Why financial advisers shouldn’t ignore blockchain

19 April 2018

Few developments will holistically change financial advice like this technology will. Gayle Bryant explains.

We’ve all heard about bitcoin – the cryptocurrency that soared close to $US20,000 last year before falling back. And you’ve likely heard it’s connected to blockchain technology. What advisers may not have heard is that this emerging tech will have significant implications for them.

From eliminating unnecessary functions, to reducing operational expenses, thereby increasing opportunities to provide more value to clients – this sophisticated automated processing will give advisers more time for valuable personal work.

‘Technology doesn’t replace the adviser’

Futurist Chris Riddell says blockchain and the broader digital-ledger technologies are set to be key game-changers for financial advisers.

“People are protesting that blockchain is going to disrupt and create chaos within the financial-services industry but I think it’ll be the opposite,” he says. “I think it’s going to enable advisers to create deeper relationships with their clients. It will do this by making the relationship occur faster in that you can access information in real time. Instead of having to wait for different pieces of information to be gathered, we are moving into a world where we can access the information instantaneously.”

Riddell says from an adviser’s perspective, clients will be brought on at a much younger age because the technology will engage with them earlier than what has occurred traditionally.

“If I look at kids in their twenties, they now have access to online tools for financial advice,” Riddell says. “This means advisers can engage with them and form relationships with them a lot earlier. Here, technology doesn’t replace the adviser; it is just another tool to help give them more detail and insight on a real-time basis.”

Blockchain explained

Blockchain is a digital distributed ledger technology that provides a shared record of all transactions and related information for a particular entity to everyone that has permission. A major attraction is that it creates a permanent record that can be added to but not edited. This makes it very reliable as a source of “truth” between parties.

It can be likened to a spreadsheet that is viewed publicly and held simultaneously on numerous computers. Each transaction needs to be validated and authorised to avoid inaccuracies. In the case of bitcoin, once it is verified by the system and encrypted, a new line or “block” is added to the spreadsheet.

Interest in blockchain is mounting as its value for executing transactions without the need for oversight by a third party is realised. Because a key focus of the financial services industry is on transferring assets in a secure way, the technology is set to have a profound effect.

What blockchain can do for advisers

Being aware of blockchain and its applications is important for advisers for a number of reasons.

Research from Dell Technologies found 50 per cent of financial services businesses are worried about becoming obsolete within three to five years. The best way to deal with that fear is to proactively monitor and incorporate technologies such as blockchain – where relevant – to support and add value to your work.

And there are a number of specific ways blockchain can be used in a financial advisory business including:

  • client onboarding
  • speeding up clearing and settlement of trades
  • collection and storage of client data
  • streamlining the management of client portfolios
  • easing the compliance burdens associated with anti-money laundering.

For example, in the case of client onboarding, a large number of processes are required, such as determining proof of identity (including nationality, marital status, and occupation). Having the client’s profile stored on a blockchain application means all trusted parties are able to access it, allowing the associated fact checking to be simplified and carried out more quickly than using traditional methods.

Given the likely impact of blockchain, the role of the financial adviser is set to be redrawn in the long term. For example, with blockchain applications reducing or eliminating the manual processing of documents, advisers can focus on providing more value-added services around financial advice, meaning the overall customer experience is enhanced.

Expanding on this, Riddell says advisers who only provide product advice to their clients will have to take on different roles with the advent of blockchain.

“Advisers are going to become technology advisers as well,” he says. “This is because their clients are going to be asking them about what online tools they should be using in addition to the chats they have with them.”

Riddell says when you think of the way visits to an adviser are usually conducted, they generally involve a one-way discussion where clients receive a product disclosure statement or have some printed material sent to them.

“Now, when clients come in they will have access to a world of online tools that will complement the advice their adviser is giving,” he says. “Therefore advisers need to start recommending these online tools to them, perhaps setting up their log-ins and directing them towards relevant sites. Advisers need to think of the online tools as something to continue the discussion when not face-to-face with their clients.”

Advisers have got to always look on the positive side with technology, Riddell says. “Don’t push it away and hope it’s not going to be something that will affect you,” he says. “If you do this your competition will be leaps and bounds ahead of you. Think of technology as an enabler and a way to engage a client and a client demographic that you have not had before.”