The Shopification of Wealth

Running, maintaining, and expanding a Registered Investment Advisor (RIA) firm is more challenging now than establishing e-commerce businesses has ever been, despite the fact that these advisors manage over half of all wealth within the U.S. As of 2023, there are more than 15,000 SEC-registered RIAs managing over $100 trillion in assets. Beyond obtaining qualifications and licenses, a prospective financial advisor must meet an increasing number of requirements to enter the business.

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Wealthtech is incredibly fragmented. Custodians can create lock-ins and impose significant operational, legal, and compliance requirements. Endless layers of intermediaries require additional overhead just to keep the lights on. This is why we’ve seen increased consolidation in the space, with small RIAs being acquired by larger firms that leverage their existing infrastructure and economies of scale to grow their Assets Under Management (AUM). The generational transfer of wealth from baby boomers to millennials and Gen Z will challenge this strategy. Younger investors are disillusioned by traditional finance. They are digitally native and expect their money and assets to be the same.

Just like Shopify revolutionized e-commerce by making it accessible to the masses, on-chain technology is set to democratize financial advisory services. According to Coinbase’s survey, around 20% of Americans (about 52 million people) currently own cryptocurrency. For many, managing their digital assets gives them a newfound sense of control and autonomy over their finances, which often leads them to question the limitations of traditional financial systems. For the first time, financial advisors can now collaborate with clients while they maintain custody of their assets, fostering greater transparency and empowerment in financial decision-making.

In conventional RIAs (Registered Investment Advisors), the advisor works through established custodians. To begin working with an advisor, a client must either grant access to their existing account or establish a new custodial account for the advisor to manage their assets. On the other hand, self-custody presents a fresh perspective where a single digital wallet can engage multiple advisors, combining various kinds of advice and expertise within a single portfolio. This significantly cuts down on the time it takes to receive advice, from weeks to mere minutes, as assets can be inspected without the need for custodial access, and discretionary powers can be delegated with a single digital signature on the blockchain.

Tokenized assets: the online SKUs of the financial world

Tokenized assets are significantly altering the investment world, similar to how SKUs (Stock Keeping Units) reshaped retail inventory management. Through tokenization, investors can gain fractional ownership, enhanced liquidity, and in the near future, access to a wide range of asset classes through blockchain technology. In an era where your entire investable portfolio is just one digital signature away from reach, service providers will have less focus on operational challenges and more on creating returns, security, and growth for their clients. Furthermore, this development also paves the way for asset managers to connect directly with consumers.

In the near future, we’ll witness a fresh generation of On-chain Robo-Advisors (RIAs) entering the scene, catering more to the expanding community of crypto enthusiasts. Just as anyone can easily establish an online store using Shopify, licensed and skilled financial experts will be able to guide clients within the digital realm. The victors in this scenario will be the investors, who will have access to a global, transparent, and verifiable marketplace of expert advice, allowing them to select, or even combine, options that best align with their financial aspirations and requirements.

Keep in mind that the opinions shared within this article belong solely to the writer. They may not align with the perspectives of CoinDesk Inc., its proprietors, or its associates.