Blockchain's bigger implications for wealth management

David Snider, founder & CEO of Harness Wealth; Jay Jiyuan Wu, founder and director atNovus Power; Oleg Tishkevich, CEO at Invent.us.

Transcription:

Justin L. Mack: (00:10)
All right. Good afternoon, everyone you guys hanging in there? I know it's been a long day, a lot of conversation, and you're probably sick of me, so apologies, but well, there's day two and you'll probably be even more sick of me by the end of tomorrow, but we have a lot more to talk about at Invest 2022. And once again, another conversation regarding crypto and digital assets, this one focused on blockchain's bigger implications on wealth management, the potential it holds, how it might change the way we do business, as well as the opportunity it might provide for data centralization, compliance, struggles, being cleared, and a lot of other great applications. So we have a wonderful panelists of guests, sitting next to me here, David Snider, Founder and CEO of Harness Wealth. We're also joined by Jay Jiyuan Wu, Founder and Director of Novus Power and Oleg Tishkevich, CEO of Invent.us. Thank you very much for joining us and a quick round of applause for our panelists, for joining us here for Invest. So as we get rolling, I'll always like to start by having each individual talk a little bit about the work you're doing and your respective organization and how it relates to the topic we're going and today, and David I'll have you kick things off.

David Snider: (01:15)
Sounds Great, Thanks for having me, Harness Wealth is a platform to help equity owners navigate tax and financial planning. We're very much focused on a 30-40 year old client base that has made considerable wealth typically through equity and crypto. And so we're not directly focused explicitly on the asset class, I think what I got excited about in the panel topic was the broader themes that I think have brought those early adopters to this space and what the broad implications are, which we'll get into shortly.

Justin L. Mack: (01:49)
Jay.

Jay Jiyuan Wu: (01:49)
Yes. Jay Wu... Chinese. I mean, Chinese supposed to be modest, but I'm never won't be too modest. You have to, you can't, lie, right? I'm new guy, in the securities. I have a license in insurance, but relatively new. My background, educational background is not in economics instead in sociology except I have, a massive degree in genetics. So that kind of let me jump around. So I'm a big fan of FinTech. And then I do want to say that I gained some expertise over time because I'm interested is the biggest is the best driver for getting knowledge. That's all I want to say, thank you.

Oleg Tishkevich: (02:49)
All right. my name is I'm the CEO of Invent.us, our platform is primarily focused to create a digital ecosystem that is integrated for enterprises, broker dealers, RIAs, asset managers, and provide an application aggregation in a single highly personalized user experience for all the personas within that enterprise advisors. Obviously back office clients, supervisors, et cetera. So as part of that platform, we certainly integrate crypto based solutions working with one crypto custodian right now, and that integration process for to be able to provide that capability turnkey for finish dvisors, as well as very fascinated with the blockchain, the ledger based technology, which, does open up a lot of opportunities as we are gonna talk about, today and from a compliance perspective, as well as kind of the data management.

Justin L. Mack: (03:52)
Absolutely. So yeah, just to kick things off is talking about blockchain in that broader sense, because as we've heard all day throughout the conference, a lot of conversation just about crypto, that understanding or misunderstanding, but the potential of this technology to really change wealth management is much wider than having a conversation or an asset class. So David kind of wanted to kick things off with you, your thoughts, I guess, on how wealth management wealth managers are just financial services, maybe even on a broader scale, might be able to leverage this technology to solve problems relieve friction, just really do all the things that FinTech is empowered to do, which is make the lives of advisors easier and then pass that good feeling onto the end client. so your thoughts are, I guess, how could blockchain be leveraged in a way to actually make our lives easier?

