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Behind the scenes of the blockchain wealth bonanza

Behind the scenes of the blockchain wealth bonanza

The blockchain bonanza is in full flow as we start 2018, with companies jumping headfirst into the new technology to ride the wave.

This includes an iced tea company changing its name and even Kodak announcing that its primary focus would be blockchain.

A quick look on Companies House reveals that people are looking to capitalise on the sudden interest in this technology in wealth and asset management as well.

Since the middle of December, there has been a rush to incorporate companies with names including Blockchain Wealth Management, Blockchain Asset Management, Blockchain Finance Invest, Blockchain Financial Services, etc, as well as Bitcoin Wealth Management and so on.

Indeed, finance research firm Autonomous Research estimates there will be over 100 company name changes to blockchain in 2018. Just like the dotcom bubble all over again.

But what exactly is blockchain? And should wealth managers get involved?

Put simply, blockchain, according to Deloitte’s partner in wealth and asset management Gavin Norwood, is effectively a database which records transactions – it is the underlying technology behind all cryptocurrencies, such as bitcoin and ethereum.

While Norwood’s counterpart at Deloitte, the firm’s capital markets fintech lead John Da Gama-Rose, said the reason blockchain has become a buzzword for financial services is because – as is the hope with all new technology that comes along – it has the potential to slash operating costs.

He said: ‘We’ve seen in capital markets in the last 10 years that there’s been a real drive in trying to simplify operating models and technological infrastructure, with a view to reducing costs.

‘But the reality is they haven’t achieved it. They’ve been inundated with regulatory cost and continue to suffer margin erosion. So that’s why blockchain has gained so much interest – it’s the real catalyst firms can adopt to reduce cost, especially post-trade.’

 

Back office revolution

For wealth managers in particular, the consensus seems to be that blockchain could drive a back office revolution, especially when it comes to data – a perennial problem for the industry.

Marco Abele, former head of digital at Credit Suisse, said for even the most traditional wealth managers, blockchain has its benefits.

He said: ‘The impact is certainly on the infrastructure side for wealth managers to jump on, the back office and administration. If you’re all on an integrated blockchain, everyone works on the same dataset all the time. There’s huge quality and efficiency advantages.’

According to Steve Webb, financial services blockchain leader for PwC, wealth and asset managers have been slow to react to blockchain however, because they outsource a lot of back office functions.

Still, research from IBM shows that blockchain could ‘accelerate the decline’ of such outsourcing firms as it reduces the number of value-added services they can provide.

Webb added that blockchain ‘could be highly disruptive for the sit-and-wait wealth and asset managers’.

For those looking to get on board, the consensus is that firms should not go it alone.

According to Deloitte, as a business-to-business workflow tool blockchain essentially demands collaboration, while its rapidly evolving nature means building a platform in a consortia is a lower-risk way to stay current on new trends.

Even the big Wall Street banks have joined forces in various groups developing blockchain products together.

Norwood said: ‘Obviously there are winners and losers in the race for the infrastructure. It’s unlikely a wealth manager will create a blockchain that’s adopted by a lot of other firms. You need to build as a consortia because of that network effect.’

While Abele added: ‘The cost of entry is much lower than if you do it yourself. There is still that old paradigm thinking with enterprises working in isolation.

‘But with blockchain I foresee that size doesn’t matter. If you integrate into an eco-system of complementary companies, those tech problems of the past, such as integrating systems, go away. It will make big companies re-think whether they can continue to work in isolation.’ 

As the wealth management industry starts to wake up to the idea of incorporating blockchain into their business models, will
we see any current wealth managers change their names?

‘It will get them a bit more attention maybe,’ said Norwood. ‘But I can’t see it lasting. If you look back in 10 years, I doubt those firms
will be long-remembered. It’s a bit like the dotcom bubble.’

See opposite for how others are embracing the blockchain technology.

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Profile: Kevin Doran's formula for success at AJ Bell

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From a degree in theoretical physics to teaching and becoming one of the youngest chief investment officers in the UK, Kevin Doran has certainly had an interesting career.

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