The largest intergenerational wealth transfer in history—more than $80 trillion shifting from Baby Boomers to Millennials/Gen Z—is already underway. At the same time, the rise of digital assets is quickly piquing the interest of digital natives with a much higher level of comfort experimenting with crypto, tokenized assets and alternative investments. If TradFi is going to lean into Millennials and Gen Z—moving away from advisory and portfolio-based wealth management to a model that relies on "engagement and ecosystem"—then they must incorporate digital-native products, custody and education to solidify their relationships with these wealth management clients.
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Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Holly Sraeel (00:20):
Welcome to American Bankers Leaders Live. I'm Holly Sraeel, senior vice president of Live Media. We're here today to talk about tradify, gen Z and the pursuit of a digital asset strategy. With me today are three tremendous speakers to my left, Nancy Beaton, president of Uphold Us to her left Ambre Subrian, CEO of Geico. And finally, Raghav Chopra, co-founder of Tetra Digital. You guys bring three different perspectives to this emerging field of digital assets and its impact on wealth management. So let's talk about this. The largest intergenerational transfer of wealth is happening now, $80 trillion. At the same time, the rise of digital assets are quickly peaking the interest of savvy digital investors and digital native investors. So let's get into it. What's at stake here for Tradify?
Nancy Beaton (01:12):
Yeah, I can start. I think on one end of the spectrum, we know there's going to be about 30 million new entrants into crypto and to bitcoin, specifically in the US market in the next year. So there is an entire influx of people that really want to get started, but they don't know how. They constantly, I don't know where to get started. I don't know how to get started. I know I need to be in it, but I don't know how to get started. And so you are going to see a lot of players in this space. Easy Bitcoin, we just announced an easy Bitcoin app. You're going to see new investors come into this space, new brands come into the space trying to serve that huge new market entrance into the space. I think on the same side, there's a time of the market today. We have this nice regulatory embrace in the US that's really going to fuel I think a lot more institutions, enterprise clients that want to get into the space in a much bigger way as well.
Ambre Soubiran (02:11):
Absolutely. I mean, just to give maybe the more institutional perspective, like all of the financial institutions now are forming their crypto asset strategy and it's two things. There's the crypto strategy as in how can we offer to our clients exposure to crypto as this underlying asset class that a lot of now retail demand is on the sidelines waiting to have a clean and easy way to get exposure to the asset class. And then the second part is also using blockchain, right? Understanding from an institution standpoint, what are the industrial use cases for integrating blockchain from an infrastructure standpoint? And I think we're much more focused on the institutional kind of B2B side of things and there's really this kind of double aspect of crypto, which is the how do we give crypto to our clients and then how do we use blockchain for us? And that has never been as important as it is today, and it's very much fueled by the regulatory clarity we've been having in the us. Rego.
Raghav Chopra (03:10):
Yeah, Holly, I'd say that much of this has been inevitable.
Ambre Soubiran (03:13):
So
Raghav Chopra (03:13):
Digital assets adoption, if you truly zoom out, started with 40 years of development that led to blockchain and the Bitcoin white paper. So it's really on the shoulders of giants and advances in encryption and macroeconomic trends that led to this technology taking root. If you go back to the 1970s, 17% of the s and p market cap was related to intangible assets. So software intellectual property today that's 85%. And so it's certainly generational because technology is natural for the younger generation, their app first. But beyond that, the long-term value creation and drivers in the economy are also digital. And so to have assets in digital form is a natural extension of the prior waves of the internet and cloud computing that have led to this technology allowing you to capture value in the form of a digital unit rather than the analog processes we've all known.
Holly Sraeel (04:22):
Okay. But let's back up for a minute. Talk to me a little bit about how the Gen Z and millennials fundamentally differ from baby boomers and Gen X in their investment decision making.
