Before Shopify, building and running an e-commerce site was expensive, operationally intensive and a logistical nightmare. Only large retailers could afford to build and operate an online store that could truly serve a large customer base, which made e-commerce seem like a small market. Enter Shopify: by eliminating the supply constraints — enabling anyone with a product to create and scale an online store globally with just a few clicks — they unlocked a huge new market, with a market capitalization of over $100 billion as of today.
Launching, operating, and scaling a Registered Investment Advisor (RIA) firm is much harder today than e-commerce ever was, and yet advisors are responsible for managing more than half of all wealth in the United States. As of 2023, there were over 15,000 SEC-registered RIAs managing over $100 trillion in assets. Qualifications and licenses are just a small part of an ever-growing checklist an aspiring financial advisor needs to satisfy in order to go into business.
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Wealthtech is incredibly fragmented. Custodians can create lock-ins and impose significant operational, legal, and compliance requirements. Endless layers of intermediaries require additional overhead just to keep the lights on. This is why we’ve seen increased consolidation in the space, with small RIAs being acquired by larger firms that leverage their existing infrastructure and economies of scale to grow their Assets Under Management (AUM). The generational transfer of wealth from baby boomers to millennials and Gen Z will challenge this strategy. Younger investors are disillusioned by traditional finance. They are digitally native and expect their money and assets to be the same.
With that, wealth management is about to get Shopified. Just as Shopify democratized e-commerce, enabling millions to open online stores, on-chain rails are poised to open up the financial advisory business. According to a survey by Coinbase, 20% of Americans (approximately 52 million people) own cryptocurrency. Experiencing the freedom and power of holding their assets on-chain often changes the way they see off-chain assets — in other words, assets that can only be accessed from legacy platforms. Now for the first time, advisors can work with clients and advise them on assets that always remain under the custody of the client.
Traditional RIAs operate with traditional custodians. For a client to start working with an advisor, they have to assign access or create a new custodial account for their new advisor to manage their assets. By contrast, self-custody introduces a new paradigm where a single wallet can interact with multiple advisors, layering various types of advisory and expertise in the same portfolio. The time-to-advice is reduced from weeks to minutes, as assets can be viewed non-custodially, and discretionary abilities can be granted with a single, on-chain signature.
Tokenized assets: the online SKUs of the financial world
Tokenized assets are transforming the investment landscape, much like SKUs (Stock Keeping Units) revolutionized retail inventory management. Tokenization allows for fractional ownership, increased liquidity, and soon, access to any asset class on-chain. In a world where your entire universe of investable products is one wallet signature away, service providers can focus less on operational hurdles and more on generating alpha, protection, and growth for their clients. Similarly this opens the door for asset managers to go direct-to-consumer.
We are about to see a new breed of RIAs coming on-chain to increasingly serve this growing crypto-native clientele. Much like anyone can now start an e-commerce site with Shopify, any licensed and competent financial professional will be able to advise clients on-chain. The winners will be the investors, who will have an open, transparent, and verifiable world of expert advice to choose from, or combine, to best suit their financial goals and needs.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
