When we think of high net worth families and their assets from a professional wealth management perspective, we often think of cash, stocks, and other easily quantifiable investments, says Andrew Carrier, chief marketing officer, Quant.
However, a significant portion of ultra-high net worth wealth is tied up in assets that are harder to manage and quantify - things like real estate, vintage cars, art, wine, jewellery, and other passion interests. Accenture estimates that nearly half of the world's ultra-high net worth wealth is held in these "non-bankable assets", equating to around $30 trillion globally.
As the world of finance continues to evolve and technology advances, the question arises - can these non-bankable assets be tokenised and included as part of people's professionally managed portfolios?
Tokenisation refers to the process of creating a digital representation of an asset, which can then be traded or managed on a blockchain network.
The potential benefits of such a system are numerous, and include:
• Increased liquidity: Tokenisation allows for fractional ownership of an asset, which means investors can purchase a portion of an asset rather than buying it outright. This can increase the value of the asset, by making it easier to buy and sell.
• Lower transaction costs: Tokenisation reduces the need for specialist brokers and middlemen, which can lower transaction costs for buyers and sellers.
• Increased transparency: Blockchain technology provides an immutable record of ownership and transactions, which can increase transparency and reduce the potential for fraud or disputes. Digital certificates of provenance can be issued for non-bankable assets.
• Access to a broader pool of investors: Tokenisation can enable smaller investors access to assets that were previously out of reach due to high minimum investment amounts. This could also make it easier for wealth managers to diversify clients' portfolios.
• Fractional ownership: Tokenising an asset can provide a flexible investment opportunity allowing partial ownership of high-value assets, even within families.
One particularly relevant application of tokenisation for non-bankable assets is in the realm of inheritance and succession planning.
Much has been made of "the great wealth transfer" between baby boomers and millennials. Over the next 25 years, it's estimated that baby boomers will transfer up to $68 trillion to their children. Inheritance and succession planning can be a significant source of stress for families, and tokenization could provide a solution.
Under a tokenisation system, ownership of non-bankable assets could be transferred to heirs earlier and in a more gradual manner, providing more clarity over the process, ensuring an even split between heirs, and ensuring that inheritance planning is both legal and efficient from a tax perspective.
This could provide a more streamlined and digitised process for families to manage their wealth across generations. It would also allow for illiquid assets of all types to be co-owned by children or other heirs.
Enabling tokenisation of non-bankable assets could also be a significant competitive advantage for the private banks, asset managers, and accountants that move first. The ability to offer this service to their clients could set them apart from their competitors and attract new business.
Of course, there are challenges to be addressed too: valuation can be difficult, as these assets are often unique and require specialist knowledge. There is also the issue of custody and security, as the physical assets will still need to be stored securely and protected from theft or damage.
However, these challenges also spell opportunity across sectors: it may be that the private banks of the future recruit not just lending specialists and investment managers, but antique valuers, art experts, and blockchain technologists.
By including these assets in managed portfolios and streamlining the inheritance process, tokenisation could provide a significant competitive advantage for firms that are quick to adopt this technology. As we look to the future of wealth management, tokenisation will undoubtedly be a topic of increasing importance.
By Andrew Carrier, chief marketing officer, Quant.
