The inexorable march of blockchain, the transformational distributed-ledger digital technology that’s making inroads across the global financial landscape, poses a distinct threat to advisors’ revenue streams.
Over the next few years, blockchain will enable today’s clients to execute transactions for securities and financial products on their own, causing many advisory commissions to dry up.
Like an earthquake triggering a tsunami, the DIY transactional environment that blockchain is already driving will derive power from continued advances in consumer products and services using artificial intelligence. Futuristic scenarios that until recently were considered decades away—like those in the movie “Blade Runner 2049,” in which Ryan Gosling’s character easily performs complex research tasks merely by speaking to his ambient home computer—are now manifest, as people ask Alexa to find websites, order pizza and play their favorite tunes. For the Blade Runner scenario, forget about 2049. Instead, try 2029, or possibly sooner.
The concurrent development of blockchain technology and the proliferation of blockchains for myriad purposes will enable access to data and transactions by consumers, at their leisure, just by talking and listening.
The implications for advisors’ survival are clear: They must concentrate on truly advising clients, drawing on human qualities that machines can’t replicate (yet)— balance, perspective, empathy and goal-based analysis.
But to re-fashion their practices accordingly—and in ways that mesh with the coming blockchain environment--advisors must gain a clear understanding of how the transaction world is changing, what it will look like in five or 10 years and the future service expectations of tomorrow’s clients. It’s also critical to understanding how this transformation will disrupt the global economic system’s machinery.
Current or anticipated scenarios that reflect the reality or signal near-term palpability of this new environment include:
• Tokenization—the conversion of rights to an asset into units, represented by tokens. Blockchain’s transparent audit trail enables the secure registration of ownership tokens, representing a percentage of just about any asset: real estate, antiques, a sports league or a company, in shares. Already, people are selling shares documenting mutual ownership of real property and storing these on blockchain for all to see—a kind of global register of deeds. Some are even reportedly tokenizing works of art.
Eventually, many—if not all—securities will be tokenized, and regulatory approvals for this are already happening: Delaware, the Mecca of corporate charters, has amended statutes to allow the use of blockchain for corporate share registration. Moreover, the SEC will likely lend its blessing because of blockchain’s hack-proof immutability—a feature that‘s starting to win over exchanges, as it assures superior security and is conducive to monitoring.
If your client wants to sell a portion of there digitized stock holdings on their own through a blockchain-enabled decentralized exchange and then use this money to buy a piece of a Picasso that’s being tokenized, all without the use of an intermediary charging brokerage fees or commissions. However, the client may want advice on whether the transaction makes sense from a tax or investment perspective. Advisors who aren’t up to speed on blockchain transactions--or fine art, for that matter, may have a difficult time earning or retaining the client’s advisory business. This example shows that the capabilities of advisors who survive the blockchain revolution will have to expand or extend to partnerships with newly evolved specialist firms to advise clients with different predilections for owning tokens for all manner of assets (including those now called digital collectibles).