OPINION POST<\/p>\n\n\n\n
NOTE: The opinions expressed in this post belong to the author and are for general informational purposes only. These opinions do not necessarily reflect those of Blueleaf Wealth, Inc. the publisher, or its executives. The opinions are not intended to provide specific recommendations or advice for any individual or on any specific investment product. The sole purpose of this opinion piece is to provide education about the wealth management industry.<\/em><\/p>\n\n\n\n Disintermediation is not a new concept in banking and wealth management. DIY investing grew substantially in the 1970s and 1980s. The introduction of discount brokerage (Charles Schwab in 1975) helped propel its growth. As did the decline of pensions and the rise of 401ks and self-directed retirement. Despite fears, the wealth management industry grew.<\/p>\n\n\n\n Disintermediation along with other \u201cthreats\u201d continue to unnerve the wealth management industry. We explore three big changes that, while discussed as threats, are more likely growth opportunities.<\/p>\n\n\n\n The introduction of mobile banking in 1999 distanced consumers from the bank lobby. That accelerated between 2007 and 2010 when iPhone and Android made their respective debuts. The mobile apps that have followed since have driven ever more direct access to investing and banking.<\/p>\n\n\n\n Stop and think about that for a moment. When this firm Blueleaf was founded shortly after the 2008 financial crisis, mobile app technology was in its infancy and the web itself was just coming into its own. Fifteen years later, thousands of advisors and their firms rely on this firm’s client mobile app<\/a> to deliver one of their core client experiences.<\/p>\n\n\n\n Mobile apps were also instrumental in the rise of robo-advisors in the last decade. Betterment wouldn\u2019t have 615,000 users if they weren\u2019t available on mobile. Wealthfront, their nearest competitor, has 440,000 users. Many of them are folks who wanted to invest but who otherwise may not have. <\/p>\n\n\n\n That last sentence is really the point. Mobile is growing the investing and banking pie. As a result, it’s growing the pool of potential clients for wealth management. The apps are capturing users that might not otherwise engage with advisors at all.<\/p>\n\n\n\n\n\n On October 7, 2020, the International Banker (IB) published an article titled, \u201cIs Disintermediation the Future of Finance?\u201d The unnamed author, makes some interesting points about distributed ledger technologies, cryptocurrency, and peer-to-peer lending. It\u2019s well written, but it\u2019s basically promoting Bitcoin and DeFi.<\/p>\n\n\n\n Bitcoin and cryptocurrency are interesting but the important technology is what it\u2019s built on. Blockchain, the technology behind it, is where the change in wealth management is happening. You can learn more about it on the Augmented Advisor podcast<\/a>. Blockchain is a Distributed ledger technology (DLT). DLTs and non-fungible tokens (NFTs) are creating new options to manage custody with far less need for third-party processing. This could disintermediate traditional custodians and lower costs.<\/p>\n\n\n\n DLTs eliminate the need for third parties to manage transactions and keep records because the DLT itself is actually a public record. They also provide an auditable common ledger to satisfy compliance officers. When fully implemented in wealth management, distributed ledgers could offer ultra-low cost, fully transparent trading, custody, and other business transactions. Blockchain makes that possible.<\/p>\n\n\n\n Recently, an artist called \u201cBeeple\u201d created a piece of digital art as a non-fungible token and sold it last March for $69 million. That was possible because of Blockchain and its ability to create one-of-a-kind digital assets. The technology will give advisors the ability to hold stored value assets in an easily transferable form. Moving those assets via DLTs means no transaction fees. Imagine the possibilities. <\/p>\n\n\n\nMobile Is Creating More Potential Clients<\/h2>\n\n\n\n
Blockchain Is Driving Transparency and Lowering Cost<\/h2>\n\n\n\n
Retail Micro-Trading Is Growing the Pool <\/h2>\n\n\n\n