If you’re a financial advisor, chances are you’re not using blockchain technology and not even sure how to define it.
Financial advisor Ric Edelman, founder and executive chairman of Edelman Financial Services, thinks advisors who are not up to speed on the blockchain will get left behind.
“Do you know what the blockchain is? Can you explain it clearly and concisely to an individual?” Edelman asked the audience at the conference. “Because if you can’t, you’re not much better off than the client you’re trying to provide advice to.”
Edelman recalled that when he asked one technologist to define the blockchain, he replied, “Fire. The wheel. The internet. Blockchain.”
And because blockchain cuts out the middleman in transactions, it will wipe out tens of millions of jobs, Edelman predicted.
“Anyone who stands between the buyer and seller is gone, so stockbrokers are gone, mortgage brokers are gone, ticket sellers are gone,” Edelman said. “Anybody who serves as that middleman is obsolete due to the blockchain.”
That transformation is already starting to take place. Vanguard has already moved $ 2 trillion in assets onto the blockchain, according to Edelman.
The results will lead to profound changes to commerce, including dramatically reduced expenses and increased speed and safety, he said.
But the blockchain technology still has some significant kinks to work out, according to technology experts in the financial advisory industry.
Aaron Klein, CEO of Riskalyze, a technology company that helps advisors assess clients’ risk tolerance, said he is “long-term optimistic, short-term pessimistic on blockchain.”
“Here is the challenge with blockchain today: It is handling 0.6 percent of the transactions that Visa’s credit card network is handling, and yet it’s getting slower by the minute,” Klein said. “We’re up to seven-minute transaction clearing times for bitcoin.”
Those delays come as the growth of the blockchain makes it so the decryption technology moves slower. Those transaction times are untenable for an industry that places a high value on speed, he said.
“It’s an interesting scaling problem. I feel confident that they will engineer some kind of solution to it,” Klein said. “At this point of the evolution of blockchain, the middleman is looking very good.”
Steve Durko, chief technology officer at TradePMR, a provider of brokerage and custody services for investment advisors, agreed.
“We’re not using blockchain right now. We’re watching it very closely,” Durko said. “We’re looking for opportunities to use it, but I need it to be a real benefit.”
James Dowd, managing director at North Capital, a financial technology firm and broker-dealer, said his firm has already found that opportunity and started implementing it seven months ago.
North Capital is using blockchain technology for the offering transaction, settlement, custody and clearing of exempt securities, which are not offered on the public markets.
Using the blockchain, Dowd said, enables these private securities to be “more transparent, more liquid, more accessible than before.”
“I was very bearish initially,” Dowd said of when he first started investigating blockchain technology. “I thought, ‘This is a great technology if you’re a drug lord or money launderer, but I’m not sure that anybody else is really going to use it.'”
As his firm has implemented the technology, there have definitely been hiccups and surprises along the way, he said. Notably, that includes taking the language of the developers on the blockchain and reconciling it with the language used in the finance world.
The technology is ideal for securities that don’t have an automated mechanism for processing transactions, Dowd said. The firm is making the technology available to clients on the clearing side of its business, including venture capital funds.
So far, the demand for the offering has been strong, Dowd said, both from existing clients and those that have found the firm by word of mouth.
“I think it’s going to be an incredibly disruptive force in financial services,” Dowd said of blockchain technology. “We see immediate applications that will save people time and money and will be more secure and controlled.”