The Impact of Blockchain Technology and Artificial Intelligence on Wealth and Asset Management: A Path to Redundancy?

In recent years, the convergence of blockchain technology and artificial intelligence (AI) has ignited profound shifts across industries, particularly within the financial sector. For wealth managers and asset managers, this dual technological evolution represents both a challenge and an opportunity, potentially altering the traditional business model and, in some cases, making certain roles redundant. This article explores how these transformative technologies are reshaping the wealth and asset management landscape. And it elaborates on what this might mean for the future of human-driven financial services.

The Rise of Blockchain Technology: Disruption of the Financial Ecosystem
Blockchain technology offers a transparent, efficient, and secure way of recording transactions. For wealth and asset management, blockchain’s core advantages lie in its ability to provide real-time, tamper-proof data, automate processes through smart contracts, and eliminate the need for intermediaries such as custodians, brokers, and clearinghouses.

One of the most significant impacts blockchain will have on the industry is through the tokenization of assets. Traditional asset classes such as real estate, private equity, and even rare art can now be tokenized and traded digitally on blockchain platforms. This democratizes access to investment opportunities, bypassing traditional financial institutions that have long held control over such assets. Wealth managers and asset managers who rely on these intermediaries to access high-value investments may find their roles increasingly obsolete as blockchain-enabled platforms offer direct access to these markets. There are even industry observers that expect all kind of bankable assets to be tokenized one day due to various technological advantages.

This is, among others, because blockchain's potential to streamline operations by reducing settlement times, increasing transparency, and improving compliance mechanisms could significantly lower operational costs. Automated solutions powered by blockchain can replace tasks traditionally handled by wealth managers, such as portfolio rebalancing, transaction verification, and client reporting. As these processes become more efficient and secure through decentralized protocols, the need for human oversight diminishes, leading to a possible reduction in demand for wealth and asset managers.

Artificial Intelligence: Enhancing Decision-Making and Automation
While blockchain enables the efficient management and exchange of digital assets, AI brings another dimension to wealth and asset management: the automation and enhancement of decision-making. AI-driven algorithms, particularly those using machine learning (ML), are capable of analysing vast amounts of data, identifying patterns, and making predictions with remarkable accuracy. For asset managers, AI has already begun to replace traditional research methods by automating the analysis of financial markets, news sentiment, and even alternative data sources such as social media trends and satellite imagery.

AI-powered robo-advisors, for instance, provide personalized investment recommendations based on an individual’s financial goals, risk tolerance, and investment horizon. These robo-advisors are not only cost-effective but are capable of providing round-the-clock service to clients, far surpassing the capabilities of human wealth managers in terms of accessibility and scalability. With algorithms constantly learning and adapting, AI can continuously refine its recommendations and adjust portfolios in real time, often with greater precision than a human manager could achieve.

Moreover, AI enhances risk management by offering predictive analytics and scenario modelling that anticipate market fluctuations, thereby allowing asset managers to mitigate risk more effectively. For traditional wealth managers, whose value proposition has historically been rooted in a combination of market expertise and individualised investment solutions, AI-powered solutions challenge the necessity of human intervention in investment decision-making. These tools can provide more granular, data-driven insights at a scale and speed that human advisors cannot replicate. However, the value of human expertise will rather change over time than be replaced – if business and investment models are adapted accordingly.

The Threat of Redundancy
The convergence of blockchain and AI raises a critical question for wealth and asset managers: can technology entirely replace human expertise in managing investments and client relationships? Given the rapid advancement of AI and blockchain applications, it is plausible that certain roles will become redundant in the near future and that personal relationships will change

1. Automation of routine tasks: Many of the manual tasks traditionally performed by wealth managers, such as portfolio analysis, rebalancing, and tax optimization, could be fully automated. Blockchain technology reduces the need for intermediaries in asset transactions, while AI tools automate decision-making and optimize portfolio management, significantly reducing human input.

2. Enhanced client services through AI: AI-powered platforms already deliver highly personalized financial advice that mimics human expertise. For example, AI systems analyze a client’s goals and financial situation to create tailored investment strategies, even anticipating future financial needs. These systems also provide continuous monitoring and rebalancing of portfolios based on shifting market conditions, creating a seamless, 24/7 service that may outperform traditional wealth managers who can only provide advice within office hours.

3. The rise of Decentralized Finance (DeFi): The rise of DeFi platforms built on blockchain further accelerates the potential for obsolescence in traditional wealth management. DeFi offers decentralized lending, borrowing, and asset management services without intermediaries. As these platforms gain in sophistication and credibility, clients can access financial services directly, bypassing traditional asset managers and wealth advisors.

4. Cost efficiency and scalability: Technology offers unparalleled scalability. AI-powered systems can handle thousands of portfolios simultaneously, optimizing each one according to its specific goals. For wealth and asset managers, this creates a challenge in remaining competitive, as their human-driven model cannot match the efficiency or low-cost structures offered by blockchain and AI-based solutions.

The Changing Role of Human Expertise
While blockchain and AI may render some aspects of wealth and asset management redundant, the complete replacement of human expertise is unlikely in the near future. However, the role of wealth managers and asset managers will certainly evolve. Advisors who can effectively harness these technologies and integrate them into their practices will remain valuable. Human expertise will still be needed for nuanced decision-making in complex financial situations or sensitive decision processes, particularly where emotions, personal circumstances, and cultural factors come into play.

Additionally, the relationship-driven nature of wealth management cannot be replicated by machines. High-net-worth individuals (HNWI) and institutional investors often seek tailored advice that considers both financial objectives and emotional considerations. While AI can help optimize portfolios, the human element of trust, understanding, and long-term relationship-building will remain important.

Advisors who embrace blockchain and AI as tools to enhance their capabilities will find opportunities to become more efficient, expand their service offerings, and create more value for clients.

Conclusion: Embracing the Future of Finance
The integration of blockchain and artificial intelligence into wealth and asset management is an inevitable evolution driven by efficiency, transparency, and cost-effectiveness. While these technologies may reduce the demand for traditional wealth managers and asset managers in certain areas, the key to survival in this new paradigm will be adaptability.

Professionals who do not see blockchain and AI as existential threats, but as powerful tools to complement their expertise, will remain relevant in an increasingly automated landscape. As technology continues to advance, the most successful wealth and asset managers will be those who are able to innovate, integrate new solutions, and continue providing value that goes beyond what AI and blockchain can achieve on their own.

About the Author
Article authored by Milko Hensel, Team Head TechBanking at Maerki Baumann & Co. AG