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The Influence of Blockchain Technology on the Future of Wealth Management

Understanding Blockchain Technology

Wealth managers that hope to anticipate the implications of blockchain technology on their business must first clearly understand what a blockchain is. A blockchain represents a distributed ledger which records transactions using secure, encrypted blocks of data that each link to the prior block. The connections between this contiguous chain of data blocks are permanent, as is the transaction data recorded in the blocks themselves.

Thanks to strong encryption and the distributed nature of the blockchain, it could be cost-prohibitive to attempt to alter the blockchain connections or the data contained therein.  This permanence or immutability creates a transaction record that can be distributed securely across many counterparties without fear of tampering. All users of the blockchain with the appropriate privileges can review the data stored in the blockchain, which may lower the overhead involved in accessing a centralized ledger (such as assets stored at a given custodian, for example) and make it an ideal vehicle for interactions between multiple counterparties where trust may be low or objective verification of data is needed.

Potential Relevance to Wealth Management

The most famoususe of blockchain technology is the cryptocurrency Bitcoin, which relies on a distributed and secure blockchain ledger to achieve global reach and yet seeks to ensure asset privacy and integrity independent of the financial infrastructure of any world government or bank. While Bitcoin adoption is still far behind that of more traditional currencies, it has provided a potentially useful proof that the underlying blockchain technology works at scale. In addition, the appreciation of Bitcoin valuation has gained the attention of increasing numbers of investors2, suggesting that one of the most immediate uses of blockchain technology for wealth managers might be to use virtual currency as an alternative investment to further diversify the portfolios of their clients. Other rising cryptocurrencies such as Ether confirm that the age has arrived where investment portfolios can be comprised of digital assets, although solely doing so may not meet diversification goals as speculation and trailing regulation affect these currencies.

While virtual currency is the most tangiblemanifestation of blockchain technology thus far, the stage is set for more fundamental applications that could transform wealth management, such as:

  • Rapid client onboarding through the streamlined gathering of investment profile or Know Your Customer (KYC) data that is already securely stored in a blockchain;
  • Blockchain-based portfolios of assets could result in easier investment execution and communication between investors and wealth managers as portfolio preferences and changes become readily evident to both parties.

These are just some of the opportunities presented by blockchain technology that might alter the wealth management value proposition as operations and client service is streamlined, while also forcing potential reconsideration of revenue streams as transaction frictions and fees diminish. Of course, blockchain technology will likely encounter adoption challenges as it contends with the limitations of existing systems and relies on widespread adoption among counterparties to truly realize its full potential.

What Should Wealth Managers Do Now?

The enterprise technology advisory firm Gartner Group added blockchain to its famous Hype Cycle framework in 2016. The Hype Cycle is used to chart the adoption and maturation of emerging technologies, and Gartner pegged blockchain technology as being at the peak of expectations in the latter part of 2016. Technologies at that heightened stage of market exuberance inevitably begin to temper expectations as the technology jumps from the laboratory to meeting the varied demands and challenges of real world implementation, which is the transition that blockchain technology is beginning to make in 2017.

Given its transitionary state, wealth managers are advised to carefully monitor the maturation of this technology, as they have with other strategic technologies such as robo-advisors whose evolution took a different course than was anticipated in an earlier lifecycle phase. Wealth managers who wish to actively monitor and participate in the evolution of blockchain technology might consider the following:

  • Understand the Technology: Many sources of authoritative research on the theory and application of blockchain technology exist, including Gartner Group, CoinDesk and the new Blockchain Research Institute which was just launched in 2017 by futurist Don Tapscott.
  • Get Familiar with the Key Players: Bitcoin and Ethereum are the dominant cryptocurrency platforms, while firms such as Digital Asset Holdings are partnering with traditional financial institutions such as the DTCC to re-engineer the existing clearing and settlement infrastructure using blockchain technology.
  • Attempt a Proof of Concept (POC): If blockchain technology delivers on its transformative potential, those wealth management organizations with practical experience could be well-positioned to enjoy a first-mover advantage and therefore should consider trials of the technology. These trials could be as approachable as adopting virtual currency for transactions or even as an investment, or more ambitious such as signing on to be a participant in an industry consortium or working group such as the Stakeholder Working Groups being convened by DTCC.

An abbreviated version of this article originally appeared in the 2017 Midyear Outlook.


1Schroeder, Stan. (2017, July 7). These are the most promising cryptocurrencies right now [Web log post]. Retrieved from

2Coleman, Lester. (2017, April 7). Bitcoin is Growing in Value and Users; Factors toward $4,000? [Web log post]. Retrieved from

3PwC. (2016, February). Making sense of Bitcoin, cryptocurrency, and blockchain. Retrieved from

Fred Kauber is Managing Director and CTO of CAIS Group, and is responsible for all marketing and technology initiatives at the firm. Mr. Kauber is an accomplished leader and entrepreneur with over 25 years of experience in technology, online marketing, product management/development and operations leadership roles and has formally served in the role of CIO/CTO for more than half of his career at Fortune 500 and entrepreneurial ventures alike. He is an adjunct professor in NYU’s Management of Technology and Innovation program and a mentor at Columbia University’s Center for Technology Management.