Raghav Chopra (04:37):
Yeah, happy to go into a couple specifics. So first of all, the exchange of information has been real time since the T-C-P-I-P protocol and the early eighties and the internet took root, but the financial system has always had this t plus three settlement, T plus one, there have been transaction costs, bank holidays and aligning that to the way we deal with information in a real time 24 7 manner is again natural to those who've adapted to that, whether it's for e-commerce or the personal use of software. So that's one big driver. A second reason is that digital assets are a massive return opportunity and that's also been demonstrated through now years of history. So over the last 40, 50 years, M two in the us, the money supply has been growing at 7%. So we often talk about inflation, but really aside from gold and growth, US equities, it's very hard to beat that kind of money supply expansion in terms of return. And so that's why you've seen capital go into technology investments and digital assets. And for the younger generation, which sees this type of return hurdle and has a longer term horizon in investing, it's natural for them to embrace this asset class and that's created a directive. And so the comfort around being involved in financial assets, being able to through apps and one's own set of portfolio management tools, engage has given some comfort to those who are looking to examine it.
Ambre Soubiran (06:16):
Yeah, I like the word comfort. I think it's really an important part of the explanation around the younger generation. They're comfortable with digital assets. It's not something that is new to them. Everything has been digital initially. I agree, information, social media, apps, everything. And now money and as much as it's more still disruptive for some generations, for the younger generations, it's just very comfortable dealing with digital asset. There's nothing really new. And so the adoption is very different and the way they interact with money is very different. And even for me, I am still kind of hybrids, it stuck a little bit between two generations. I'm still amazed when I do instant transfers with my bank. Honestly, my little sister who's 25 would be shocked that it's not an instant transfer. No, it's those things. There is this shift in how comfortable the younger generation is in interacting instantaneously with their money and having that money not be a physical object at all. I am reassured I have dollar bills in my handbag. I like having cash. Those are things that are completely changing. And when you think as a financial institutions about how do you appeal to the younger generations, this is such an important component of thinking about how you present the offering.
Nancy Beaton (07:33):
I think so too. I think if you look at a baby boomer generation, they got a job, they sat at the desk, they let a 401k vest for 20 years before they retired
Ambre Soubiran (07:46):
And
Nancy Beaton (07:46):
They might have invested in real estate a house, maybe something like that. That is not what this next generation is doing. They are not investing in real estate, they're typically investing in digital assets or technology related assets. I think they're investing earlier so they can take a little bit more risk than maybe a baby boomer who invested later after they were married in a job and a house and kids. And so I think they just have a different approach to it, a different timing to it, a different preference on assets I think. And also a different way they want to buy a lot of Gen Z want to buy through social, right? They trust social trading, they trust robo trading. They trust those things where I think typically in older generations you have them have a financial advisor or they go to proven returns, it's 6% and a savings account or some sort of bond or something like that. And so I think it's really changing the game on not only what you have to offer but where you offer it to them and some of the features and the services as well.
Holly Sraeel (08:54):
But is comfort level the same thing as appetite for risk? You can be comfortable with something, but it doesn't necessarily mean that Gen Z understands that there will be risk. So talk to me a little bit about how you think they'll be approaching levels of risk because comfort could be sort of an easy place to get you into difficult area
Raghav Chopra (09:21):
For sure. I think the role of an advisor in some ways is going to be more important than ever in perhaps different ways because the issue here is that there's a Charlie Munger quote that the big money is made in the waiting, not in the buying and the selling.
(09:40):
And so having all of these tools at your disposal can be a mixed blessing. So we as an institutional asset manager feel that particularly in newer areas, there's alpha and there's a lot of market cycle knowledge that's necessary to really generate long-term returns. So I think having the ability to trade and to have social input makes it exciting and it's important for the learning process, the discovery process and the engagement for the next generation. But I do think that managed vehicles will have an important role and wealth advisors will have to bring together a lot more data analytics and infuse AI to make a service that's relevant to this next generation that in many ways is equipped for a lot of self-service. But in digital assets in particular, I think the operational complexity as well as the fact that when it comes to volatility, the thing that investors need to be saved from is often themselves. Longer term vehicles we think are particularly important because those large returns accrue over time.
Nancy Beaton (10:54):
But a lot of them are telling us too that they want to start with Bitcoin.
