When I talk tech trends with technologists, there’s always a tendency to talk up their own book. Cryptocurrency advocates want to talk about all the latest innovations to help people invest in tokens and put their investments to work. Data specialists want to talk about all of the new ways to capture, store, secure and use data to help businesses grow and evolve.
And wealth tech specialists throughout the advisor technology stack want to talk about their particular domain. Customer relationship management (CRM) software providers want to talk about CRM, financial planning software providers want to talk about financial planning software, and portfolio and investment providers want to talk about reporting, accounting, trading and managing client portfolios.
Perhaps the biggest trend is that more and better tools and services for financial advisors are almost sure to come online this year.
Crypto technology for advisors
“We’re starting to see the technology for digital assets come online,” said Brian McLaughlin, CEO of Redtail Technology, a popular CRM software for financial advisors. “There’s a lot of stuff coming in the financial space that will be focused on crypto, there’s been a massive shift to it. On the other hand, it’s so volatile still, and there seems to be almost no stability in crypto, and that’s kind of scary to advisors and their clients. At this point, they are still dabbling in the crypto and NFT (non-fungible token) space and trying to figure out how to provide it in a better fashion.”
Advisors’ urgency around cryptocurrency technology comes from a desire to keep clients within their ecosystem, said McLaughlin.
Until very recently, crypto assets had to be held away from advisors or in private placement vehicles like the Grayscale Bitcoin Trust and the Bitwise 10 Crypto Index Fund. (Editor’s note: Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.) But in 2021, technology and services evolved to allow advisors several different options for accessing digital assets on behalf of their investors.
“Advisors want to be able to keep the client within their sphere of influence to help them see the whole picture and plan accordingly,” McLaughlin said. “The way this has worked over time in other areas is to address it with visibility and account opening capabilities first, and only then do we start looking at more value-creation opportunities. Step one is to keep the client with the advisor and not Coinbase or Crypto.com.”
How public – and client – sentiment is shifting
Public sentiment on digital assets is also shifting, said Kyle Wiggs, co-founder and CEO of UX Wealth Partners. UX’s THOR Technologies was among the first to create a digital assets product within separately managed accounts for financial advisors.
Wiggs believes that economic trends in 2022 could kindle new interest and zeal for crypto.
“When you look at studies out there, the exponential shift in mentality and acceptance for digital assets is unbelievable,” Wiggs said. “If inflation continues, if we get three rate hikes or more this year, if we continue to pump more money into the financial system, it will start to become a real thing for advisors, and if they don’t embrace it, crypto becomes a real threat to their business. Clients want exposure; if you don’t offer it in a simple and compelling way, they will take a percentage of their portfolio and go elsewhere.”
As advisors get the tools and infrastructure they need, a new cohort of sophisticated investors has been entering digital assets, a trend that Dan Eyre, CEO of BITRIA, expects to continue through 2022. BITRIA is a crypto service for financial advisors that was recently acquired by Gemini Trust.
To date, most digital asset investors were retail investors, Eyre said.
“They were the primary drivers of growth in this rapidly innovating space, and they were essentially doing micro-venture investing with tokens,” he said. “They would buy some tokens, and in doing so, they would increase the real-world usage and validity of a blockchain project. Now we’re seeing larger institutions and corporations enter the space and more awareness from regulators about exactly what’s going on.”
As a result, the investment thesis of digital assets is becoming “more coherent,” according to Eyre.
Blockchain innovations and the metaverse
Eyre is also eying innovations being driven by blockchain technology.
“It’s really leveling up the fundamental infrastructure that the world operates on, and in the process, you have a lot of centralized mechanisms being disintermediated across all of those spaces,” Eyre said. “As a result, we’re seeing new decentralized applications coming out of the woodwork and gaining more mainstream access and acceptance.”
Another application watched by Eyre is “the metaverse,” a convergence of artificial intelligence, blockchain and virtual reality technology creating a new medium for human interaction and connectivity.
The metaverse, according to Eyre, represents a step forward in the ways humans learn, store and share information potentially as profound as the advent of the internet. Yet even as the metaverse is born, many advisors are still debating whether to offer tokens like bitcoin and ethereum to their clients and wondering if cryptocurrency is right for their businesses.
“In reality, bitcoin and ethereum are just the start of a long journey,” Eyre said. “The way I like to think of this is that Web 3.0 in the advent of blockchain technology is really the start of the tokenization of everything towards much more efficient mechanisms for tracking the ownership of various assets, whether digital or physical. Tokens can be applied to just about anything, as we’re seeing from NFTs.”
Thanks to tokenization, investment opportunities that were once difficult to offer to a broad audience and that required long periods of illiquidity, such as private equity, venture capital and private real estate, can now be opened up to more investors. While the transition to tokenization will probably take time, it is already underway, and Eyre feels certain that advisors will recognize and seize the opportunity.
John Sarson, CEO of crypto asset manager and education provider Sarson Funds, believes crypto will further disrupt the payments ecosystem.
“Visa and Mastercard will continue to lose market share to crypto-based payment solutions, but the biggest impact will be felt by financial advisors in the movement away from traditional banking/wires and towards crypto centric payment solutions such as funding accounts with stablecoins and/or cryptocurrencies,” Sarson said. “Younger investors will bring an expectation for real-time transparency surrounding money movements, and savvy financial advisors would be wise to embrace cryptocurrency infrastructure to satisfy this demand.“
Marc Butler, CEO of Skience, which supplies a cloud-based platform to advisors automating client onboarding, advisor transitions, accounting and compliance tasks, believes traditional exchanges are ripe for blockchain disruption.
“It seems weird to me that in today’s day and age, where you can move money instantly across the world using digital assets, it still takes us two days to clear an equity trade,” Butler said. “I think we’re all waiting for a clearing platform built on blockchain that can clear trades instantly and with full transparency, and I think it’s coming. There’s no reason we should have to wait two days to clear a trade.”
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