offerings, Cash pointed out. He continued that there is no incentive for them to innovate and collect data, to be more transparent – what would wealth managers gain from saying that the industry is performing poorly? While technology has always been a part of wealth management, now that data is much richer and more available, it has become more difficult to beat the market.

The protection of data is essential, Cash highlighted, especially where new technologies such as AI are being implemented in open systems. He added: “Getting that balance right of new technology and protection of information is super important.”

Predictions

Cash predicts that the next cultural shift in wealth management will be integrating more technologies into the process, but the human aspect will remain.

He noted that the consolidation wave will continue with a flurry of mass mergers throughout the industry, and the shift towards private investing will continue: “Where some of the traditional wealth managers are helpful is access. They are moving towards private markets by giving people access to private equity, private credit, infrastructure, property, and such.”

Looking at the next five years, Cash predicts that relationship management and interpretation will become more common to assist people with their risk profiles. “The role will shift from a ‘financial coach’ to a ‘financial life confidant’, taking a full view of their money and assets in order to achieve their life expectations,” Cash concluded.