(10:58):
And if you look at the past 10 years of Bitcoin, it's outperformed gold, major equities, some real estate funds. So I think the best predictor of future performance is past performance. So I think while some people would put the whole category of crypto as riskier, I think there are some of these digital assets that are proving themselves to be better returns than other things they could have in their financial portfolio. And when we talk to them, they definitely say, I want to get started in crypto and I want to start with Bitcoin now, where they go from there, they can determine themselves and see how much they want to get into the space. But I think when you start there, I think everybody should think about that it's one of the best savings technologies ever invented.
Ambre Soubiran (11:47):
I think what you just Sraeelsed about risk, there is one interesting thing that is clearly a different approach to risk within the digital space. It is counterparty risk. In a world where everything is digital and where all of the marketing is digital, you don't differentiate a solid financial offering from another. And it's interesting because in the old world of banks and branches and brick and mortar shops where you have a physical person, it means that you need capital to have a branch and to have an employee that sits there and is going to advise you on stuff. So there is this kind of notion that it's easier to differentiate a successful financial institution from another, just on the back of what you can see when you are thinking a digital offering, you just need a really good designer and you can appear as much more reputable than another. And I think for the younger generation, they don't really have this sensitivity to counterparty risk and an ability to necessarily differentiate front ends of websites basically. And so I believe that will be one of the challenges for institutions and how they address also that generation is how do you in a digital way express that robustness and that kind of financial soundness?
Nancy Beaton (13:01):
I think so. But they're very savvy at social verification. I think more than probably some people I know they verify two, three times right through telegrams, through TikTok, through Reddit, through other places if others are working with this or they're legit or not. So I think they do a much better job than sometimes other people IC who trust one person and go for it. Okay.
Holly Sraeel (13:30):
So you talked about Nancy, you have been told by the people that you're hearing from that Bitcoin is high on their list. What other digital asset products are resonating with younger investors at this moment?
Nancy Beaton (13:43):
Yeah, I would say various ways to buy. So definitely social trading. I think copy trading is a big one for this generation as well where they can see their influencers or they can see who they trust and copy your portfolio or learn from that portfolio. That's a really big one. I think Bitcoin is key for them. I do believe that they typically still start with the majors and then I think they work their way from that depending on how much disposable income they have, how far they want to get into the space. And even though we're saying, I think you made a great point that they're comfortable, but the reality is they still sometimes don't know how to get started, right? They're comfortable with the technology using their phone, peer-to-peer transfers, all those things. But I think one thing that institution and enterprises need to consider is the education piece. And I think you hit that too. It's about they believe in the asset, they believe they need to have it. I do still feel like they need to understand where to get it, where to start. And I think that is still a little bit of a hurdle. When we did research, even 88%, they trust Bitcoin to grow their money over the next 10 years, but half of the market didn't know where to start.
(15:09):
So I still feel like there's this overwhelming appreciation for this new asset class, but I think there is still some confusion or unknowingness of how to get started. And that's where I think a lot of these enterprises and companies can differentiate themselves. They can make it easy to get started, they can educate, they can do things so that you can easily onboard and get going.
Holly Sraeel (15:35):
So let's continue. We are going to get to education, but I want to tap into everybody else digital asset products that you think will resonate with the younger generation.
Raghav Chopra (15:44):
Yeah, I think that manage products are particularly important because having overall compounding exposure to a nascent asset class requires a lot of capital markets expertise and breadth. In fact, I think being cross asset is also increasingly important. So the public equities now have 300 plus blockchain related companies. These are digital asset treasury companies. They are exchanges, and that's a vast and growing investment opportunity. And in the public markets, often there is limited nuance or understanding of blockchain. In the crypto markets, there's often a limited understanding of interest rates, liquidity and the macro drivers. So to be in a vehicle that has cross asset exposure I think will be increasingly important. The other thing that we have to remember is you talked about the $80 trillion being transferred.
(16:41):
That is a large number and the fact is that the crypto market with purists and a younger generation is still very small. So we have a $4 trillion asset class. And while the younger generation has realized that exposure is important and has gotten sense of comfort, we still have a vast amount of capital that is still looking to have an understanding of what it is. And if you're going to climb Everest, you often need a Sherpa. So digital assets is that kind of quest, and that's why I think we're in the stage where active management is particularly important as a compliment to passive ownership and even in some cases self custody of digital assets.
