Wealth managers face complex choices to provide strong returns
Wealth management is getting a wake-up call.
The beginning of 2018 — for all the hope and cheer a new year usually brings — served up a rude awakening for investors, wealth managers and risk-minded high net-worth individuals.
The happy memory of 2017 and its strong stock performance are now a fading memory — and a quickly fading one at that.
The bolder among the world’s wealth managers played the crypto card early enough to ride the late-year elevator as bitcoin rose to $20k heights — but that has since been quickly erased, with devastating effect to some.
On a larger scale, wealth management in general is up against it with the traditionally strong Swiss private bank industry feeling a great deal of heat these days. In a mobile, digital world with new rules and new perspectives, not many traditional players are set to keep on growing as they have up until now.
What’s to be done?
Perhaps nothing — if the most pessimistic prognose are to be believed. As interest in cryptocurrencies grow — even amid whiplash-like volatility — and the digital era creates new and more demanding expectations, some even say banking as we know it could cease to exist.
Others are perhaps not quite so apoplectic, but also see diminishing returns from the usual model and methods.
And yet — despite growing concerns for wealth managers — there is hope.
Tokenization — the key to freedom
While there is still much debate about the wisdom of investing in rising asset classes (read: cryptocurrencies) — there has never been much hesitation about investing in real objects.
In fact, those who possessed great wealth in bygone generations put great store by the fact that they owned luxury items, homes, jewellry and so forth. As the years passed, these items passed down through families and successive generations treated them with much care — the same care afforded a valuable investment.
If this is the case — why have so many wealth management professionals overlooked the chance to get something real back out of these objects?
Yes — collecting a return on non-bankable assets has proven hard over the years. Auction houses of venerable names like Sotheby’s and Christie’s have held a virtual stranglehold on the market for the most highly-valued collectibles for generations.
Blockchain has changed that — or, to be more precise, tokenization has.
The ability of blockchain to provide a mechanism for the transfer of micro units of value (currencies to most of our minds, but not only…) means that those objects which used to sit in figurative prisons of their owners — now have the freedom be transferred, bought and sold in a manner unthinkable before.
Arming the wealth manager of the future
Unfortunately, too often the possibilities presented by the tokenization of physical or non-bankable assets get dismissed out of hand.
After all — to many in the traditional financial world, bitcoin is the only recognizable name for anything remotely connected to blockchain.
The irony of this is that it leaves wealth managers without the very weapon — or tool — that could spur them to new levels of return for their clients, without the bevy of risks that are normally associated with crypto assets.
Emerging platforms — of which WealthInitiative is one — now offer both large investment banks and small family offices and individuals the possibility to tokenize both entire collections of assets or individual pieces — and reap the benefits.
A peer-to-peer world
But beyond just the tokenization of assets (and trustless provenance for each of them), the opportunity for this new investment method lies in the shift towards a peer-to-peer world.
For instance, a family office in, say, Dubai could leverage the WealthInitiative platform to sell 1/15th of a car owned by a client to an interested party in Vancouver.
In the investment world as we know it today, this would not be possible — not only because fractional ownership is a complicated, messy operation — but because many greedy intermediaries would like to get in the way.
With a tool that eliminates both psychological barriers (“Is this really a Picasso painting?”) to the physical ones (bye-bye to banks, brokers and high transport costs), it’s far easier for wealth managers at different levels to both connect “peer-to-peer” to buy and sell assets and stand out from their peers.
And that opens up a whole new world of investment.