Decentralised finance is on the way

Blockchain technology is well known for its use in cryptocurrencies such as Bitcoin, but it’s also set to change the way financial services work in the future. It’s introducing decentralised finance, or DeFi, which will enable investors to conduct their own financial transactions, cutting out the fee-charging middleman, the traditional financial institution.

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Customers can already shop online and pay their utility bills using cryptocurrencies. New banking platforms have emerged that allow P2P style cryptocurrency transactions in insurance, and tokenisation – fractional ownership – which can, in theory, make any asset tradable.

Extinction of fees

The impact for the independent financial adviser is huge. It’s predicted that in the next decade, clients will be using an increasing number of services based on blockchain technology, allowing them to circumvent the traditional fee and commission-based services that financial advisers offer.

Yet while the DIY nature of DeFi looks set to kill off a major source of income for financial advisers; their sudden freedom to go it alone means that clients will need expert advice to help them navigate the potentially limitless investment possibilities opened up to them.

Advice for advisers – be prepared

Adaptation is the key to staying relevant in an ever-evolving financial landscape. Advisers need to start preparing now, by learning about blockchain applications and what the new DeFi services will mean to their clients and what they’ll need from IFA software.

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They need to anticipate how DeFi could affect their own practices and take the necessary actions to align their services to become DeFi ready. Investing in robust IFA software from developers that know how to keep pace with changing demands means back office software can be adapted to accommodate a shift in the IFA’s role.

Clients may no longer need their adviser to perform financial transactions for them, but they’ll still need help in understanding the new types of assets to which they’ll have access through DeFi. In short, they’ll still need an IFA’s skill and expertise to find an investment mix that works for their lifestyle and goals.

Already, 15% of financial institutions are using Blockchain on some level or other, so it’s important that IFAs act now to make sure they’re not left behind.

DeFi is on the way, and advisers who adapt in time won’t just survive, they’ll thrive.