Open Banking has led to a paradigm shift in the financial sector. Digitalization and the demand for personalized financial solutions have transformed our perspective and expectations regarding financial services. But what about the topics of wealth, wealth accumulation, and wealth management? The term “Open Wealth” is not new. But where exactly do we stand here? Does Open Wealth have the potential to revolutionize wealth management in the same way that Open Banking has revolutionized everyday finance?

What is Open Wealth?

Open Wealth is like a door, opening up the world of finance to everyone. It’s about making financial services and data accessible to all parties, not just large banks. The Open Wealth concept is closely related to Open Banking but has a different focus and objective. Open Banking primarily focuses on payments and account information, giving individuals more control over their financial data. It also allows third-party providers (such as fintechs) to access this data and offer innovative services. Open Wealth, on the other hand, concentrates on wealth management and investment products. The goal is to democratize wealth management and create new, more efficient ways to manage assets. In simple terms: Open Banking opens the door to banking data; Open Wealth opens the door to investments.

The current state of wealth management is characterized by high costs, slow processes, and a lack of transparency

To fully explain the potential of Open Wealth, I need to provide some context. Progress can only be recognized when you know where you stand. Traditional wealth management, often offered by family offices or independent asset managers, has been and continues to be a personal and exclusive service. The relationship between family offices and asset managers and banks has often been close. Asset managers rely on the product offerings of banks to put together individual portfolios for their clients. In addition, the way family offices and the like work is characterized by intensive customer relationships, individual investment strategies, and manual processes. This in turn causes high costs, slow processes, and a lack of transparency.

Digitalization is democratizing wealth management

Digitalization has revolutionized wealth management, giving rise to a multitude of new opportunities and business models.

The most well-known examples are undoubtedly robo-advisors like Scalable Capital, Trade Republic, or growney. These digital asset managers automatically invest money for users. In some cases, they also handle rebalancing, particularly for ETFs, reducing the administrative burden. As a result, robo-advisors primarily target those who don’t have the time or inclination to manage their own portfolios. They offer a cost-effective alternative to traditional wealth management and are particularly attractive for smaller portfolios.

In addition to robo-advisors, there are digital platforms that allow clients to view and manage their portfolios at any time. These platforms often offer additional features such as real-time price information, news, and analysis. These two examples alone make it clear what an impact digitalization and the opening up of closed systems have had. The advantages of digital transformation are clear:

• Increased cost efficiency: Through automation and digitalization, processes can be made more efficient and costs reduced.
• Increased transparency: Clients have a better overview of their investments and can transparently track the performance of their portfolios.
• Increased accessibility: Wealth management services are becoming more affordable for a wider range of clients.
• Mehr Personalisierung: Durch die Analyse großer Datenmengen können hyperpersonalisierte Anlageempfehlungen erstellt werden.

Next Step: Enabling Open Wealth with standardized APIs

As with Open Banking, Open Wealth showcases the power of open interfaces (APIs). These enable banks and (digital) asset managers to connect their systems, allowing for the exchange of data and functionalities across different systems. Think of APIs as bridges between banks, asset managers, and other financial service providers. Or in other words: APIs enable the integration of financial data from various sources, such as bank accounts, portfolios, and market data. This creates a comprehensive overview of a customer’s finances. Interfaces enable the automation of many processes: such as the transfer of data, the execution of transactions, or the creation of reports. Furthermore, APIs promote an open financial world where consumers have more control over their data and can compare providers. Sounds good, right? Unfortunately, the current connection between custodian banks and portfolio management systems or external asset managers is often still proprietary. With a one-time data exchange per day (end-of-day) and manual process steps. This leads to a higher error rate and additional costs for maintaining the various interfaces. Standardized interfaces in wealth management are therefore desirable and bring benefits to all parties involved.

The API Custodians: OpenWealth Association

The good news is that such an API for wealth management has already been developed. The driving force behind it is the Swiss OpenWealth Association, a consortium of banks, asset managers, and technology companies. Their goal is to create a business-oriented, widely accepted standard based on known industry standards. This standard aims to promote interoperability between different systems and accelerate the development of innovative financial services. The relevance of the OpenWealth Association’s API standard to the upcoming EU Regulation on Access to Financial Data (FiDA) demonstrates how close they are to achieving their goal: Their API is on the verge of becoming an officially recognized FiDA schema. The adoption of the EU FiDA Regulation, proposed by the European Commission in June 2023, is expected by the end of this year or early 2025. However, even after the adoption of FiDA, it will take some time for all market participants to implement the new standard.