Blockchain and Financial Advisory: Why It Matters

Author: Jim Eckel | | No Comments

Blockchain, cryptocurrency, digital wallets, tokenization. We hear these buzzwords a lot in the financial advisory space. What are they? Why do they matter? Blockchain is set to transform the finance sector in fundamental ways, so independent financial advisors need to have a working knowledge of what it is and how blockchain solutions can help their clients.

What is Blockchain?

Let’s start with the basics: Just what is blockchain? A blockchain is a digital ledger of duplicated transactions distributed across the entire network of computer systems on that particular blockchain. Each block in the chain stores several transactions, and the record of every new transaction is added to every participant’s ledger. This enables a decentralized and secure system for storing data.

Blockchain is best known for its use in creating the first (and most famous) cryptocurrency, Bitcoin. Bitcoin has come a long way since its inception. Its volatile growth and an increasing number of use cases continue to pique banks, investors, and financial analysts alike.

Why does blockchain matter?

Blockchain is touted as a game-changer because it drives greater transparency, traceability, and operational efficiency. As a decentralized system, it is free from any country or international organizations’ financial laws and control.

The technology is continually evolving and progressing. Blockchain today is easier to implement, more reliable, and even more secure than at inception. Blockchain holds immense opportunity in functions as diverse as payment methods and settlements, fund security, intercompany settlements, smart contract testing, tokenization, syndicated loans, and digital asset analysis. This isn’t a complete list; it barely scrapes the surface of blockchain’s wide-ranging potential.

Why does blockchain matter to independent financial advisors?

The advisory industry, like many other business sectors, has been relatively slow in adopting blockchain technology. While the technology has been around since 2008, it’s only now that clear use cases are being discovered as we gradually move beyond the initial challenges of awareness and scalability. Awareness has always been an issue with blockchain and blockchain-based solutions. Financial advisors need to deal with this challenge as well by educating clients. The complexity involved makes it hard for decision-makers to see the value amid the numbers and theory. Today, with blockchain technologies entering mainstream consciousness, awareness is a much more manageable issue in which to deal.

Scalability too is much less of a challenge today; blockchain technology solutions for financial advisor challenges are far more robust than before, and software solutions depending on it have had years to grow and improve. What exactly can it do to help, though? Let’s take a look:

Here are some basic challenges that blockchain can solve in the financial advisory industry:
1. A significant decline in fraud and crime because blockchain technology makes it impossible to hack into the data. This would help ensure that client assets remain secure.
2. Reporting and auditing obligations will become less time-consuming, freeing up time and effort.
3. More data will be digitized, reducing paperwork
4. International transactions will become faster and cheaper, making it easier to help clients invest in global markets.
5. Clearing and settling securities can be done seamlessly and quickly.
6. There will be a decentralized system to store all data, reducing silos and potentially making a wider volume and range of financial data available, leading to better analysis.

In a dynamic market, where doubts still exist amid the global pandemic, important questions need to be asked about your role as an independent financial advisor and tech innovations like blockchain. The key lies in understanding blockchain and leveraging the benefits to do more and be more as an advisor. Here are some key tips and notes.

Educate yourself. Blockchain lies at the intersection of finance and technology. This can make it doubly hard to understand key blockchain terminology and processes. But as an independent financial advisor, it’s your responsibility to offer sound financial advice. And in the current finance sector, with the increasing role blockchain plays, across banks, mutual funds; and elsewhere, that means educating yourself about blockchain.

Crypto traded funds. Adding crypto exchange-traded funds (CETF) to your portfolio would help you attract newer and younger clients, a demography that has always posed a challenge to financial advisors. Crypto ETFs are a new asset class in which you can help your client to broaden their portfolio.

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