Building wealth in a digital World
A leading newswire for financial technology, Finextra, has recently published an article that lists Twelve powerful wealth management trends and opportunities in 2021. Among the identified trends are:
- Paperless onboarding
- Self-service
- Hybrid advice
- Hyper personalisation
- Impact investing and others
It has been evident that technology has sparked innovation and urge for a change in the financial sector, from payments to banking. The way customers are used to engaging with financial services is being changed by digital disruption and there is no doubt that this will include the management of wealth and assets.
Today, the wealth management industry is not only affected by the global environment but also by the demands of customers. The customers are increasingly asking for technologically sensible financial instruments, services, and solutions and are being extra meticulous when choosing the wealth management providers and financial services tools.
Existing wealth and asset management businesses are forced to think outside the box and review business models, while new-comers are making the industry incumbents play catch up: just look at how an e-commerce company Alibaba is offering tailored investment services on mobile devices.
What about the investment offerings? For a long time, the majority of retail investors only had access to current and savings bank accounts, while investments to the stock market were available only to so-called qualified investors, meaning- those with a much higher net-worth and financial education than the average person. Technology has enabled to solve this problem by allowing retail investors who are unwilling to wait for permission to enter the investment game, to take part and invest in the financial market. Today, we have Apps such as Robinhood, Wealthsimple, Nutmeg, and many others that allow retail investors to invest in the stock market. Technology has allowed investing in assets in ways that were unavailable previously, including investing in projects that provide environmental and social impact.
Technology has also given birth to a new asset class that is built on blockchain, starting from Bitcoin- the father of cryptocurrencies, to Ethereum, which enabled multiple business applications to be developed on its platform.
Can blockchain technology and products build on it, become more attractive to the mainstream market, and be included in wealth management strategies? It is indeed still a very risky market, nevertheless, it can be useful to get even a small exposure to blockchain-based assets not only for diversification reasons but also to learn about how these assets are managed, how does the acquisition, trading, and storing of such assets work. It is totally possible and predictable, that the current so-called traditional financial assets will be managed and traded on blockchain-based infrastructure sometime soon. Moreover, when the era of government-backed digital currencies comes, it is good to be ready and get familiar with how to manage digital currencies and assets on e-wallets and your devices. Think digital Euro, digital Dollar, digital Yuan, and other government-backed digital currencies that are being discussed and already in the early adoption phases.
According to research, the crypto asset management market is expected to show a CAGR (Compounded Annual Growth Rate) of approximately 20% during the years 2020- 2025. This is due to the widening adoption of the blockchain technology that is being used in various applications across multiple industries, such as banking, financing, trading, and supply chain. The Covid- 19 crisis has also had its impact here- the potential economic disruption that the pandemic will cause and is already forcing people and companies to think strategically and make alternative plans in case there comes an economic crisis. Bitcoin and alternative ways of engaging in the global economy and financial world are increasingly seen as safe havens and options to combat the economic disruption. Media is full of reports, entitled ‘Will Bitcoin become ‘millennial gold?’, ‘ Why cryptocurrency may be on its way to becoming the new gold’, ‘Bitcoin is the new gold. Here is why!’, and similar.
Naturally, investing and trading both in traditional stock or foreign exchange markets and in the crypto-economy market requires learning, education, and vigilance. Neither in the traditional nor in the crypto market there are simple and completely safe ways to get involved, everything requires knowledge and attention. Well, you might trust your funds to a fund manager, however, he/she cannot promise not to lose your money in case the market is collapsing. Or, as mentioned earlier, you might put your money in a bank account- then pay for it and observe how inflation eats the money. Therefore, if the chosen option is to be active and take care of your wealth (and health), then these are the best times to start thinking strategically about how to preserve and build it in an increasingly digitalized economy.
