I was recently asked to speak at Opal’s Family Office and Private Wealth Conference in Newport, Rhode Island. It was a nice event with an impressive guest list. However, one aspect of the affair was baffling: the panels featuring pontificating portfolio managers were packed and yet the discussion about blockchain was more than halfway empty.At Freewheel, we believe algorithms will continue to replace analysts, sales processes will grow largely digitized (our specialty), and blockchain will obliterate back and middle offices. Any one of these trends individually can deliver improved service and outcomes for investors. In combination, they represent the difference between the financial service industry’s Ubers and taxi cabs.
As it relates to blockchain, there’s so much at stake. The following is an explanation from an article titled, “Self-Disruption or Self-Destruction — Can Wall Street Tame the Blockchain?”
On Wall Street, blockchain could upend how institutions trade with one another. One example: It could shrink the three days that it currently takes to clear a securities transaction into seconds. It could also enable entirely new forms of exchange — think self-enforcing contracts and, yes, digital currency. Indeed, “blockchain will do for transactions what the internet did for information,” IBM CEO Ginni Rometty said at a conference in Geneva in September.
It would be a mistake to consider this far-off fantasy. Northern Trust and IBM recently built a blockchain for managing the administration of a private equity fund with $20 billion in assets under management. “This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors,” said Justin Chapman, global head of market advocacy and research at Northern Trust.
As pointed out by one of the Opal panelists, Vanessa Grellet, IBM was also a key player in the development of DTCC’s blockchain-like solution for post-trade processing. According to DTCC’s press release, “the solution has been developed with input and guidance from a number of market participants including Barclays, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, UBS and Wells Fargo, and key market infrastructure providers, IHS Markit and Intercontinental Exchange.” According to Grellet, the end game is for blockchain to cut out middlemen, improve transparency, and bolster security.
If you’re an independent advisor and you’re neglecting this trend, can you really call yourself a fiduciary?
The implications of blockchain should garner more attention than someone prognosticating about interest rates. Indeed, if BlackRock is a bellwether, many of these portfolio manager-types will find that their game is up. So rather than star-gazing, registered investment advisors should shift their focus to the meteoric rise of blockchain.