Although we are often led to believe that every technological innovation will revolutionise the way we live, it can’t be denied that the past decade has seen significant technological change, much of which will have far-reaching impacts on private wealth and investment management.
So how to separate the hype from reality? Which trends are genuinely here to stay, which will go the way of Betamax and the Sinclair C5, and which are nothing more than media hysteria?
Let’s take a look at three significant technological trends that private wealth firms should consider as they plan for 2022 and beyond.
1 - Breaking blockchain
We’ve seen great use cases involving fund managers automating both the storage and flow of data to investment platforms. This technology is also being used to ease the burden of new regulation around advice fee consent and design & distribution obligations (DDO).
At its core a blockchain is simple — it’s a database. Information is entered into the database (blockchain), validated by a distributed network of participants (or nodes), time-stamped and stored in a way that it can never be altered or corrupted (immutably).
The problem with a blockchain is that — at scale — it can get cumbersome. Events are not added to the chain unless the majority of nodes agree. And when you have a network as large as the Bitcoin Blockchain, this can take some time, and a lot of energy.
However, not all blockchains carry the same risks. Iress Blockchain, for example, involves a private network, high security protocols, and efficient processing techniques. Unlike a traditional blockchain, all distributed ledger technology (DLT) networks are at least partly private, meaning the number of participants are limited and therefore speed constraints are not a problem.
Blockchain has the power to significantly improve the way the financial services industry works for the better.
2 - The tokens are coming
Tokens — a close cousin of cryptocurrencies — are also having a moment dominating the public imagination and bring many benefits, especially in the financial markets.
In March this year, Christies held its first auction of a non-fungible token (NFT) – a type of blockchain-based asset that records ownership of a digital item including art, music and even memes as a singular, unique (and therefore non-fungible) instance.
So what does this mean for private wealth? While NFTs might be capturing headlines, the real-world applications for the tokenisation of assets (fungible or otherwise) bring many opportunities for the financial markets including access to a vast array of assets that were never previously available for purchase, greater liquidity, reduced transaction costs, and enhanced transparency.
The private wealth manager will be able to manage more of a client’s wealth and add greater value in doing so. In fact, tokenisation will allow the creation of highly bespoke assets that are determined through the deep analysis of a portfolio, to be capable of doing all sorts of important things from optimising Sharpe ratios to enhancing negative correlations.
Private wealth managers will require agile technology able to evaluate and record assets in real time, plus strong APIs able to connect with a vast array of platforms and indices in order to have a complete view of their client’s financial position in a rapidly changing landscape.
3 - Front end matters
While technology investment often rightly focuses on improving back-office efficiency, it’s critical not to lose sight of the front-end experience for users.
Fuelled by low interest rates, COVID-19 boredom and social media forums such as Reddit’s Wall Street Bets, new trading platforms such as eToro, Trading 212 and Freetrade have attracted strong uptake by reducing barriers to entry through low, or no cost trading and fractionalised investments. And while this is largely described as a millennial success story, investors of all ages — and demographics — have been attracted to this new approach to trading.
Why? Because of strong investments in delivering highly engaging, low-friction and intuitive digital user experiences. Digital client portals are just as important for private wealth clients as they are to retail investors. They deliver a complete view of a client’s wealth in an interactive and highly visual way — with workflows designed for, and optimised by, the digital experience.
The lesson for private wealth firms is clear — it’s critical not to lose sight of the front-end experience for users, because that front end is very often how your client experiences your business.
Technology, tokens & cryptos ... What's the focus?
The pace of technological advancement is unlike ever before, and the applications of these advancements have largely benefited all of us — allowing us to thrive in an environment that would have been impossible for every generation before us. This technological change will continue to drive deeper and faster global interconnectedness, underpinned by greater transparency, and an increased pace of advancement.
The difficulty has been how to identify which aspects of this technological change will provide tangible benefits to our lives — from both a social and economic perspective. What’s easy to see is that user experience matters — as it always has — and that transparency and efficiency are key enablers of this.
Consumers — whether they’re wealthy or not — now demand the same quality of experience from their professional services providers as they get from the best app on their smartphone.
Technological advancements that improve any of these factors are worth serious consideration.
Want to get ahead with your technology?
To find out how you can do more with less and scale without impacting client service, take a look at our Private Wealth software.