Ambre Soubiran (17:27):
I agree with everything that was said and especially the macro view of four to 80 trillion. Maybe one thing specifically around your question around what are they looking to buy beyond Bitcoin, it's not my gig, but I think they like name coins. There's those community coins, those brand coins. This was very popular at some point. I've never bought an NFT in my life, just to be clear. I'm not saying we should, but it does appeal to younger generations because it builds this sense of belonging and community through ownership of a financial asset that will provide rewards. And I think that is something that is also new in terms of how to understand the demand and the relationship between the younger generation and digital assets. So all of these community coins are a new type of financial asset that I don't believe really existed. You had the miles that was probably the closest to what you had before as a reward thing. And so I think that's an interesting angle from a really micro standpoint.
Holly Sraeel (18:29):
So all of this said how can a traditional wealth manager build the right product mix for clients? How does he or she they go about starting that?
Nancy Beaton (18:41):
I can say from our perspective, so we've been in the crypto space for the last 10 years, we've had a successful retail wallet, but really what's special about Uphold is the platform that underpins that. What we've done is we have taken that platform fully apid it so that an institution, an enterprise customer, a business, a brand can plug and play. And what comes with that is an already developed trading venue platform. One that works to be highly compliant, highly regulated, and then also 10 plus years of what customers want. What we see people buy on our platform, how they want to buy it, what trading tools, limit orders, stop loss recurring buys that you can offer. It comes in a plug and play fashion. So almost our roadmap is their roadmap.
(19:35):
So in a way, you don't have to be a blockchain crypto expert. You can partner with somebody, plug in the platform and be up and running in three months. So I think it's important that people choose whether they want to build or buy, and then when they do want to buy that they go with somebody who's been in the space for a while and has been through the ups and the downs and the retail customers coming and flowing in NFTs and mean coins and all that good stuff. They can impart 10 plus years of knowledge into the space already, which gets you to market faster.
Ambre Soubiran (20:10):
On our end, we work with asset managers and exchanges in providing them with regulated benchmarks on which you can build financial products such as ETFs or ETPs. But we also do that not just for mono assets. I mean the obvious candidates would be Bitcoin or E, but we also do that from an index standpoint. So we have something called the KT 10 and the KT five, which is like top five, top 10 caico index that gives the ability to asset managers, for example, to issue a financial product that is investible that will basically invest into a strategy that is a top 10 crypto indices. So it gives you this diversified exposure without putting the responsibility of having to build the benchmark and build the index and everything at the issuer level. So it's a regulated activity, but we have a methodology where we decide of a rule book for investing in assets that are vetted, that trade on reputable exchanges that have sufficient liquidity that are good from an asset quality standpoint. And so the asset managers would, or even exchanges listing derivatives on those products would basically outsource that responsibility of coming up with an index and a benchmark that replicates the exposure to the asset class. And I think this is mean, it's passive. Investing into an index strategy is a very good way to give exposure to your clients without necessarily taking on the responsibility of saying, this should be included, this should be excluded in the strategy.
Raghav Chopra (21:36):
Yeah, Holly, as Nancy mentioned as well, I think that the operational part of this is as important as the investment strategy. So for our investment firm, my co-founder and I have both been equity fund managers for quite some time. I think here there's operational complexity that requires any fund manager exchange or partner of a wealth management platform to really make sure they have the best partners. Previously that wasn't possible to say that KPMG's an auditor and you're working with the best custodians and exchanges was more difficult. And now we've actually come further than many in the industry understand because the amount of security and robust custody offerings that are in place already have become advanced. We've had the passage of the Genius Act in the us, so stable coins as an on-ramp is a major unlock in a watershed moment. And the other half of that piece, which is pending and as the Clarity Act is going to identify digital asset securities and commodities and make very clear the reporting and disclosure posture.
(22:47):
So we're already on the operational side most of the way there. And now I think as we get classification and issuer responsibility, there's going to be no reason for anyone even at the retail and wealth management level to be allocated. So our estimate is there's $50 trillion across all the wealth platforms and around 31 trillion is still gate kept from accessing even ETFs and some of the more entry level products. So that's a process where that has to unfold, but we do think the operational setup is there and the best players, whether it's funds or exchanges, data providers, et cetera, have adopted some very high standards.
