Critical link: Blockchain and others will transform financial advice


January 30, 2017

The potential for distributed ledger and associated technologies has fundamental, long-term ramifications for financial planning businesses. Planners need to be across these innovations now so that when commercial solutions that use these technologies hit the market, their businesses are ready to embrace them.

Distributed ledger technology is a way of recording information that makes it easy to verify. Blockchain, which is the system that records how the virtual currency Bitcoin is stored, is one application of this technology.

Shortened Australian Securities Exchange (ASX) transaction settlement times will likely be the first real change to the market from Blockchain. Last year, the ASX invested $14.9 million to acquire 5 per cent of US-based distributed ledger technology business Digital Asset Holdings to start working on Blockchain solutions for its business. Subsequently, the ASX shortened settlement times for trades made through the exchange from three days to two.

This will improve market liquidity, reduce the cost of trading and minimise paperwork. An ASX spokesperson has confirmed an update on its Blockchain development will be included in its half-year results announcement in February.

“We’ll provide an update on our development then. In the meantime, we’re engaging extensively with stakeholders,” he said.

Tim Lea, chief executive of innovative technology company says Blockchain will also streamline the conveyancing process.

“It can take up to 15 weeks to complete a property settlement now. There are use cases for Blockchain being developed that will enable automatic registration of a property’s title to an immutable ledger, which means a substantial reduction in legal work.

“There are use cases internationally being tested that put all property registrations on the Blockchain. The state of Georgia in the former Soviet Union is doing a pilot to put all property online in the form of an immutable database that cannot be altered.”

Lea says any information that needs to be formally confirmed and identified naturally fits into the Blockchain remit.

“Anything that requires provenance, a look at the history of the asset, can very clearly be defined within a Blockchain-based structure.”

 Robo advice on steroids

Blockchain is far from the only emerging technology that will affect financial advice. Decentralised Autonomous Organisation (DAO) is another game-changer for the sector.

Lea calls it, “the world’s largest crowd-funding campaign that nobody’s every heard of. They raised US$168 million in 30 days on the basis of a 28-page white paper in June last year.”

The idea was to challenge the notion of a traditional company with a board and management structure and replace it with computer code.

The level of funds contributed equated to voting power. The notion was that people would submit funding proposals to DAO as an organisation, and vote yes or no for a proposal and apportion funds to it, or not.

The crux of the project was that everything was driven by a powerful, smart contract. But after it was hacked for US$53 million, DAO collapsed. While that project failed, future iterations will probably better protect members’ funds. The idea is to see it as a prototype for future venture capital funds, as well as new company structures.

“In the future, there could be machines that learn and create wealth automatically based around artificial intelligence and computer code. These machines could, in principle, accumulate wealth. It’s something in the very early stages of development,” Lee explains.

While it’s early days, the message for advisers is to keep a watching brief on these technologies, which will almost certainly transform the future advice landscape.


TOPICS:   Bitcoin,  Blockchain,  Digital Asset Holdings,  distributed ledger technology