Most people know blockchain as the technology underlying popular cryptocurrencies like bitcoin, not a recordkeeping tool for wealth managers. But, it has the potential to completely revolutionize the practical definition of “Know Your Client.”
Compliance procedures have become more time-consuming across the industry, some would say at the expense of client engagement. However, because of blockchain technology, the ability to gather clients’ and prospects’ data about their personal finances and better use that data to communicate and act as a fiduciary has never been more secure.
What Is Blockchain and How Does it Work?
A blockchain is a digitized and decentralized public ledger of records within a financial ecosystem. Its original commercial use was to codify transactions among buyers and sellers of bitcoin, but it has expanded to include asset ownership recordkeeping from real estate to music rights.
Think of a “block” as a collection of data points linked together in such a way that, once created, is timestamped and irreversible. Each successive block of data points creates a “chain,” so manipulating the data within a single block becomes practically impossible based on where it sits inside the chain.
Know Your Customer
Fiduciaries can’t act in their customers’ best interest without accurate information, and knowing a customer’s circumstances and needs is the first principle of wealth management.
With the increased scrutiny that the fiduciary rule brings, along with higher customer expectations across all industries, wealth managers must be apprised of clients’ life changes in near real-time to best serve them. A secure, blockchain-enabled digital platform—where the client’s input is irreversible—is the best tool available for a manager to track clients’ life changes and adjust their financial plans accordingly. Should a dispute arise later on, managers can also point to this client-generated evidence to protect themselves.
While great managers reach out to their clients regularly to ask for updates, a digitally based, automated solution makes this process more efficient. With unimpeachable proof in hand, managers then have the data needed to best act in clients’ best interests.
Having a child, changing jobs or relocating are life moments that would necessitate a deep conversation with a wealth manager and perhaps a change in a client’s overall financial plan.
When managers have a user-friendly digital toolkit available in their practices which clients can access on their own terms, then managers create relevant catalysts to reach out and deepen that relationship and can uphold their fiduciary duties.
Send Clients Relevant Content Automatically
When clients do update their life circumstances, and the blockchain stores all relevant data, new machine-learning technologies have the capability to send them the content relevant to their situations.
As an example, when a client updates his profile to include a new baby, this action could spur a phone call about setting up a 529 college savings plan. In addition, the right digital platform could forward relevant content from leading providers in the 529 space to educate the client.
Providing this Amazon-like experience to the customer has become standard practice in the consumer world, and it will soon be expected of wealth managers. Blockchain may offer the means to make this shift happen.
Peter Hans is the CEO and co-founder of Harvest Exchange, a communication software and behavioral data platform serving the financial services sector.