This is the second part of a series of features exploring the potential uses of blockchain technology.

In the new year, this news service ran an article focusing on the potential uses of blockchain within the wealth management industry. Undeniably, the nascent technology – renowned for its association with the controversial crypto-currency bitcoin – in recent times has been causing quite a stir within the financial services industry. But why?

Its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing. Many institutions appear to have certified these claims; towards the end of last year, French banking giant BNP Paribas processed several real-time payments for two of its longstanding clients, Amcor and Panini Group, using blockchain technology. The transactions were reportedly processed and cleared, despite currency and time zone differences, within a few minutes. This proof-of-concept appears to demonstrate the power and extreme efficiency of the technology, which could help eliminate delays, unexpected fees and processing errors, illustrating how valuable it could become to the banking and payments industries. 

This publication has started to explore the uses that blockchain might have in the wealth management industry, and consortiums of large financial institutions - such as ABN AMRO and OCBC – are carrying out the heavy lifting by testing the potential of banking with blockchain. 

To gain an insight into how blockchain could one day be used by family offices worldwide, this news service recently spoke to Lisa Niemeier, founder and managing member of Graymatter Strategies, an international consultancy firm for wealthy families and their advisors. Niemeier has been involved in the wealth management industry since 1988 and has held a variety of roles including being a financial advisor to individuals and institutions. She has even dabbled in financial journalism and has written two best-seller books on the family office and family governance industries.

What is often misconstrued when it comes to blockchain is that it can only be used to transfer digital currencies when in fact this is far from the case. Blockchain is best described as a public digital ledger. Think of the blocks as packets – although they typically contain money, they actually have the ability to store anything that requires ownership. For example, this could be money, goods or property. The chain is an indelible and transparent record that the block has been passed onto someone else. What is perhaps ironic is that so many associate blockchain with anonymity, but in reality, any transaction carried out using the technology is recorded and distributed on a public ledger for anyone to see. 

This concept of using blockchain as a single source of truth is what seems to be most compelling to Niemeier, given that any successful family office fundamentally relies on truth and transparency when it comes to the internal transference of money and assets. 

“The obvious application for me off the mark is how blockchain could be used to build trust in relationships between family members,”  Niemeier said, explaining how a large wealthy family could create a private blockchain and grant certain members permissioned access, adding an impermeable layer of protection from parties external to the family and others whose interests may run counter to the family’s. 

“Transparency is something family offices continually grapple with. Maybe they don't want the kids knowing about the money yet, or maybe they don't want Uncle Bob getting in and having access to it. By creating a blockchain, the moderator could choose who has access and who doesn't. To me, it could build a layer of trust unlike anything families have ever experienced before," she said.

The beauty of blockchain, according to Niemeier, is that it harnesses the power to eliminate transactional discrepancies as it creates an “indestructible truth” of past transactions.

“Say somebody in the family decides to sue someone else at some point. With blockchain, the records [of transactions] are indelible. It creates a system where every participant sees everything that is happening, so therefore everyone becomes a witness. It is a huge internal risk management tool as it eliminates conflict of interest," she said.

For Niemeier, it does not have to stop at just one family either. “You could even use blockchain to establish a consortium of families and share transactional information,” she said, adding: “It is a no-brainer for multiple family offices.”

However, as with all technology, educating the masses on how to use it - particularly in the world of financial services, which seems to be at the mercy of an ageing population, especially at the senior management level – presents something of a challenge. With this being said, Niemeier said if families could get their heads around it and begin to use blockchains with efficiency, “it could change the face of family governance”.

Companies that climb on board the blockchain bandwagon and begin to offer efficient services to family offices could seriously proper, according to Niemeier. “Companies that are astute enough to recognise the value [of blockchain] will do well,” she said, explaining how technology institutions could offer “tiered services” in the form of bronze, silver and gold subscriptions, much like an American Express credit card. 

As for when the technology will be widely adopted, Niemeier seemed to be uncertain, but noted that the speed at which blockchain solutions are being developed is “dramatic”.

“When you see all of these big institutions [such as Wells Fargo and Goldman Sachs] working together, it means they are taking it seriously. Do we know what it will look like yet? No. But it is developing before our eyes," she said.

This news service will continue to explore blockchain technology and its impact on the financial services industry, so keep your eyes peeled for more features on this topic, as well as regular news updates from the sector.