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IBS Journal June 2018


27


channels. The consumers of today expect digital; 85% of UK-based millennials are comfortable with the idea of robo-advice, compared with just 37% of investors aged 40 to 75.


Millennials are readier to retire than their baby boomer parents, according to the JD Power 2018 Group Retirement Satisfaction Study. The study, which surveyed 9,500 group retirement plan members, found that relative to age, millennials are most likely of all demographic groups to have set specific retirement goals and have the highest amount of savings.


What’s the solution to meeting the demands of a digital-first customer base? The first option that usually comes to mind is the implementation of a fintech marketplace. Why bother trying to create in-house systems when you can have start-ups pay for the privilege of access to your clients? This enables firms to pursue an aggressive digital strategy with the high costs – in capital and manpower – that are often required from widescale strategical and technological change.


The sky’s the limit


While blockchain, the Internet of Things and AI might take the headlines, another technology has been slowly but surely staking its claim as all but essential in the modern day: cloud computing. Cloud technology has emerged as a primary enabler for growing wealth and investment firms to deal with increased regulatory pressure, a demanding client base and shifting generational wealth.


Firms want quicker, more scalable solutions that deliver core business benefits without the aggravation and costs associated with upgrading in-house systems, and setting that up can take as long as 12-18 months. But the cloud is still considered a risky proposition and a threat to data privacy, and shifting legacy systems from on-premises to a data centre high in the mountains still seems like a daunting process.


Yet, as mentioned, the differentiator that wealth managers need to rely on will be their eagerness to embrace digital change. Therefore, it should be thought of as almost paramount that some aspect of cloud computing be considered. The pay-per-user model of cloud computing can help transform the way investment firms create and deploy applications and services. Differentiation is now a critical need.


Block ‘n’ roll


If cloud computing scares the average wealth manager so very much, surely they should be terrified of blockchain? Blockchain now occupies the same lofty, hype-filled heights which cloud computing once enjoyed between 2010 and 2013. There’s certainly a lot of pie in that sky, but it’s been estimated that blockchain could save the industry $2.7 billion a year if manual processes were shifted into a distributed ledger system.


The first challenge centres on the difference between ‘private’ and ‘open’ blockchains. Much of the excitement around Bitcoin is that it is an open network. This means anyone can set up a server and start


Cloudy outlook: cloud computing is becoming essential


mining Bitcoin and validating and approving the ledger of all the transactions ever completed. As a result, no one can control Bitcoin, and no one wants to.


When it comes to the wealth industry, most of the experiments will have been done on private blockchains with vetted memberships. One of the major selling points of blockchain is its removal of intermediaries from the overall process, but if the intermediaries own the processes, then what’s the point? Another major drawback for blockchain is its speed. Although the underlying infrastructure might be infinitely scalable, it isn’t particularly fast. The Bitcoin blockchain struggles to complete more than 10 transactions a second. Other networks are proven to run thousands of times faster.


If you will allow us to hammer a final nail into the blockchain argument, it’s the problem of transparency. In a pure blockchain everyone can see every transaction that has ever occurred, making blockchains transparent; they’re far from anonymous. While nodes in the chain contain encrypted data, it wouldn’t take too long before identifiers were assigned to different members of this smaller, private blockchain.


How would rich clients react to a system that effectively showcases their portfolios for the world to see? Potential leaks on the scale of the Paradise Papers could become a regular occurrence. Of course, this is all conjecture, but is a real possibility. The question will centre around who first develops a workable algorithm, and whether the final platform is actually worth the investment in man hours and money. As with many technologies at the height of their hype, it’s probably best just to wait and see.


www.ibsintelligence.com


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