David Snider: (04:40)
I think it's helpful to sort of step back and think about it thematically. So the reason the blockchain is exciting is because of underlying themes that people especially sort of those under 40 or those that are early adopters got really excited about. And so what are two of those that I think have applications here? One is this idea of decentralized autonomy, sort of the Dow that people talk about these totally autonomous organizations. I'm not sure that is gonna come fully to wealth management, but I think it shows a broader interest in what early, early financial service companies, Northwestern mutual Vanguard we're doing, which is how do you create a client base that actually feels ownership in the business, in the financial performance in the community, et cetera. And so the RIA space hasn't, as far as I know, at least done a lot of that, but I think there's gonna be more interest from individuals at the million 5 million level that family offices at the 5 billion level have done, which is how do we play a role in influencing where the firm is investing, is there actually a way that we're participating in the profits of the enterprise, et cetera. And so that theme of the Dow of having involvement in an organization, I think is one that RIAs that really want to attract an earlier client base or broader financial services can, can latch onto the second theme is this idea of a decentralized ledger that you, as an individual can pocket your holdings in a, off chain, frozen wallet, you can have it on a different database, there's portability, but you sort of own that information and own those assets. And I think that is more and more prevalent. We're seeing certain companies like plaid and others try to free up information flows across financial services. And I think clients aren't expect the same thing, which is how do you give me more visibility in the assets that you manage? How do I pull in, or at least have visibility on other things outside of that for planning for tax purposes, et cetera. So that idea of centralizing information, whether it's actually on the blockchain or a true ledger using the technology people are excited about today, I'm not sure it matters, but I think that idea of how you can move forward to help clients have more access to their information and consolidate better. Those that do that well are gonna have a larger share of wallet and really perform.

Justin L. Mack: (07:07)
Absolutely, and actually, I'd love to have you go in a little bit more because we talked about it prior and then hearing you bring it up again. Now it's something that we're hearing from again, the client advisor side is that, ownership, that feeling of true understanding and verification on the end of the client, how important is that? And why is that so appealing? Because I know that for a lot of folks who are excited about blockchain technology, it's just that, ownership, that verification, that single source, that's the things that, like you said, the early adopters are so excited about, just your thoughts on that becoming also a priority for clients who are interested in it because they're having those conversations with their advisors, advisors are still learning, having to engage in that conversation as well, because it is so new, but the difference of what ownership means now versus years ago, because of this kind of technology just your thoughts on why that's so important and how it could, impact how we do business.

David Snider: (08:00)
Totally. I mean, there's a really interesting federal reserve study of the million plus 30 to 50 year old demographic. And I think people assume they're all DIY, they don't want advisors. If you look at the data, the percent that are fully DIY is identical today, as it was 10 years ago, the change that was happening at the top were people that were totally advisor reliant now kind of wanna be hybrid. And so if you're hybrid and you're making a direct investment in crypto or an angel investment on AngelList or something else, you still want, if you're gonna engage with a human advisor or broader financial service company to connect the dots. And so I think the firms hopefully like ours, that are proactively helping clients to do that are gonna be the ones that win, because it makes it easier for clients to use your firm as a resource in a broader strategy than I think was the case, historically there's more things that people can invest in at every income and AUM, or asset personal net worth level yeah. Than any time in history.

Justin L. Mack: (09:07)
Absolutely, Jay, wanna go to you for kind of the lead off question, your thoughts on how this technology could be leveraged to benefit wealth management change the way we do business.

Jay Jiyuan Wu: (09:16)
Yeah. Let's talk about the use cases cuz, when you read the journals or the newspapers, you take mention constant dimension of the use cases. I think one of the best use cases for our purpose for, wealth management is look at the rebalance, the portfolio that can be done using the smart contract. What is a smart contract? Smart contract is a self executing contract that with the kind of, if then if this condition satisfied, then we do something else automatically triggered, no need for third party, no need for authorities, or external authorities, you just get it done. So when it comes to rebalance portfolio, that would be the perfect case. Okay. Let me give you another example. Sometimes when you have a hammer, you see everything like nail right on the way coming here, before one day before I came here, I read a report. There was one discussion that theme of discussion says, what is the, corporation issue, the secret that you never knew before, but is a shocking. One of the shocking fact is that there are like a 190 federal, tower for air traffic control. And then anybody knows that at the night, more than 80% of traffic towers close up, people just wrap up and go home. Nobody's it's all up to the pilot to avoid crash into each other. And then I was thinking, wow, that would be a perfect example for us. You know if we have that AI artificial intelligent to take over and not just AI, but also AI on the blockchain, because we have a smart contract when there is something happened and then the AI AI will do something to automatically direct the pilot to do something. So the sky will be safer. So that's another example. And then you're the one more directly related is that we have something called Ray, which means robo advisor for yield, right or achieving yield. So that's another example of smart contract. Can do you let the Robot advisor to do that? And then whenever there's a same thing for the direct index, the same idea you're using the smart contract to do that when the composition of the S and P 500 change it, the smart contract will do that will make this appropriate change to match that. So you keep that, whether you're talking about direct indexing or robot advisors there idea is the same. So that's why I'm just using a few examples, self use case to illustrate a point. Absolutely. I hope that helps a little.

