Dr Nils Bulling, head of Strategic Innovation & Ecosystem and Group Product Manager for Crypto Solutions at Avaloq, discusses the most promising use cases for blockchain technology in wealth management.
To achieve long-term growth, wealth managers need to be able to cut across wealth classifications, from UHNW to mass affluent, target new market segments and broaden their client base.
Blockchain technology opens the door to a new world of innovative financial products and services that can help wealth managers to differentiate their offering and position themselves as digital leaders, especially to younger, more tech-savvy investors.
Financial institutions have already reduced manual processing through digitalisation – and blockchain technology can provide the structural basis to further streamline processes. This is especially relevant when access to data is shared between multiple parties, as a blockchain-based solution ensures traceability, security and transparency while synchronising data also in trustless environments.
Digital assets
Through digital assets such as cryptocurrencies, wealth managers can offer their clients alternative investment options for portfolio diversification. The digitalisation of assets can significantly lower barriers to entry for new investors and creates new options of wealth accumulation such as exotic non-bankable assets.
Tokenisation of non-bankable assets
Concrete examples of non-bankable assets (nBAs) include fine art, real estate and rare collectibles. Tokenisation enables the efficient creation of liquid markets for these traditionally illiquid assets as investors can buy fractions of them without the traditional challenge of high minimum investment. I believe this can help drive the democratisation of access to wealth management by removing barriers to investment.
I expect to see increased demand for nBAs as well as new advisory and wealth management services in the future. In the case of a tokenised Picasso, for example, investors need proof of ownership and a guarantee that the physical asset is safe and insured. This kind of verification could be part of the service portfolio of financial institutions.
Decentralised finance
Blockchain technology has the power to decentralise financial services, for instance by enabling interaction between investors and cutting out the need for an intermediary. But even in this decentralised environment, wealth managers will still play a pivotal role, providing new services such as private key custody, crypto insurance solutions and automated identity checks. In particular, with the creation of the Metaverse, I believe that custody can become an interesting business proposition for financial institutions, as people may seek a trusted party to safeguard their digital valuables acquired in the virtual world.
Looking ahead
Blockchain is relatively well established, but digital assets are still in their infancy. Wealth managers should now look at the opportunities offered by this technology and consider how to evolve their offerings to meet growing demand among investors.
