The asset management industry is facing new challenges that experts say need to be addressed to turn them into business opportunities.
On the one hand, wealth is more widespread and the number of investors has been growing over the years. This not only demands a higher degree of customization from the fund managers but also bigger workloads to take care of the expanding clientele.
On the other hand, new investors are more knowledgeable, or at least have access to more information, hence they constantly require lower fees, enhanced customer service, and better portfolio performance.
How can better performance be achieved in a near future? The use of the blockchain in asset management might be the most capable solution available for now and is already being put to the test.
Advantages of Blockchain in the Asset Management Industry
Client onboarding & profiling: when money is involved, there is never enough “protection”. Verifying identifications, addresses, wealth statements, political ties, and many other aspects of your client’s life, will be as time-consuming as you can imagine. With a blockchain-based system, you, as a client, can give access to your previously verified data to third parties such as asset management firms and make this entire process automatic.
Smart contracts: for financial sector professionals, smart contracts might be one of the biggest breakthrough of the last decades. The possibility to automate contract execution is a true game-changer and it will help fund managers to:
- trade more efficiently;
- record ownership of shares
- sell funds when certain conditions are met or not;
- agree on the contractual terms with the client.
Tokenization: This might be the end goal of blockchain for this industry. Nowadays, if you want to own different assets, you will have to manage them separately, i.e., startups, real estate, gold, and commodities each has a specific process and platform to be managed. If we deploy blockchain in asset management to its full extent, we will have the opportunity to manage all assets under one platform, which will cut costs down, increase transaction speed, increase liquidity, and much more…
Challenges of Blockchain in the Asset Management Industry
Volume & Resiliency: according to an EY research, one of the biggest challenges that prevents the adoption of blockchain in asset management is the capacity to process high volumes of data, that can peek in certain times of the day or month. It is not yet clear how this obstacle will be dealt with, but there are several options on the table such as sidechains.
Regulation & Security: regulation is one of the hot topics for 2019, and once it is solved it will also help this specific industry. A definitive set of guidelines to pair blockchain projects with other technologies is yet to come and the absence of such rules just creates fear among investors and fund managers.
Costs of Adoption: when talking about a new technology that is still viewed as being controversial, it is difficult to envision it replacing the current technology in the near future. Blockchain still has a lot to prove before the technology gets adopted across the board in the finance industry . It is vital that blockchain technology first adapts to the current legacy systems in the asset management industry and later try to fully replace these platforms.
Having blockchain in asset and wealth management might be one of the next revolutionizing steps for the industry at a time when the investment paradigm is changing. There seems to be increasing certainty in the horizon that both asset managers and clients will benefit from this “partnership”.