Justin L. Mack: (12:21)
Absolutely and then Oleg over to you, again, something that we kind of talked about before, and I'm interested to talk about now, because for better or worse, compliance gets me going. I am very interested in that subject is probably cuz before coming to financial reporting, I spent years in regulation and criminal justice and all of that. So my thoughts on compliance are, always, how can we solve the issues? And, I'll say a regulatory environment that's somewhat in flux, especially related to technology and digital assets. We're kind of all just waiting on hold to figure out how a lot of entities or agencies are going to govern a lot of this stuff. So my thoughts, just question to you about the compliance benefits of this technology and the day to day application of it.

Oleg Tishkevich: (13:07)
from a compliance perspective, I would say the biggest advantage of the blockchain technologies is that it's ledger based. So if you think about any transactions that take place or contract that take place. Sure. Some of the things that are examples that you've given, could be done with technology that's other than blockchain. I mean it has been done now and it's, that's been working so far. Right, but if you think about banking, if you think about the transactional nature of various different investment decisions and transactions that take place ability to have a track record not only important, but required by the compliance, right? So various technologies that are available to create that transaction based capability blockchain is certainly one of them. And, there are a number of different applications that are specifically used for contract based. So, transaction registry, if you will, that are a good use cases for blockchain. The challenge I want to bring up with the blockchain is that even though it's a great transactional technology, but for something that's happening real time, it's not really the best vehicle to do it because the time that it takes, let's say to create a new chain on the blockchain and it's reasonable amount of time that it's gonna take. So, it's not really a technology that can provide a ledger based capability for something that needs to be real time, but for a real estate contract, for any kind of transaction that doesn't have a time constraint, it's a great tool to adapt, to make sure that you have a decentralized version of that, with that said a number of different, large financial institutions also thinking about how does that technology really apply to their compliance kind of view of where the data is because on one side, let's say you have a banking system that's behind secure firewalls. That compliant with all the U.S Based laws and it's all consolidated, right? It's not decentralized, it's very much centralized, but there's a trust factor between the consumer and the large finish institutions from that perspective that they trust that the data is secure and safe with blockchain. Obviously those transactions they're available all over the world. So the challenges that we see sometimes from a compliance perspective that larger institutions, talk about is well, how do I know where that transaction is sort of, approved, right. If it's improved somewhere in the non-friendly country, am I okay to have that be allowed by our compliance department that is so focused on keen and keeping the data within the you know region within the country, right? So those are the types of things that I think are maybe obstacles to adoption of the decentralized blockchain, especially in a wealth management world, but the private blockchain is something that number of financial institutions have experimented with and, are looking at that technology. And, also there's actually another transactional technology pattern that is being used by some of those larger financial institutions, larger bank that's called event sourcing, which is similar to blockchain but extremely fast and allows you to provide that read right ones read many sort of capability like blockchain in a much more fluid fashion that is very scalable and can still be controlled within, let's say an enterprise similar to like a private blockchain.

Justin L. Mack: (17:11)
Absolutely, and then Jay, we'll go back to you. It sounds like you get as jazzed up about compliance as I do your thoughts on the compliance applications, blockchain.

