Fintech refers to the integration of finance and technology. As technology continues to reconstruct every aspect of life, finance is no exception. From online banking and robo advisors to blockchain and Artificial Intelligence (AI), technology has transformed the financial industry at a rapid pace. Financial advising and personal finance have never been more sophisticated than they are today, with new tools and opportunities to make smarter and more informed decisions. A financial advisor can help explain fintech and how you can benefit from the same.
This article will explore how fintech is reforming the financial advising industry and why embracing it is more important than ever in today’s times.
Below are five ways how fintech is changing financial planning:
1. Increased access to financial services
Technology in the financial services industry has brought easy access to a lot of things. Financial services are more user-friendly today than ever before. With the rise of fintech, people can now handle their finances with ease, regardless of their age, location, or physical ability. You no longer have to wait in line at the bank or be burdened by mounting paperwork just to manage your bank and investment accounts. Today, everything can be accessed online in just a few clicks. One of the biggest benefits of technology is the convenience it brings to everyday banking. You can pay bills, send money, or review your account activity from the comfort of your home, office, or even on the go. This has been particularly valuable for stay-at-home parents, who can now manage their household finances without needing to visit a bank branch. It is also a game-changer for people with mobility issues due to a disability or an illness and has made financial management a lot more accessible for those who may have previously faced challenges in going to a physical bank or financial advising firm.
Fintech has opened the doors for people of all ages and backgrounds to also invest and save for the future. Young professionals just starting their careers, who may be juggling busy routines, can now open and manage their investment accounts, like 401(k)s and Individual Retirement Accounts, entirely online. They have better control of their financial future from an early stage in life. Similarly, retirees and older adults can monitor their pension plans, track their portfolios, and even rebalance their investments with greater ease. While technology may seem relatively inaccessible to the older generation, newer and simpler apps have made it fairly more accessible for them as well.
Fintech platforms also make it simple to keep tabs on your credit score, which plays an important role if you are in the market for a loan. Today, you can check your credit score instantly and take actions to improve it, if needed. Additionally, applying for loans has also become a much smoother process. The entire application can be completed online, and online platforms even allow you to compare rates from multiple institutions to ensure that you get the best deal. Fintech has also made managing debt easier. Online platforms let you track your loan payments and even set reminders to pay your dues on time. This reduces stress and allows you to settle your debt more efficiently while being mindful of newer forms of debt, such as credit cards.
For years, lack of understanding has been one of the most significant barriers to saving and investing. In some cases, people also feel a sense of intimidation, especially those who do not have a professional or academic background in finance. But fintech is helping to get past these barriers with user-friendly interfaces and simplified support and guidance. These platforms are making banking, borrowing, saving, and investing much more accessible and a lot less daunting for people from all walks of life.
2. Innovated the financial industry
Fintech has brought about a lot of innovation in the financial industry. One of these standout examples of fintech and financial innovation has been the rise of robo advisors. These are automated computer programs that provide you with personalized financial advice. They also manage your investments and savings. Instead of sitting down with a human financial advisor, you can enter basic information, such as your age, gender, profession, income, liabilities, investment goals, and risk tolerance, into an online platform, and the robo advisor does the rest. Robo advisors use new and advanced algorithms to create and manage a customized financial portfolio for you.
Robo advisors offer several benefits that have made financial planning easier and more accessible to a wider range of people. One significant advantage is cost. Traditional financial advisors may charge relatively high fees, which can make it harder for a lot of people to hire them. Robo advisors, on the other hand, come with significantly lower costs. This makes them an excellent option for people who do not want to spend as much. Robo advisors can also be a stepping stone to getting professional advice. You can start with them and slowly build up more savings and experience to hire a human financial advisor. Robo advisors also offer simplicity. Everything is automated. You do not have to schedule appointments or meet with a team of advisors. You simply input your details, and the robo advisor takes care of the rest. You also receive regular updates on how your portfolio is performing and suggestions on any changes that might need to be made without having to actively manage things yourself. This makes it ideal as you can manage your money without checking in constantly. Additionally, robo advisors are known for their transparency. Unlike human financial advisors, who may be driven by commissions, ambition, hesitation, or personal bias, robo advisors provide neutral financial advice based on the inputs you provide. Their advice is objective and driven by algorithms. As a result, there are fewer conflicts of interest.
However, despite these advantages, robo advisors have some limitations. One of the biggest drawbacks is the lack of human interaction. While the absence of bias is a plus, with no human element, there is no one to listen to your unique concerns, provide emotional support, or offer personalized advice suited to your evolving financial needs. Moreover, robo advisors may also be inept at handling complex needs. They provide straightforward financial advice on investment and savings. However, handling debt, estate planning, tax planning, etc., may need a more nuanced outlook. Despite these challenges, with new innovations every day, robo advisors may also evolve over time and overcome these shortcomings.