Holly Sraeel (23:34):
You said what was the number that's still gated?
Raghav Chopra (23:36):
31 trillion.
Holly Sraeel (23:37):
That's crazy. That is crazy. Alright, so let's talk about this. What tools, dashboards, gamified experiences, et cetera, will keep next investors engaged in digital asset wealth management?
Raghav Chopra (23:55):
Look, I think that some of the apps from the wallet providers and the biggest global exchanges have had very innovative rewards programs.
(24:08):
And you're seeing a blend of traditional finance and the major US exchanges and wallet providers. So for example, credit cards with crypto, bitcoin, digital asset rewards are taking off. You also within the apps themselves have the ability to work on decentralized exchanges so you can access a wide variety of assets. These are innovative and they've brought more people into the ecosystem and we often say sometimes you have to test as you invest. And so the usage of these apps and those not always gamified, but engaging and social venues has led people into the asset class and then they've discovered that they might want a real portfolio allocation.
(24:56):
It's
(24:56):
A good entry point. Some of those applications I think are a good gateway.
Ambre Soubiran (25:04):
I think something interesting that we could mention is something that is relatively specific to crypto and blockchain whereby if you're a part of the community and if you've engaged with a service or a defi protocol or any kind of application, you can be rewarded with a free airdrop of tokens. And I think this is a mechanism that is very much used to incentivize adoption and usage and testing. And for companies that offer those services and then reward with airdrop, it's an incredible way to get instant obviously adoption, but that can be very short term, but also instant feedback. So the feedback loop between your users and your protocol or your financial application on blockchains as well as the kind of reward program for the user to provide feedback is very much instantaneous. And that I think is something that is an amazing tool for companies providing those services.
Nancy Beaton (25:58):
Yeah, I'll say number one, hands down, they want to earn crypto on their crypto period. Airdrops staking rewards, they want to have XRP back on the XRP debit card, they want to have BTC back on BTC. We offer in the easy Bitcoin app, if you deposit your USD, it's FDIC insured pays up to 4.5% interest now and you can convert that to BTC and everybody wants it. So it's like earning a multiplier on your multiplier. It's not just dollar for dollar, it's a multiplier on your dollar. So hands down, I think rewards in some fashion is what everybody in crypto wants. They want to maximize their crypto.
Holly Sraeel (26:45):
How does financial literacy around blockchain play into building confidence for the next generation of digital asset investor?
Nancy Beaton (26:54):
Well, I think I would separate literacy from education because they're going to need help. They need help getting started. And many people are very financially literate. They're not crypto or blockchain savvy. I have friends that are very financially literate, they have entire portfolios. They still call and ask for, Hey, what's this token? Should I do this? How should I think about the portfolio? So I think they need education and I think that's going to be critically important. They understand limit orders, tSraeelling stop losses. They get how that works in their financial world, but for some reason it's hard to understand how it applies to crypto when it's very similar. So I think they are going to have to have a lot of education. And I do believe even for this next generation education and trust in the company that's giving them the crypto is really key. And I feel like a lot of people could differentiate themselves from just simply offering a trading venue to offering one that actually helps them out, educates them, they can trust in it. And so I think it's going to be super important.
Ambre Soubiran (28:05):
Don't you think that the new generation will super use AI to learn quickly and ramp up quickly about something? Honestly, when I was fresh out of college, I didn't know where to learn about limit orders and stop losses, all of these things. And it was quite advanced financial market stuff today you can just Google it and you'll get an answer, and then you can go on a crypto exchange or a defi protocol and do that right away for fractional costs. You can play around with $10, right? That's right. Which is something we didn't have 10 years ago. So I think when it comes to financial literacy and education, we're getting into a world where people are much more self-educated and autonomous in their learning and the capital required to get practical examples is much, much lower. So I'm not too worried about the educating part when it comes to the action. Now, when it comes to what you're investing in, I think is going to be the tricky part. Bitcoin is an obvious one, eat and the kind of biggest crypto. But then when you start getting into the tail, that's
Nancy Beaton (29:09):
The top three for,
Ambre Soubiran (29:11):
And the list is much shallower than people would expect because people hear like, oh, there's 8,000 tokens or 10,000 or God knows how many. I don't think you can really seriously invest in much more than five or 10. Right.