Jay Jiyuan Wu: (17:20)
I was just the one to clear off some missed last year, January of 2021. Don't take my words for it. They just read the report. The office of control of the currency OCC showed the depart of a treasury department already issued the regular letter, like a kind of a interpretative letter saying all the banks should, can treat the stable coin the same way, essentially the same way as the swift and Ach, what is how, I'm not sure if I pronounce that the ACH basically electronic bank to bank payment. So basically the OCC already said that stable coin can be treated the same way as swift, by the way, when talk about the swift ping was thinking about that using the blockchain to replace the swift, because basically the swifter locked, the Russian out of the system, right? So ping is thinking about doing something else. So that's the, thing don't automatically assume that the government has been cracked down on every song on about the, about the blockchain about the cryptocurrencies. Another example is that we all know KYC, I'm sorry, know your customers, right? It takes a lot of time to know your customer but you have to do it because of compliances. Now with the blockchain technology, you can do better than that. You have, you can do that K Y T know your transactions. It's not just your the ID, your identity of this person, of the transaction holders, but the detail of the transactions. And then that that's a better job for you to be. And also they do that much faster than right now is doing that everything on papers, so that's why another thing that make us to believe that the defi, decentralized the finance, it has power.

Justin L. Mack: (19:33)
Absolutely, and then another topic I wanted to get into, and I like this conversation or this, this question, because this is very much, tomorrow tech, it allows us to be very speculative, which is always fun because no one can verify your speculation because that's the point. So we can kind of have a little bit of fun with the potential of this technology, how it might be used, because we really don't know we have some, ideas, but who knows, someone might find a brilliant way to merge blockchain with wealth management that just changes everything. And all of a sudden in 15 years, the business looks completely different. But the question that we're hearing from both wealth managers and solutions providers, cuz a lot of the folks who are working on technology to support advisors and their businesses, where should they start now as far as understanding, or just getting brushed up on again, not just on the asset class versus the currency or anything like that. But I wanna understand this technology better. I'm an advisor or a FinTech solutions provider. Who's very much into this, but I haven't had a chance to really do anything related to it. What's the smartest way for them to get prepared for what is absolutely gonna be something that's here to stay and will undoubtedly play a role in how they do business tomorrow?

David Snider: (20:41)
I mean, selfishly I think you start with what your clients likely already know or asking about. I was watching the panel just before this. And there was that comment that crypto is probably the only asset class for an average. The client knows more than the average client knows more than the average advisor. If that average client is already invested. So I think you work your way backwards, which is, force yourself to make it through the New York times wall street journal, mainstream financial reporting, press on the asset classes, what are the different currencies? How does a stablecoin work? What's the technology that enabled them? What are the technologies that have failed so that you avoid, some of the blowups of late why has margin been available in such a dramatic way in this space where it is more regulated in one other asset classes? And then I think you can explore when you've got that conversational piece, you can sort of move back. I mean, it's still really valuable to read the original Satoshi working white paper on kind of where this came from. And I try to see if, that red pills you basically into going down the rabbit hole, but I think you start with the pragmatic and see if it resonates and then kind of work your way deeper.

Justin L. Mack: (21:56)
Absolutely and actually, Oleg I'll toss that same question over to you, thoughts on the advisor of today getting ready for tomorrow, how should they focus? Where should they concentrate their efforts?

Oleg Tishkevich: (22:08)
I mean, certainly that technology is here to stay and the cryptocurrencies that are out there that just has more and more every day. Right, so advisors number one recommendation is definitely get educated, also provide education to the clients because oftentimes clients just want to experiment with certain things you want to know about the fact that, oh, you know, some clients' portfolios and 20% in blockchain, right. That's an information that advisor probably should know about. Right. So be able to be educated about the information and the be able to, at some point provide advice as to what that whether it's an asset class or an asset, if you will, a fixed asset that you can, contribute to a financial plan for a client or an asked allocation that you discuss with a client and, talking about all the different, I guess, risk factors and other aspects of it. Um, purely from the investment perspective, that's one side of the conversation, the other one, I don't know, probably by next couple of weeks, we're not gonna see advisors tokenizing their RIA and then selling it off, instead of doing an M and A, but that's another kind of thought of the futuristic possibility.

