Blockchain — from a Wealth Management Customer’s POV

Here’s how I envision blockchain working for a wealthy individual who wants to manage their own financial portfolio via Blockchain in the year 202x.

Part 1: Defining who I am (introducing “MyFinancialCloud”)

  • My financial profile belongs to me, it exists in my home market regulatory cloud (and can be active monitored by regulators themselves), consisting of my risk/return and preferences (A).
  • My financial preferences consist of explicit things (I don’t like structured products) and implicit things (eg. if I am not really comfortable managing my portfolio, or if I like green energy…). These preferences are defined and re-tuned using latest techniques like observing my reactions rather than asking me closed-end questions (B).
  • I buy from one or more financial providers a suitable wealth plan and a strategic asset allocation that is self-tuning or can be adjusted by me over time (C).
  • I maintain all four of the above components in my own protected financial cloud. Hereafter let’s call that pack MyFinancialCloud) (D).

Groundwork all done, I am on the map! All I need now is to define how to execute that into a financial portfolio.

Part 2: Getting Executable (introducing “MyPortfolio”)

  • I can ask various providers for an API service to do this. I want to buy an execution package that suits my needs, it reads MyFinancialCloud and applying its own set of logic and rules. Let’s call this service “MyPortfolio” (E).
  • MyPortfolio does its own computations, maybe even cross-checking with a set of human professionals (if I pay enough), and it defines an executable portfolio filled with instruments, I can confirm it if I wish. (F)
  • Lets say MyPortfolio returns that I should hold 8 ETFs, 4 funds, and 4 other alternatives, and it generates 2–3 changes per quarter after that.

Now I have MyFinancialCloud and MyPortfolio defined. All I need is a way to execute it and keep executing it.

Part 3: Executing over the Blockchain (yeah, everyone’s favourite part!)

  • I authorise MyFinancialCloud and My Portfolio to go execute my portfolio — they API over to the Distributed Ledger, its like a giant Dark Pool that has gone Light. Hereafter let’s call this “LightPool”. (G)
  • LightPool matches the demand in my portfolio with others’ supply and vice-versa
  • For example LightPool sees I need 500 units S&P 500 ETF, finds others who need to offload S&P 500 and exchanges ownership automatically
  • LightPool will need to keep maintaining and re-balance my portfolio, within a set of limitations to optimise
  • Here’s where I’m not sure — it may be that I can only access LightPool over financial institutions like today (I hope not) — if that’s the case perhaps I will be paying an annual servicing fee to those institutions — but still maybe something more like $100 or $1,000 flat service fee a year, not 1–2% of my assets per year
  • As a customer I will also need a slick user interface into what’s happening, to monitor and have peace of mind, to see performance and growth and make adjustments, and to produce reporting for tax purposes (H).

More about LightPool:

  • Like today, people will build and maintain LightPool for the common good, its Blockchain and Distributed Ledger and all the other buzzwords put to hard work.
  • LightPool should not be constrained by one financial institution, it should not bound by various conflicting sets of algorithms. LightPool lives in the web, nobody owns it or controls it directly.
  • LightPool’s algos are simple and “good” — its like the IEX principles encapsulated outside a private exchange (see credit).

Yep, sounds terrifying. Everyone should go ahead and tell me why this is not possible and how wrong I am, so can I learn more.

Part 4. Protecting myself as a Customer

I think some of the main constraints are privacy and theft protection:

  1. There will need to be a shield between your personal identity and what the distributed ledger sees (I).
  2. MyFinancialCloud also needs a strong personal protection agent, like a secret service agent in a dark suit, who looks after my identity and data in the world wide web and can take actions to protect it (J).
  3. I also see a need for insurance in case something goes wrong with the above. One of the main value propositions of a bank was always security — in this case since you are part of a distributed ledger, in case of theft you will want protection. as you get today (K).

Part 5. Why I would Love this! (Customer experience)

  • I am in control of my profile and data and not in the hands of single institutions — this goes way beyond the “consolidation” seen today into full integration to the end-customer
  • I have total transparency how I am viewed and into my portfolio and how its managed
  • I know how and when things are executed on my behalf and there was no vested interest
  • I am happy to pay the experts to help me manage the bits that add value, like wealth planning, strategic market view, and even protecting my identity

The End: I Smell Opportunity…

All along this customer journey there’s white spots (those were the Letters A-K) to be filled with new business services that are largely yet to be invented. FinTech and the Banks should be hard at work on all of these. I see a huge need for complimentary services that will integrate banks, advisors and a new set of things, and these are customer-side business projects.

What do you think? Am I off my rocker? Feel free to comment below!

Endnote: Credit for the “dark pool” passage inspired by Michael Lewis, Flash Boys