Nancy Beaton (29:23):
Well, and I would tell you AI trading is one of the key things people are asking us for right now. Almost. They don't want to take the step to do that. They want some sort of social trading, copy trading, AI trading. So yeah, I think you're going to see a lot
Ambre Soubiran (29:36):
Of that and having those smart portfolios where people just build a strategy and then you just, not blindly, but as you said, you look at historical performance of a given strategy and you say, I'm just going to invest in that and it's going to replicate something and I don't necessarily need to think about the strategy itself.
Raghav Chopra (29:51):
Yeah, I'd say the learning is open source and so is the blockchain.
(29:55):
And the most interesting part of this is the institutional side where equity sell side research and true asset class coverage on the institutional side has not fully emerged yet. And that's giving the opportunity to individual investors, retail investors, high net worth investors, even family offices to be ahead of the institutional flows of pension funds, endowments and large pools of capital that operate by committee. So they have a unique window to get acquainted with the asset class and allocated to the asset class even before the largest dollars flow. In some ways it's the reverse of capital formation in other asset classes that we've seen over prior decades where the largest pools of capital come in first. This truly started as a decentralized wave and it's going to end with the largest pools of capital that are sovereign owners and the biggest balance sheets taking their time to get in. But this makes it a unique window and the fact that a blockchain is transparent and many of these projects have more information available to an investor actually than a small private company can be an advantage over the long run so people can get engaged. So I agree, narrow set of winners is likely and that's why we believe in active management. But there is a great, I'd say information advantage that folks can develop by learning
Holly Sraeel (31:28):
What are the biggest regulatory hurdles today when it comes to a wealth manager trying to present digital assets to clients?
Raghav Chopra (31:39):
I think what we're waiting for is the Clarity Act and the market structure framework. And what's already happened is a full 180 what the asset class was considered a risk. And now within any portfolio allocation, even the likes of BlackRock and Fidelity and their model portfolios have included digital assets. So now the risk has swung to the fact that institutional capital by some of our measures is only 30 basis points allocated to this asset class. And if it's supposed to be a couple percent of your portfolio, then watch out above because a lot more has to flow in. And so I think clarity around the issuer obligations is what's on the horizon and will be a major unlock. But in terms of custody rules, again, in terms of the stable coin legislation and also in terms of the way digital assets are treated for tax and other purposes, we've actually come a long way in a very short period of time under this administration.
Nancy Beaton (32:47):
Yeah, I also think it's probably opened up for enterprises and businesses. We've had a lot more inbound where people feel comfortable now getting into the game and offering it to their users or even using it for internal treasury management, cross-border treasury management. I mean, it's a game changer, right? It's cents on the dollar, it's 24 7, it's borderless. So I think both internally and externally, if they want to offer it to their own customers, this new regulatory clarity in general I think has really opened up the door for a lot more companies to get in the game for themselves or for their customers.
Ambre Soubiran (33:24):
I don't think it's considered a very risky asset class anymore, honestly, at least again, the top few cryptocurrencies, a lot of the risk around are there going to be hacks? Are there going to be terrible regulatory oversight? Is the CC going to sue me? All of that, all of that is gone now. And so now it's a question of how do we invest, how do we get access and how do even use it internally? I agree. I mean a part of our treasury is crypto and we're very happy about that. And it's something that now companies are not just thinking about how do they offer it, but how do they integrate it into their own treasury management?
(34:05):
That's right.
Nancy Beaton (34:05):
Which is very powerful. And we see them looking to pay global workforces, stable coins, whether you are in Argentina, Latin America, that's a really good way for employees to get paid. We see them do treasury management, we see them do cross-border payments within the company. So there's also a lot of internal ways I think that they'll embrace it as well.