Justin L. Mack: (23:25)
Who know's that's the beauty of it's like that sounds maybe a little outrageous, right? A lot of things that we are doing today and have had to do over the past two years were outrageous until they became part of our regular lives, so again, something to keep in mind and, why this stuff is so exciting. So a question to you Jay, your thoughts on what we should focus on today and where we might be tomorrow, feel free to go as wild as you like.

Jay Jiyuan Wu: (23:49)
Yeah, definitely, keep educating yourself because this thing changes, the field changes every day. It's not, we're talking about the days or even hours, because on the, on my way here to the conference, I was looking at the there's a one website called the coin master cap. They updating every day. And then by the time I arrived, before I left the Berkeley, I get on the plan. There was like 18,000 some cryptocurrencies. By the time I arrived this morning, I checked that already 19,870. And really keep changing keeping the other question that the other issue I address. Oleg mentioned a very good question is that blockchain is also changing the blockchain technology. We have something, if you wanna talk to the client, this will impress them. It's something called a side train. There used to be just one blockchain, right? Just, you know, kind of a boring, like a train, right? You have a block, each block is like a passenger car, right. And then you locked out and link them to be a train now with a side train. That means that you have, it's almost like airplane, almost like an airplane because you have two wings. A lot of transactions can be put aside the way I wanna put it that it's like almost like outsourcing this outsourcing chain. So that's a very good advantage. Good thing. Good news for your client. Why? Because some of the client just don't feel comfortable with their privacy because we all know that the Bitcoin is all transparent. Everybody knows that, right? so they're not some people are just not comfortable with that know with side chain, they're separated, but also connected, but they have their own consensus building. They have own particles, all platform. I meanwhile, it's always connected. So, the way that they understand the side chain is that a side chain will not function without the main chains, but the other the opposite, it doesn't hold. So basically with those side chains, we can, it's almost like airplane. You know, we're not like a, we're not talking about the blockchains more like a block airplane block, plane or something like that because in technology new innovation comes up every day. So you have to keep up with it.

Justin L. Mack: (26:26)
I told you to go wild, you went to block plain. It doesn't get any wild than that. I love it. David,

David Snider: (26:31)
Maybe you have the opposite extreme. So last week or I think it was last week I attended a conference that Bain capital ventures and Nike, a two of the leading sort of FinTech investors put on and they had a chart in terms of the evolution of financial service technology. And for better, for worse being include the group here is interested in this theme, but truly decentralized finance that will disrupt banks is like a few generations forward. I mean, we're still at like a early to late nineties timeframe with the internet where it will likely get there and have all these implications. But the broader one that comes first, at least in their hierarchy is around embedded finance, which is everything becoming a financial service company apple with its huge investment there, Goldman Sachs starting that way, but then partnering with others. And so I think making sure that you have a clear understanding on the lending side, the other institutions that clients already have a connection to that are introducing financial products that may compete with things that are within your domain. That is probably not to sidetrack the value of the broader panel discussion, but at least as we think about it, sort of the here now and knocking out the door phase that truly decentralized finance, real blockchain implications is a waiver to down the rail .

Justin L. Mack: (27:54)
Absolutely, but you know what? I don't think that derails at all, I think that fits perfectly in because you know, the larger implications is like you said, we're generations away from that. But to even get there, that work is going to have to start generations before kind of what we're seeing now, while we aren't on that block plane to quite get to that point yet we can see the building blocks right at the Genesis of it. And it's gonna take a lot of more work, a lot more understand. We might not even see that fully, decentralized that real disruption while we're around, but we know and see the value or the potential of it to happen generations from now. And again, that's why this stuff is so exciting. So I wanna leave some room for Q and A's any questions from the crowd, anyone at all, don't be shy. All right. Well I thank you again. Please give another round of applause for our panelists and thank you so much for joining us.