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3. Simplified the financial planning process
Fintech has simplified the financial planning process to a great extent. It brings all aspects of financial management, such as budgeting, saving, investing, and even paying bills onto your smartphone and laptop. You no longer need to rely on multiple tools or struggle with the calculator to stay on top of your finances. Instead, budgeting apps, savings tools, and broker platforms make it easier than ever to take control of your finances. For example, banking apps allow you to set up a monthly budget, track your spending as you spend, and automate your savings. Instead of manually inputting every expense and worrying about where your money is being spent, these apps allow you to oversee your expenses more smartly. They can categorize your expenses into essential and non-essential heads and even suggest ways to save more. The entire process of managing your money is simplified, and you can adjust your plan on the go as your financial situation and priorities evolve. Beyond budgeting, fintech investment and savings apps also allow you to automate your investments and savings. You can set up transfers from your checking account to your savings account or invest your money into investments like stocks, bonds, etc. This ensures that you stay on track with your financial goals without repeatedly having to check and monitor your transactions. These apps also help you stick to your goals without diverting from them. Moreover, they provide personalized recommendations to help you improve your finances. This can include alerts to increase your savings rate, lower your spending to meet your savings goals, alter your asset allocation based on market events, etc., ultimately helping you make smarter choices.
Another prominent benefit fintech brings is speed. Financial planning used to be a time-consuming process with a lot of research, calculations, monitoring, etc. Now, it is faster than ever. You no longer need to spend time manually entering data or crunching numbers. With the help of online calculators and financial planning tools, you can quickly assess your future needs, compare different investment options, calculate taxes, and more. These tools enable you to make informed decisions in minutes. For example, if you want to know how much you will need to save for retirement, you can simply use a retirement calculator. The calculator will determine your savings rate based on data, such as your present age, income, retirement age, etc. Similarly, there are investment and loan calculators that allow you to compare different interest rates and repayment terms to help you make the best choice. These tools are not only quick but also error-free, making them much more reliable.
4. Growth of DIY (Do-It-Yourself) investing
The rise of fintech has made DIY (Do-It-Yourself) investing popular. DIY investing is a form of investing where you create and manage your portfolio yourself. There is no reliance on professional financial advisors. DIY investors have complete control over their financial decisions, such as asset allocation, risk profile, entry and exit strategies, etc. DIY investing also focuses on saving money by avoiding portfolio management costs. Traditional financial advisors and brokers may charge relatively higher fees for their services, which can interfere with your returns over time. With DIY investing, there is no need to pay these fees. There are several low-cost investment platforms that provide access to a wide range of investment options, from stocks and bonds to mutual funds and Exchange-Traded Funds (ETFs). You can opt for these affordable and cost-effective options to save money while building wealth for your future financial needs.
While DIY investing is not exactly a new concept, fintech has undoubtedly brought about a rise in the number of investors opting for this approach. For decades, investors have managed and created portfolios. However, this was limited to experienced individuals or those who had a professional or academic background in personal finance. The availability of online investment tools, mobile apps, and brokerage accounts has made it easier than ever for anyone to become their own portfolio manager, even without adequate experience.
5. Better customer satisfaction
Not only is fintech innovating financial planning for investors, but it is also changing the way financial advising firms work. Fintech has helped financial advising firms attract more customers. It has significantly enhanced customer satisfaction by offering more transparency, improved security, and better data privacy. In fact, traditional financial institutions are now facing competition from fintech startups as the latter is able to provide customers with newer, innovative, and more secure services.
These companies are able to provide fintech financial services at lower costs because of digitization. More of their operations are automated, which makes it easier to streamline things. There are fewer employees on board, which helps them cut costs. As a result, the customer does not bear the brunt of it and is offered affordable services. Another critical area where fintech firms excel is in the transparency they provide to customers. Unlike traditional banks and advising companies, where customers pay hidden fees many times, fintech platforms are more upfront about costs. Customers can easily track their payments, and the fees incurred and manage their expenses more efficiently. These platforms also send real-time alerts of any deductions made from the customer’s account, such as platform charges or service fees, so that the customer stays aware of all financial activities on their account.
Fintech firms are also more secure, which is another plus for customers. In today’s times, where financial fraud and scams are at their highest, customers expect and demand the highest level of security when dealing with their finances and personal information. Fintech companies use advanced technologies, such as encryption, two-factor authentication, password verification, face recognition, and more. With these measures, customers can feel confident that their personal and financial data are protected from cyber threats. Fintech firms also make date privacy a priority. Traditional financial institutions may share customer information with third parties. However, fintech companies prioritize user consent and data privacy. Customers are allowed to opt in or out of certain data-sharing practices. These companies give users greater control over their personal information, which leads to customer retention and satisfaction.
In addition to transparency, security, and data privacy, fintech companies are also more accessible through their pan-country customer service teams. Reaching out to these platforms is quicker and more accessible through the Internet. There is no need to meet someone to address your concerns. You can simply raise online tickets through emails, calls, or text messages, and the customer service representatives reach out to you to address your concerns. Moreover, since these tools leverage AI, they are able to provide much more personalized services to individuals, which not only improves the user experience but also increases customer engagement and satisfaction.
To conclude
Technology in the financial services industry has brought immense change for the good. With enhanced services, personalized attention, and sophisticated tools, investors can now invest more easily, save more effectively, and stay in control of their finances at all times. There is also greater peace of mind, knowing their personal and financial data is secure and they are not being overcharged. The increased transparency and the wide range of options have all contributed to a better financial experience for individuals. As fintech continues to evolve rapidly, the future promises even more innovation.
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