Ambre Soubiran (34:27):
I love that you started, the first thing you said was about crypto today has built up around five decades of research around cryptography and how do we bring money to an internet? And there's so much, and I fully agree, and by the way, I'm passionate about the history of Bitcoin in the early days of where it came out, and actually if you remember the early days, Ecuador was one of the first regions where Bitcoin was adopted because it was just a better payment system. And finally, 10 years later, or actually more than 10 years, 15 years later now financial institutions are realizing, oh wow, this is actually a great payment system. We can do like 24 7 instant settlement. We can do cross border, cross jurisdiction, transfer of assets and wealth. And so as much as before it was like an escape to a system that was broken in some jurisdiction, now we're realizing you can take that same technology and use it to just improve what already works. And it's a very different thing, fixing something that's broken and improving something that works. It took some time to get there, but I think we're there now.
Holly Sraeel (35:31):
Well, I'm not sure that we're totally there now. I mean it is challenging some of their models. They would have to rethink their fee structure and a lot of, particularly in the payment space, I mean there's a lot for stratify to protect. Yes. But if
Ambre Soubiran (35:45):
You think about it, if they just use it and it's cheaper for them and they don't change their fee structure, that's more margin. And I think that's one of the big narratives. The financial industry is reduce opex. Honestly, I really think one of the biggest opportunity is not getting access to more capital or anything, it's just reducing your cost structure without changing your fees thing is hopefully the users will be like, Hey, you've streamlined your costs, so now you have to reduce my fees. But there is going to be this intermediate thing where there is a big opex opportunity,
Holly Sraeel (36:15):
But they will have to address the fee structure. There's no way around it. Okay. Do you think that traditional wealth managers should build their own digital infrastructure or partner with others, fintech's, custodians, exchanges? I mean, how do you think that should go?
Nancy Beaton (36:33):
I'll let you guys go first, my answer, how generous of you,
Raghav Chopra (36:39):
I would be in the partner camp, unless you have massive scale and specific domain expertise, in which case vertical integration can make sense. There's a real benefit, particularly given how fast moving the space is to leverage the best partners and operators. And our firm has benefited from that. I think many of the leading wealth platforms have also seen that this is a world of APIs, open data and easy integration. That's part of the promise of blockchain, right? Transparency block explorers. And so now even in the internet wave, we saw that if you're a closed system, you can extract a lot of money from people for some period of time, but it's actually better to have an open system and have people voluntarily plug into it and pay you for the service. So I see that same model applying here where people will partner with some of the firms that have been early to digital assets.
Nancy Beaton (37:44):
I'll
Ambre Soubiran (37:45):
Let you talk because
Nancy Beaton (37:45):
I agree.
(37:47):
I would just say competitively, you cannot get to the market fast enough right now to take advantage of the window that we have. You just can't if you want to build on your own. And so I think that's why we've seen a huge inbound or a huge flux of inbound calls around trying to partner to get to market. I think there's pressure to take advantage of this new revenue stream. I think there's pressure competitively to get into market before your peers. So you just can't do that if you're going to build your own. So I think yes, we offer that service, but I think if you're looking, if you're an enterprise, a bank, a FinTech, somebody that has customers that want this, I think you need to partner and get into the market quickly because if you're not thinking about it, others are. So I think you've got a partner just speed to market alone, not to mention all the other background, 10 years of experience, regulations, compliance, legal work, just how you can talk about it, present it, what you can do, all those things. I mean, that's a whole nother thing, but just to get to market competitively.
Holly Sraeel (38:59):
So in terms of partnership, are there any risks to the tri fight community? Because we've seen with FinTech partnerships that there's been some disastrous meltdowns with operational risks and compliance risks and so forth. So what risks are at play, if at all for tradify who want to strike a partnership with a,
Nancy Beaton (39:25):
I think the risks that you would typically see when you're doing a major integration like this, right? I mean, while you don't have to have the platform built or all of the regulatory licenses, you do have to understand how it works because there is responsibility on both sides. And sometimes our partners are equally highly regulated like we are, and it's a really nice match. Sometimes they're not as highly regulated as we are and they need to understand what does it mean to bring a regulated asset to market. So I think they have to be willing to, I'll say dig in and be part of the process so that they understand what they're taking to market, how they should take it to market, how people are going to use it, because they're going to want it to be successful. And I think all those things they need to vet through with our team.
