Wealth Management Challenge
A person in possession of capital seeking to hire a wealth manager has to make a difficult choice among a wide range of offers. A client has to rely purely on the reputation of a manager while measuring the reputation isn’t quite rational. Instead, a client should to look for the result of their previous work.
What Affects Client’s Choice of a Wealth Manager?
There are three qualities that top the list: competence, reliability, and cost of service.
Competence. Only the capability (or incapability) of fulfilling investing objectives can fully illustrate the wealth manager’s professionalism to their potential clients. As of now, a metric to measure a wealth managers’ effectiveness is lacking; there are some indirect characteristics such as reputation, assets under management, and the brand existence period. This is why one of the inclusive metrics of competence might be the ability to achieve clients’ investing goals.
Reliability. This includes the technological protection of a wealth manager, their financial stability, and morality. Practically, there is an indirect metric of financial stability that is shown in credit ratings; other than that, a client has to rely on the reputation of a brand.
Cost of Service. Management expenses usually consist of manager’s fee, most robo-advisors charge an annual fee of 0.0% to 0.89% of NAV(Net assets value) in assets under management. In practice, it is very expensive to create selling set of associations. A client must have at least $5 million in liquid assets to be eligible for a traditional wealth management service. Managers prefer to work with HNWIs (High Net Worth Individuals) so to be compensated higher.
How Does Blockchain Make Wealth Management Reliable?
Blockchain emerged as the underlying technology of Bitcoin. While Bitcoin disrupted the payments sector, blockchain started to show significant promise in redefining how entire industries operate.
The blockchain is a ledger that can store data in the accurate chronological order and protect it from forgery. This is due to the fact that the right version of database is determined by a consensus of the majority of network participants.
Blockchain is the basic technology for the development of trustless applications with distributed trust. Simply put, a client doesn’t have to trust one party to trust the whole system because it is maintained by many actors that are incentivized to approved the correct transactions. Only the transactions that meet the consensus are added to the blockchain.
Applications built on Blockchain are called smart contracts and can inherit the features of decentralized trust. This eliminates the necessity to entrust client’s assets to a wealth manager. Smart contracts open up the possibility to replace legal protection with a technological one. With the power of smart contracts, for instance, a client can easily limit the set of assets that the wealth manager can use to form an investment portfolio.
What is Wealthman?
Wealthman is a wealth management Platform that contains a stack of protocols facilitating the building of trustless wealth management services that deal with on-blockchain digital assets. It aims to provide a permissionless secure environment for programming, execution, and marketing of individual investment management services.
Historically, all sensitive business processes of investment management (storage and exchange of assets, and the evaluation of the effectiveness of asset management) require trust in the central parties such as banks or exchanges that execute them. This is due to the effect of scale effect which can minimize the transaction costs. However, this threatened the security with the losses of money due to placement of trust into a central party.
Our protocol replaces the central party performing business processes with smart contracts doing the same under decentralized control. For instance, Alice holds Bob’s money, we replace Alice to computer program which do the same on Bob’s order but under strict control of network participants. Thus using our protocol, any wealth manager will get more trust than the behemoths of the market who pour loads of money into their image. This is why Wealthman is expected to quickly gain acceptance and support of market participants.
The Wealthman Marketplace
The wealth management marketplace requires services to be quantitatively comparable not only by price but by the metric of success in achievement of client’s financial goals. This will allow users to weight up the efficiency and costs of wealth managers or their algorithms.
In traditional circumstances, it is problematic to evaluate the efficacy of wealth managers. Wealthman has a solution to that as well: it conducts measurement procedures that shows how wealth managers achieve financial goals of their clients within the Platform. It works as follows:
1. Users of Wealthman protocol leave investment goals- and results-traces on the blockchain,
2. The participants of the network come to the methodology (a way to measure the achievement of investment goals) using the PoS consensus,
3. The efficiency evaluation process takes place using the data from the step 1 and the methodology from the step 2.
Such efficiency metric allow to create the first marketplace for wealth management service with estimations of value-for-money ratio. The better your service is the higher your position in the marketplace becomes, and the more demand you get. The key to high positions in the ranking of this marketplace lays in being outstandingly efficient and providing the best value-for-money ratio. Such marketplace of wealth management services is going to be the first ever solution of this kind on the global market.