When it comes to the digitalization of the wealth management industry, robo-advice has appropriated most providers’ attention. They may not be taking proper notice of blockchain, which is becoming the hot topic among their banking sector peers.
We have been here before. While the financial services industry in general was excited about launching online platforms, introducing faster payments, and developing mobile applications, private bankers just watched. It was commonly agreed that as wealth management is an old-fashioned business built around personal relationships, introducing technical novelties could potentially do it more harm than good. While the former was and indeed still is true (the wealthy continue to work with advisors they trust), the latter turned out not to be. In the end, wealth managers started to build various online and digital solutions for both clients and internal use.
Private bankers admit that they procrastinated joining the “digital revolution,” but in the end were able to benefit from the lessons learnt by others. Robo-advice is a good example of this attitude. Automated investments platforms have long been ignored and neglected by the incumbents. Robo challengers still manage just a fraction of global assets under management, and the majority of wealth managers do not expect to lose market share to them in the foreseeable future according to our 2016 Global Wealth Managers Survey. Yet at the same time 59% of surveyed providers believe the industry should invest in automated investment services to expand current propositions.
History might repeat itself with blockchain, which in short can be described as an easily accessed and shared digital ledger. Firms that have started exploring potential use of blockchain include Barclays, JP Morgan, and RBC. All have wealth management arms, but seem to consider blockchain mostly for their retail or asset management operations. Wealth managers remain reserved. According to a recent study by SEI, 70% of decision makers in the wealth management industry have not allocated resources to analyzing blockchain and its impact on their business.
Blockchain definitely has something to offer wealth managers. It can be used as a layer for settlements in the custody business; it can serve as storage for an individual’s universal risk profile or investment history, facilitating client onboarding and provider switching (although the question remains if wealth managers want to encourage this); and it can smooth and increase efficiency of information exchange for providers operating globally. And that’s just a handful of its possible use cases.
It is our view that wealth managers will continue to not quite ignore blockchain, but to observe it passively. They will let others tackle some of the obvious challenges, such as data privacy, security, potentially increased exposure to data theft, and other mostly compliance-related issues. Currently occupied with falling margins and volatile capital markets, they will adapt blockchain only once its use in the financial services industry really takes off. And as this approach seemed to work with automated investment platforms – with traditional providers that enter the robo-advice space attracting more clients than challengers – it will work with blockchain too.
By Bartosz Golba, Interim Head of Wealth Management