(40:21):
And I think if they don't do that, I think there is risk that they're going to launch something that's not as attractive, doesn't work as well, maybe not UX and presented the right way, and it just won't get the adoption. So I think they really need to think about that and really dig in with us as a partner so that we can tell them how to take that to market. It is highly regulated and it is special considerations and there's ways you can take it to market and you can't take it to market. So I mean it's just like what you guys do with indices. They need to be part of the process.
Ambre Soubiran (41:01):
Absolutely, and that was going to be my point. Financial institutions have really, the regulated ones have high supplier procurement processes that are really heavy and there are a lot of regulatory frameworks and audits and a lot of things in certifications you can get as a FinTech provider, as a startup to show that you're doing things right. Kaco is SOC one, SOC two, type two, ioco compliant, BMR regulated, which is benchmark regulation. When you administer benchmarks, we're audited by a top big four audit firm. All of that are clearly part of the checklist of a large financial institution working with a startup. And that goes back almost to the counterparty risk. It's like the supplier version of counterparty risk, but there are ways and frameworks and standards on how to do things, and as long as the company adheres to those standards, I think it is better fully agree to partner than trying to replicate something that took years for another company to build.
Holly Sraeel (41:57):
Agree,
Raghav Chopra (41:58):
Certainly.
Holly Sraeel (42:00):
So here's a question. How far off are we in wealth management from seeing AI agents take over the role of traditional wealth managers in the digital asset space? So then you would be fully automated to fully automated?
Raghav Chopra (42:22):
I think it'll be a hybrid, and I think the roles are still evolving, but what we can expect and where this will go is there are already AI agents that have a following in terms of a social media following. And for example, a number of platforms. Robinhood has one cortex, these are recommendation and research generation engines. The next step will be for some of these AI agents to actually have market influence because their scale will be large enough and the following will be large enough that they're almost like market participants and they'll have a digital asset wallet. So part of the promise of AI and the automation it can unleash with robotics and our futuristic vision is how do these things become commercial actors? Well, they have to use digital assets, so they're going to be a big part of the digital asset economy and can they do the function of a wealth manager I think is going to be a question and it's going to continue to challenge people in their roles as a financial advisor. But owning the customer relationship is hard for an impersonal AI agent to truly do. They're getting better and lifelike, but you have to keep a step ahead of technology and outrunning it. And so anyone who's been a technology DOR or an AI dor, the human spirit has fought and evolved and gotten ahead of it. And it doesn't mean it's going to be an easy challenge to maintain relevance, but I do think providing advice is a constantly evolving field and you have to integrate AI rather than fight
Holly Sraeel (44:01):
It. Okay. So my final question, as we look out over the on chain finance landscape with all of its various players across the ecosystem in the Tradify community, who do we think is going to come out strongest over the next year? Place your butts
Ambre Soubiran (44:25):
Specifically in the context of digital assets.
Nancy Beaton (44:33):
I think one, those that get to market first, I do believe whether you're a bank, a FinTech, traditional equities, whatever it is, if you get to market first, I think you will have a first mover advantage to start to build that. I also think that that serve this next generation where this wealth transfer will happen if those brands don't get in the game, I think it's an opportunity for more traditional brands to come back in and make a presence. So if they're typically going to a neobank instead of a traditional bank or something else, if they're looking for social trading instead, I think if those people do not stay ahead and start to offer digital assets, I think people will turn to ones that do, whether they're old traditional names that maybe they don't know, but now they offer the services they want. So I truly believe it's first mover advantage. And I also believe that it's a way for people to serve this next generation because right now I think they're struggling with how to do that, and I think this is their entry in.
Holly Sraeel (45:50):
If you want to learn more about digital assets and on chain finance, come to American Banker's website. We're getting ready to launch a new conference on chain March 19th and 20th in New York City. It's invitation always to make sure you get in touch with us and reserve your spot. So join me in thanking today's panelists, Nancy Beaton Ambre Sub and rag Chopra. Thank you.
