Why blockchain is the future of wealth management

Let’s start this article clearly: blockchain technology is not the same as cryptocurrency.

If you imagine a Venn diagram, blockchain is the big circle and cryptocurrency is the much smaller one in it, using only the technology as a basis to function.

A blockchain is a decentralized, distributed ledger that allows multiple parties to securely record and verify transactions without the need for a central authority or third party.

But what’s interesting about it to me as a platform and software provider, and eventually to financial advisors, is the potential to clean up wealth processes and transform the digital world of assets and securities.

The technology is older than internet search engines – it’s the name that’s new

The technology was first outlined in 1991 by two researchers who aimed to create a system where it would be impossible to change or edit document timestamps. So blockchains, and their basic purpose of data security, have been around a lot longer than people think. The technology is older than internet search engines – it’s the name that’s new.

Using the principles of secure timestamps and availability, blockchains can make portfolio management safer and less cumbersome. This is different from cryptocurrency, which is a special application of the technology. Many have a view of cryptocurrencies, which tends not to be too flattering, especially in our industry.

One of the most immediate impacts blockchain technology can have in our world of personal finance is to make platform transfers easier. Advisers know all too well how painful and annoying even the simplest of transfers in kind can be, and so do I who run an investment platform.

Blockchains have the potential to abolish traditional wealth management processes, such as the tedious movement of assets, which are often complex and time-consuming. Asset re-registration will happen instantly on a blockchain, forever banning the slow process it is today with platforms, fund managers and advisors battling with fund managers and their archaic data processing methods.

Counselors, of course, have reason to be suspicious of all this

Not only will it make processes faster and more efficient, but the tokenization of funds means it will also improve the security of investment portfolios. This is because blockchains provide a more secure and robust infrastructure for recording and verifying transactions, making them less vulnerable to attacks and other forms of disruption.

Counselors, of course, have reason to be suspicious of all this. Protection of client money is essential; it is the ultimate foundation for financial planning.

So when the tardy soundbite of “blockchain technology” is thrown around, it can cause concern and perhaps even fear.

But the more forward-looking fund managers, platform providers and fund managers are exploring ways it can make wealth management more efficient. Advisors will see the end results and reap the benefits when it is safe, tested and ready to make a significant impact on our industry.

If you’re still skeptical, finance isn’t the only industry exploring how blockchain can make processes more efficient and data safer.

Take, for example, democratic voting in political elections. Many debate whether blockchain technology could be a means of securing electronic voting systems to avoid interference or tampering, allowing people to vote via smartphones or other easily accessible media.

Cryptocurrencies haven’t done blockchain any favors in PR

Then there are health records. Millions of people use medical devices that store data and contain important personal information – blockchains can connect devices securely and allow only certain people to access sensitive data.

Just look at the global computing beast that is IBM and all the work it is doing with blockchains. It is clear to see the impact this technology will have in many industries.

Cryptocurrencies may not have done blockchain any favors in PR, but the rest of the world, even outside of finance, is catching on to how it can improve processes and security.

In our modest corner of a global industry, it is sure to trigger a huge improvement in platform switching and has the potential to create real competition for advisor platforms.

Alex Cowan-Sanluis is CEO of Platform One