New technologies have changed the role advisors play for their clients. Now that discounts platforms, apps and algorithms have increasingly replaced their function as brokers and stock pickers, offering education on how to navigate the emerging financial landscape will be key, as Adam Blumberg writes today.
Also in today’s newsletter, Robert Stevens explains how crypto networks offer a Web3 solution for those looking for an alternative to cloud storage giants Google and Dropbox.
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Financial Advisors’ Next Value Proposition: Preparation for a Digital Asset Future
(Maskot/GettyImages)
Financial professionals seem to always evolve their value proposition.
Their initial approach involved stock picking and brokering, but as algorithms eroded alpha opportunities, they shifted their focus to portfolio diversification. Then, their focus turned to financial behaviors – helping clients determine how to save, how much to save and in what vehicles. More recently, we have seen a focus on providing more education to clients by producing and distributing more content.
Each of these value waves came with a technology that disrupted the financial advisor market by bringing the value directly to the retail investor. Stock brokers were upset by online discount brokers and the emergence of robo-advisors and auto-rebalancing. And financial advisors were challenged by apps like Mint and Acorns, which provide budget planning and tracking.
I think the next wave of value for advisors to provide to their clients is in preparation for the digital asset financial future.
We have seen inflation growth at near wartime rates. Interest rates had the fastest rise on record and caused banks to have negative equity, leading to bank runs and the need for the FDIC and the Fed to promise deposit guarantees above the $250,000 FDIC standard.
We’ve lost more trust in our Western-style democracies, as evidenced in the U.S., France, Germany and Israel, as government officials (some elected, some appointed) have started making regulation and enforcement changes without due process. This has included the closing and sanctioning of bank accounts often through no or little fault of the account holder.
For years the people that discussed crypto were talking about financial and political occurrences that were more theoretical. However, in the past year, those theories have become realities.
Several of the problems I’ve pointed to above could be solved partially or completely via crypto rails: an asset to act as an inflation hedge – bitcoin; a way to hold assets outside a bank – self-custody; a non-correlated asset class – crypto.
In the past, financial planning involved reducing investment risk in a portfolio. In the future, it will include reducing the risk of wealth disappearing in a bank run, government seizure and hyperinflationary period.
Cloud storage services such as Dropbox and Google Cloud changed how we store and share big files of videos and photos online. They let anyone store terabytes of data at a fraction of the price of a new hard drive, with files accessible on demand from any device.
But there’s a catch: Users must rely on the risk management system of a centralized entity that could rescind their access to their account at any time, share their files with snooping government agencies or even go bankrupt, leaving customers scrambling to find another solution before their files disappear.
Web3 offers another alternative: decentralized file storage networks such as Filecoin, Storj and Arweave. Instead of storing data with a single cloud company, decentralized file storage protocols cut up your data into tiny pieces, then store packets on pseudonymous computers (nodes) linked up to a decentralized network. Decentralization means that files are protected by a network formed of lots of different stakeholders rather than a single company.
The decentralized network in question is often (but not always) a blockchain. Instead of processing transactions for crypto, validators process file space for crypto – usually the native token of the protocol’s file-sharing service. For example with Filecoin, FIL is used as a reward for participants providing file storage.
We are extending a special invitation to the Financial Advisor/ RIA Breakfast taking place on Friday, April 28 at Consensus 2023. Join us for a discussion addressing The Most Important Aspects of Digital Assets for Financial Advisors: Portfolio Risk Management and Custody, Retirement Options and Allocation. Space is limited so be sure to secure your spot today! Click here to apply.
The roots of an hour-long surge were difficult to pinpoint, according to one analyst, but investors have recently been more optimistic about the crypto’s prospects following last month’s banking crisis.
CoinDesk Chief Content Officer Michael Casey tackles the apparent rise in hostility from U.S. regulators from a different angle: revenge.
Congrats on making it this far! On occasion, we’ll give our loyal Crypto for Advisors readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement to the users who create it.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
