How Blockchain Will Break Down Barriers to Asset Management?

Global inequality is more extreme than ever, and with the rising cost of living in many places around the world due to the pandemic and political instabilities, the gap doesn’t look set to narrow any time soon. Over the last few years, the divide between rich and poor has risen dramatically, with the world’s richest 1 % (those with more than $1 million in assets) owning 45.8 % of the world’s wealth. This inequality is amplified by archaic financial systems, which limit access to premium systems and services to only those with access to the largest sums of capital.

As a result, individuals demand alternative platforms with increased access to decentralised, democratic and transparent forms of wealth management. To effectively bridge the wealth divide and restore trust in the financial sector, introducing new, innovative options that look beyond traditional asset management is key.

Harnessing the power of technology

In just ten years, blockchain has revolutionised our approach to currency, privacy and the future of finance. However, despite the huge potential blockchain has to disrupt and improve industries, few solutions still use this technology to democratise wealth management systems. 

Opening up wealth management to all and keeping it from being exclusive to the wealthiest members of society requires a disruptor with the ambition and capabilities to achieve these goals.

By harnessing blockchain technology's capabilities, the industry is producing decentralised automated systems capable of implementing increased levels of accessibility, transparency, and efficiency in a sector that has remained largely the same for decades.

Cutting the costs

Wealth management traditionally offers a range of services that foundations, trusts and charities steer. Those using these structures can typically afford the best tax, regulatory and legal advice the market has to offer, with the average individual typically requiring a minimum investment between $200,000 and $1,000,000.

Large asset management fees equate to around 1-2% of the amount invested, with this level of wealth inaccessible to many, where does the average Joe turn to protect their savings or try to accumulate wealth? Blockchain removes the need for these outdated wealth vehicles and by stripping back on costs, platforms are able to provide their services with as little as $100 and an internet connection.

Transparency is key

However, expanding access alone will not adequately reinvent the wealth management sector. Over recent years, it has become increasingly clear that the next generation of investors will demand transparency above all else.

Last year’s Robinhood scandal is a prime example, with the trading platform penalised to the tune of $70 million for providing misleading information to its users. Robinhood users grew increasingly discontent with what they perceived to be the secrecy surrounding the platform’s actions, and suspicions of inequality between the treatment of retail investors and institutional investors, such as large hedge funds, only grew.

To assuage the concerns of future individual investors, asset management platforms must be committed to transparently evidencing how they prioritise all of their users’ best interests.

Decentralised asset management platforms can employ innovative smart contracts to directly service its investors, thereby eliminating the need for assets to be passed through a long chain of institutions for processing. This investment infrastructure achieves the desired transparency while mitigating any risk of arbitrary intervention or potential manipulation.

Leveraging the power of blockchain

Even with the introduction of new technology to traditional asset management firms, the pace of change remains too slow and unreactive to address the challenges of wealth management in the 21st century. Conversely, decentralised platforms powered by blockchain technology can quickly and efficiently harness AI advancements to deliver better services than their large hedge funds counterparts.

Blockchain technology allows programmers to update their systems continuously and easily. This not only enhances access to these advanced AI systems by lowering the barrier to entry; it also maximises the efficiency of return on investment by utilising the latest developments in blockchain technology.

The next step for asset management

As other industries have embraced the future, it has become clear that traditional finance will soon be a thing of the past. A new generation of informed and vocal retail investors are demanding a system that meets their needs, and decentralised platforms represent not only a solution but also the future of asset management.

Blockchain can provide people with access to a democratic, transparent, and efficient alternative method of wealth management which fulfils the needs and demands of the modern individual investor. Opening up access to smaller investors in this way is a key step in reforming and revitalising the world of asset management.

About Author

Tom Stuart, CEO of Nous Systems