This is a timely topic for me as I just started an online course at MIT Sloan titled "Blockchain Technologies: Business Innovation and Application."
More on the course below:
This is on behalf of Truelytics, who is currently exploring implementing blockchain solutions for our next round of significant innovations (more on that in another post.) Until then, let's take a closer look at how the technology is changing the world of wealth management.
From the big banks to the largest brokerage and mutual fund companies, the financial industry has been slow to adopt Bitcoin, Ethereum and other cryptocurrencies. (Want to know the difference between Bitcoin and Ethereum? Click here.) When these alternative forms of payment first hit the scene, many in the financial industry predicated that their adoption rates would remain low. Some famously even predicted their imminent demise.
Times have certainly changed, and these days there is even talk of a Bitcoin ETF. Some of the largest investment banks have also been won over, going from predicting the end of cryptocurrency to eagerly embracing its future. But there is more to this transformation than cryptocurrency - in the end, it may be the underlying blockchain technology that has the largest and longest lasting impact.
Already, the world of financial planning has been transformed by the power of the blockchain. This emerging technology may be relatively new, but it is already making waves. Here are four ways blockchain technology is changing the world of wealth management for industry professionals and their clients.
1. The Emergence of Cryptocurrency ETFs
While it is not yet a done deal, the widespread talk of a Bitcoin ETF has made this kind of cryptocurrency trading a real possibility. If and when the first Bitcoin ETF is finally approved, this innovation could greatly increase the amount of interest in all kinds of cryptocurrency.
For those in the financial planning industry, the emergence of a Crypto ETF could provide for a new asset class to use in clients portfolios. The availability of a Crypto ETF could also help financial planners attract younger clients, something they have been struggling with for some time.
2. Easier and Faster Settlement
Financial planners face growing competition from index funds, exchange-traded funds, robo-investments and other low-cost alternatives. As more and more investors take a close look at their costs, the level of competition is only likely to increase.
Financial planners bring something important to their clients, and the value of the advice they provide more than justifies their costs. Even so, driving down costs can help these financial professionals compete more effectively, and blockchain technology could do just that. By driving down settlement costs and speeding transactions, blockchain technology should lower costs for financial planners and their clients.
3. Trading in Private Companies
Some of the most impressive profits in recent years have come from companies that are not yet public. From soon-to-be public companies still in their pre-IPO stages to companies that plan to remain private for the long term, many of these firms have generated enormous profits.
Until now, most retail investors have been largely shut out of the private market. In the future, blockchain technology could make trading in the shares of private companies easier, giving an edge to the financial professionals who offer them. There is already a pilot program underway to test this concept, and if that goes well, it could open the floodgates to a slew of similar offers.
4. More Efficient Transfers Between Wealth Management Firms
Financial planning firms routinely trade shares among one another, lending and borrowing securities and enjoying a host of benefits as a result. Until now, this type of trading has been anything but efficient, with bottlenecks galore and extremely slow settlement speeds.
Thanks to the power of the blockchain, this type of trading could soon be far more efficient. Instead of relying on a central clearinghouse to settle trades and balance the books, financial planning firms could simply exchange private keys, resulting in an almost instantaneous transfer of securities.
These are just some of the ways blockchain technology is changing the world of wealth management. As more and more banks, brokerage firms and mutual fund companies discover the power of the blockchain, the potential should become even more clear. From lower costs for financial planning clients to easier settlement between firms, the transformational power of blockchain technology is becoming more apparent with every passing day.
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