Blockchain Technology — The Future of Wealth Management?

Blockchain technology serves as the foundation for numerous crypto assets, allowing for secure and transparent information exchange without the need for a central authority. It has been implemented in various industries such as finance, retail, manufacturing, and wealth management, making a significant impact, especially in the latter.

The wealth management industry is heavily reliant on intermediaries, where 90% of investments are made through these middlemen. This highlights the decentralized and untapped potential of the industry. In this piece, I will delve into the various applications and utilization of blockchain in the wealth management sector.

The Influence of Blockchain on Wealth Management

Many finance companies continue to use outdated systems for asset management, which are costly to maintain and present a risk to clients’ sensitive data and the company’s reputation.

Blockchain provides a solution to these issues by improving the quality of services such as portfolio management, client onboarding, and asset transactions. Its decentralized, consensus-driven platform allows for quick, efficient transactions, leading to a smoother and more streamlined process.

Not only does blockchain enable real-time settlement, but it can also be used by regulatory bodies for the exchange of money and data, conducting KYC procedures, and executing smart contracts. Additionally, clients are attracted to this technology as it offers access to new and innovative asset options.

The Wealth Industry Embraces Blockchain

The wealth management industry is at a turning point, as the adoption of new technologies accelerates and replaces outdated models. With clients becoming more aware of the potential benefits of digital assets, it’s crucial for wealth management firms to stay ahead of the curve.

It’s in the best interest of clients for wealth managers to stay informed and knowledgeable about new technologies, such as blockchain, to provide a diverse range of investment opportunities before they become mainstream.

Clients are expressing increased interest in digital assets, and wealth managers have the opportunity to leverage blockchain technology to streamline transactions, reduce costs, and simplify the onboarding process with more efficient KYC and AML checks.

• Easing Transactions with Blockchain

Wealth managers can incorporate blockchain technology to enhance their services, as it offers decentralization and consensus-driven solutions for improved business processes. This can lead to faster and more cost-effective transactions for clients.

The onboarding process is crucial in a competitive market, and this technology can streamline it with improved KYC and AML checks. The technology also offers a real-time settlement, secure data exchange, and tamper-proof smart contracts, adding a layer of security to the process.

The impact of enterprise blockchain extends beyond just the onboarding process, as it can reduce transaction costs, increase security, and offer new opportunities for wealth management businesses.

Applications in Wealth Management

Let’s delve into some of the potential applications of blockchain in the wealth management industry.

• Streamlined Client Onboarding and Profiling

By utilizing blockchain technology, regulatory bodies can improve their customer onboarding process by performing Know Your Customer (KYC) checks and executing smart contracts efficiently. Additionally, clients are interested in this technology as they can store their profiles on a ledger hosted by a trusted party, giving them a secure and transparent way to manage their assets. The audit trail feature in this technology simplifies the fact-checking process, making it easier to prevent anti-money laundering activities.

• Distributed Infrastructure

With the help of blockchain technology, the need for intermediaries in the transfer of assets is reduced. This network acts as the intermediary, allowing asset managers to reduce their infrastructure costs. The transition from a master ledger to a distributed ledger can occur smoothly and efficiently, with no need for intermediaries and minimal overlap between assets.

• International Investment Opportunities

Investing in foreign stocks typically requires a Demat and trading account in the target country. However, with a blockchain platform that integrates all stock markets, individuals can invest internationally with just one common trading and depository account. This opens up a world of opportunities for international investment, subject to regulatory approval.

• Savings on Exit Load

A common platform shared between all asset management companies and individuals can save individuals from paying exit loads when they exit an investment. This is because individuals can sell their assets directly to another individual, instead of going through an asset management company. This reduces transaction time and costs, which can be shared between the buyer and seller.

The Wealth Industry is poised for a Blockchain Revolution

Blockchain technology holds immense promise for the wealth management sector. From streamlining client onboarding to improving portfolio management, from reducing clearing times to facilitating compliance with AML regulations, the benefits of blockchain technology are numerous.

As per a report by enterprise technology advisory firm Gartner, blockchain has the potential to transform the wealth management landscape and streamline client service operations. The technology is expected to address the limitations of existing systems and unlock new opportunities for both institutions and individuals.

Here are some exciting facts about the growth of blockchain in the wealth management sector:

• The use of blockchain in the wealth management industry is forecast to grow by 43% over the next five years.
• Microsoft has teamed up with ConsenSys to bring Ethereum Blockchain as a Service (EBaaS) to its Azure cloud computing platform, demonstrating its commitment to advancing the use of this technology.
• This sector is expected to grow by a staggering 110% in 2023.

The Future Ahead

The future of this technology in the wealth management industry is dependent on its widespread adoption by firms. To maximize its potential, it’s important for organizations to take a leading role in the innovation process.

According to a recent Gartner study, this technology is currently in its Hype Cycle and is expected to mature as more R&D is invested in addressing real-world challenges. However, without broad participation, many companies may be reluctant to embrace blockchain-based initiatives.

Conclusion

The implementation of blockchain in the investment management sector brings with it both risks and opportunities. If fully embraced, it has the potential to bring increased efficiency, improved collaboration, and secure network functionality to the industry.

Efforts are being made by organizations such as IBM’s Maximo network and the Delaware Blockchain initiative Symbiont to establish this technology in the investment industry. Their active involvement in the industry will be highly beneficial for the sector as a whole.

For more in-depth information on the blockchain, reach out to Gyan Consulting.