How Blockchain and Cryptocurrencies Can Change The Industry of Wealth Management and Financial Services. Part 1. Introduction. Storage of value.
Companies such as Goldman Sachs and Morgan Stanley started offering wealth management services as early as in 1930s. Goldman Sachs is a financial services company that has been in business since 1869. Morgan Stanley opened in 1935. Both companies were looking to provide services to individuals of high net worth and were looking for a way to differentiate what they were doing for their VIP clients from the mass market offerings, which is how the term wealth management was born.
Later, banks and investment services also started offering wealth management services to small and medium-size business owners and families who wanted to get access to specialized services.
Typically, wealth management includes a combination of investment advice, estate planning and strategy, tax preparation, and legal help. Requirements for financial managers and advisors vary from country to country. In some areas of financial assistance, the professionals need to be certified. In others, no certification is necessary. The size of a wealth management organization can also vary significantly. It can be a large corporate organization such as Goldman Sachs, but there are also independent wealth management who have small boutique businesses.
Forbes Magazine has first published its List of World’s Billionaires in 1987. Changes that have happened to the list show that the wealth in the world has increased significantly in the world, which cause the wealth management industry to change significantly.
For example, The Forbes List of Billionaires in 1987 included 140 people. There have been only two people on the list with a net worth of over $10 billion. They were Taikichiko Moro and Yoshiaki Tsutsumi (both of them were from Japan). In 2018, the Forbes Magazine estimated the number of billionaires in the world to be 2,208 with the average net worth of a person on the list to be just a little over $4 billion, which is an increase of $350 million compared to year before that. The list had sixty three people under the age of forty and over two hundred and fifty women.
To stay competitive, the wealth management industry is always looking to provide new services to its clients. Cryptocurrencies and blockchains can help the industry stay competitive in six main ways.
New ways to store value
The first way is obvious and it includes storing value in cryptocurrencies. Wealthy people typically have very different money goals from the middle class. For the middle and lower income earners in a society, one of the major goals is to store the money securely. For wealthy individuals, variety and liquidity play a large role.
For example, someone may have a portion of wealth in stocks, a percentage in gold, a percentage in art, and now there’s an opportunity to also have some funds in cryptocurrencies. The benefit of doing so is that moving any other kind of asset during a crisis may be very problematic. For example, moving gold or art when there’s looting on the streets it extremely dangerous. With cryptocurrencies, this risk doesn’t exist at all. A person may have the private key in storage in a remote location and this will mean that the money is absolutely safe.
While it may seem that no affluent person would want to store a significant amount of money in cryptocurrencies, facts prove that this is simply not true. For example, according to an article in Curbed NY from April 12, 2018, hedge fund manager Claudio Guazzoni de Zanett has been selling his mansion in New York City for USD$30 million in a traditional currency or an equivalent of $45 million in bitcoins, Ethers or Ripple. What’s peculiar about this offer is that the seller is not someone who has stumbled into wealth quickly and who doesn’t really know what he is doing. The seller has built his wealth over a prolonged period of time. Also, the mansion that he was selling was located on the Upper East Side of Manhattan which is also known as an “old money neighborhood,” not a neighborhood where somebody buys a home after getting rich quickly.
In an interview to the Wall Street Journal, Zanett said that he was a big believer in cryptocurrencies and the only reason for the difference between the USD cash price and cryptocurrency price was the volatility of the latter. The home that he decided to sell was a typical huge East Side mansion with over 10,000 square feet of space, six floors and a rooftop.