Many WealthTech firms are facing challenging times because they have often not fully designed their business model. Understanding how technology can help investment customers satisfy their needs and fulfil their jobs to be done is key for success and to deliver value. The wealth management canvas provides a framework to support WealthTech firms in designing and validating their business models in a holistic way. It relates innovative technologies to the value proposition and allows us to define a sustainable competitive advantage. It is a proven tool for transforming creative WealthTech ideas into viable businesses. It focuses on those aspects that matter most and helps avoid many pitfalls.

Numerous WealthTech firms face challenging times because they only focus on one area in their business model. First, many young technology companies, trying to compete in the wealth management space, implement strategies for delivering value to their customers, relying on differentiation through technological capabilities. They build innovative user experiences (like simplifying client risk profiling or introducing chatbots), automate business processes (like rebalancing portfolios), or try using artificial intelligence algorithms to forecast financial markets. Second, the inclination to assume knowing better what customer needs are than the customers themselves – a weakness found in numerous traditional wealth management business models – is spilling over to start-ups. Believing that investors’ sole goal is seeking absolute positive return is a fallacy. The third, and probably most critical, flaw of many WealthTech business models is that they fail to answer the question: “Why would a customer be willing to pay (a premium) for the product or service offered?” This is even truer for those business models where the individual paying for the offering is not identical to the one consuming it. Prominent examples of business models in this category are fund selection platforms, risk profiling systems, or investment reporting tools.

The Wealth Management Canvas

Addressing identified weaknesses of many WealthTech strategies requires the involvement of stakeholders covering different areas of expertise. Success depends on stakeholders understanding each other through speaking a common language. In addition, it is key to ensure that potential blind spots in the business model are identified and fixed early in the design process. To approach these challenges, I adapted and extended the prominent business model canvas, invented by Osterwalder and Pigneur (2010)¹, to the WealthTech industry, focusing on the challenges faced in the age of digitization. This led me to introduce the Wealth Management Canvas (WMC) framework shown in Figure 1.

Note: The Wealth Management Canvas is derived work based on the Business Model Canvas from Strategyzer.com and released under Creative Commons Attribution Share Alike 4.0 international license.

The WMC comprises four main dimensions (one colour per dimension), coinciding with the four strategy views introduced by Diderich (2016)²:

1. Customer segments and their jobs to be done (see top left four boxes), focusing on
   • identifying customer needs, through applying the jobs to be done theory (Christensen et al., 2016),³
   • segmenting customers according to their needs, their value perception and their willingness to pay for having their needs satisfied,
   • ensuring that customer segments and offerings relate to each other through making the trust-building channel explicit, as well as
   • securing legal and regulatory delivery requirements.
2. Offering an associated value proposition (see central column), ensuring that
   • the offering consistently allows delivering the value proposition promised based on a well-defined investment philosophy, and
   • the offering’s value proposition matches with customer jobs to be done.
3. Capabilities (see top right 6 boxes), subdivided into
   • return generation and risk management activities, as well as other unique activities required to deliver the promised value proposition,
   • required skills and resources, including access to specific knowledge and unique technologies, as well as
   • key service providers, answering the make or buy decision.
4. Financials (see bottom row), covering
   • revenue streams and associated pricing models (Ramanujam and Tacke, 2016)⁴, and
   • required investments and incurred expenses.

Developing a WealthTech business model using the WMC requires answering questions related to all 17 building blocks shown in Figure 1. Coherence between the building blocks must be ensured. For example, does the value proposition relate to actual jobs customers in the identified segment are looking to get done? Are the investment philosophy and the activities managing return and risk aligned? Consistency throughout the business model description not only supports telling a great story, it also ensures that the business model will work in practice.

Avoiding Pitfalls Through Validation

Before starting to implement a business model designed using the WMC, three questions need to be answered (Brown, 2009):⁵

• Is the offering desirable from a customer perspective? This can be shown using the WMC by ensuring a link between the value proposition, the offering and the jobs to be done of the targeted customer segment. Avoid averaging out customer segments and be reminded that no one size fits all.
• Can the offering and associated value proposition be delivered? This means ensuring that the applied activities, skills, resources and service providers support the delivery of the offering. Beware of focusing too much on technology and back-testing.
• Is the offering economically viable? Answering this question means ensuring that the expected revenue streams cover the investments and expenses incurred. To assess the willingness to pay, the trust-building channel of the WMC plays a critical role. It ensures that the targeted customers can be acquired and retained.

Designing the Business Model of RoboRebalance

To illustrate how the WMC works, consider designing a hypothetical business model for RoboRebalance, a WealthTech firm. Assume tech-savvy individuals investing their wealth in portfolios of 20 to 30 stocks, exchange-traded funds and mutual funds as customers [customer segment]. Rather than actively managing the holdings, they want to keep portfolio risk constant over time. They are looking for a solution that rebalances their portfolio whenever necessary and minimizes transaction costs. In addition, they are concerned with their privacy [jobs to be done]. To satisfy the customers’ needs, RoboRebalance proposes offering a software solution that runs on their computer and interfaces with their bank of choice through application programming interfaces (APIs) [offering]. Using a rebalancing algorithm based on published academic literature, considering bank-specific transaction costs [investment philosophy], the software analyses their portfolios for changes in risk, automatically generates transactions and sends them to the banks for execution if and when needed. Running the software on their computer rather than in the cloud addresses their concerns over privacy [value proposition].

RoboRebalance licenses the software, in a joint effort with multiple banks, aiming at a win–win situation (RoboRebalance sells software licences and the banks provide transactions and custody services) [trust-building channel]. The separation of roles and responsibilities is such that RoboRebalance does the transaction calculations and provides them as advice, whereas the bank executes them and ensures custody. RoboRebalance operates solely as a technology provider, not requiring any banking or asset management licences [legal and regulatory delivery].

Moving to the blue capability part of the WMC, performance is defined by the return of the targeted portfolio, net of costs [return-generating activities] and risk as the portfolio’s volatility, estimated using implied option volatility and historical correlations [risk-management activities]. Other key activities to consider are handling the API between the bank and the software as well as implementing and supporting the rebalancing algorithm. In addition, managing the relationship with supported banks is important, both on the marketing and on the technology side [other unique activities].

Key skills [skills] required are rebalancing algorithm expertise as well as knowledge around using APIs to communicate with banks [service providers]. Key resources required are data to calculate portfolio characteristics and risk [resources]. When analysing the economic aspects of the designed business model, RoboRebalance is licensing the software to the customers, charging an annual fee related to the number of securities in the portfolio to be managed [pricing model, revenue streams]. No cash flows are exchanged between RoboRebalance and the banks, avoiding any potential conflicts of interest. Key investments made are in the development of the software system [investment] and expenses are software support, managing the relationship with the supported banks and handling the trust-building channel, as well as sales and marketing [expenses].

Concluding Remarks

The WMC is a simple framework for describing the business model of any WealthTech firm. It ensures that the three key challenges most technology start-ups are confronted with are addressed. It provides a comprehensive approach, avoiding the trap of focusing only on technology and ignoring customer needs. The WMC makes sure that actual customer needs are satisfied by requiring customer jobs to be done to be made explicit and matched with value propositions for which unique activities exist. Finally, relating the revenue stream and pricing model back to the value proposition guarantees that customers are willing to pay for the offering delivered.

Success depends on developing the right offerings for the right customer segments at the right price.