JAMES McDONALD | Senior Consultant, Capco
TYLER SALATHE | Senior Consultant, Capco

The advent of digital assets has led to the creation of new financial products with the ability to fundamentally change where and how wealth is invested. For wealth managers, the new asset class and varying products present both a challenge and opportunity. On one hand, digital assets allow retail investors to personally invest in tokenized alternative assets with minimal capital, diminishing the need for a financial advisor or broker. On the other hand, new product classes such as cryptocurrencies and security tokens can be added to wealth managers’ existing portfolios as means to diversify holdings and corner an increasingly demanded market of blockchain-based assets.

This paper should be viewed as a starting point for wealth managers who are concerned about potential business disruptors or growth opportunities associated with digital assets. We will review and discuss the significance for wealth managers of the following:

- Cryptocurrencies

- Stablecoins

- Initial coin offerings

- Security token offerings

We will also focus on an increasingly popular application of security token offerings, termed tokenization, and discuss how wealth managers may use tokenized products to supplement portfolio offerings.

While the full effect of digital assets to a wealth manager’s business is still yet to be determined, forward thinking financial advisors will need to be prepared for this asset class marketplace in order to avoid potential disruption. Financial advisors should take proactive strategic steps, such as enhancing their digital capabilities or upskilling their staff on the benefits of digital assets, to ensure that they are well equipped to serve their clients’ changing needs.