There is going to be a big shift by 2021 such that the convergence of technological, economic, and demographic trends will transform the wealth industry and unlock immense global wealth across a diverse universe of investors.
This is according to a study by Roubini ThoughtLab, an independent thought leadership consultancy, in a white paper produced in conjunction with Bank of Montreal, Broadridge, CFA Institute, Cisco, eToro, Schroders, SEI, and State Street. It is titled Wealth and Asset Management 2021: Preparing for Transformative Change. [PDF]
“Indeed, our research shows that a convergence of technological, economic, demographic and consumer trends will turn the wealth profession on its head by 2021, reshaping customer expectations, disrupting business models, and altering advisor roles. These new realities will require investment providers to drive wide-ranging digital transformation or face extinction at the hands of competitors both old and new,” the report says.
It notes that the more influential technologies to watch are the fast-growing, smart technologies that can differentiate a customer’s experience and catapult some firms ahead of others in the digital race. These technologies include virtual reality (set to grow by 130% in the next five years), artificial intelligence (123%), web analytics and sentiment analysis (77%), telepresence and web collaboration tools (70%), and blockchain (43%).
eToro’s Founder and CEO, Yoni Assia, described blockchain as a leading-edge technology while Alex Tapscott, co-author of the book Blockchain Revolution and Founder and CEO of Northwest Passage Ventures, sees blockchain as a huge game-changer for the wealth profession.
He stated in the report:
We’re moving from the Internet of Information to an Internet of Value where a lot of what financial services firms normally do – namely acting as a trusted intermediary between parties who may not know each other – can be significantly automated and improved. That has a direct impact on the world of investment services.
Blockchains simplify the task of buying, selling, and transferring an asset, and then recording ownership. As a result, individuals can make these transactions on their own or, potentially, through wealth service firms far less expensively. This brings winners and losers, notes Tapscott. The former are “those investors who are tired of paying high fees, dealing with broker-dealers and banks, lawyers and escrow agents,” or those shut out of investing because they could not afford these fees. The losers, on the other hand, are those now charging for such services: “Trading in back office services, for example, is going to become streamlined, and you’ll see massive margin compression,” Tapscott adds.
Interest in blockchain technology has exploded among financial services companies in recent years. Not a single bank or asset management company had publicly announced any interest in blockchain as at 2014 but within twelve months, many banks and asset managers have done so. It’s moving extraordinarily quickly, says Tapscott.
The view is consistent with the research which is based on quantitative analysis of 2,000 investors and 500 wealth firms across 10 world markets; economic modeling and forecasting across 25 countries; and expert opinions from more than 40 market leaders, economists, technologists, and investment specialists.
The report says 45% of providers say that they are already exploring blockchain and 64% expect to expand their use in five years. It also cites an example of disintermediation that have already occurred including Ethereum DAO’s use of its own blockchain technology to conduct a crowdfunding IPO that raised the equivalent of more than $160 million in three months.
Tapscott expects the first of actual commercial implementations to come on stream near the end of this year with a view that there would be two major opportunities for wealth firms: cost-cutting way of doing a significant number of back-office tasks and as a revenue opportunity.
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