CONTRIBUTORS
Sandy Kaul
Head of Innovation
Franklin Templeton
Robert Crossley
Head of Industry Advisory Services
Franklin Templeton
Alegria Apikelis
Senior Analyst
Franklin Templeton
Janice Deringer
Senior Analyst
Franklin Templeton
Samuel Huddart
Senior Analyst
Franklin Templeton
This is the seventh article in the Future of Investing series, drawing insights from our annual industry-wide survey, The Future of Investing.1 The Overview summarizing the top 10 key findings can be found here along with a series of articles, each exploring a key finding in more depth.
Preview
Scope of asset management likely to expand to cover the entirety of wallet holdings
Today, the capital being provided to professionals to manage on behalf of clients represents only a portion of the total wealth of the investor, particularly in the case of individuals. This is illustrated in Exhibit 1.
Exhibit 1: Expanded Portfolio Focus with Transition to Cryptographically Protected Wallets
Source: Franklin Templeton Industry Advisory Services. The depiction presented is a hypothetical example intended for illustrative purposes only. Outcomes shown may not occur.
Every investor has a range of assets and liabilities that make up their total net worth. Cash needed to cover existing obligations and discretionary spending make up the investor’s operating capital. Savings put aside to ensure near-term liquidity is another category. The direct investments and assets the investor owns represent yet another component of net worth. None of these assets fall within the purview of today’s professional asset management or wealth management services. As such, all the decisions being made to improve an investor’s financial position are being considered against only a subset of their overall financial picture.
Aggregating this broader range of assets in today’s world is nearly impossible. The required information is distributed across workplace platforms, banks, credit card providers, trust companies, merchants, apps, super apps, municipalities, corporate sourcing partners and more. Assets are stored electronically, self-custodied, held in vaults and spread across geographies and jurisdictions. Even the individual or institution that owns all these assets and with access to the data may struggle to see a singular view, or even a contiguous snapshot.
Translating the range of these assets into a tokenized form and storing them in a cryptographically protected wallet flips the problem on its head and in so doing reveals a clear solution. Instead of an investor needing to cobble together a view of their assets across all the sources of their wealth, the various providers would instead be directing their assets to the investor’s wallet. The byzantine maze of account structures and holdings that make up the average investor situation today could be replaced to give the investor a single consolidated view of their own wealth.
This consolidation also significantly expands the opportunity set for the management of assets. As already discussed in the article “Expanding number of assets able to perform the functions of 'money' could change the future of payments and the scope of investment management,” having a growing number of forms of digital money, money-like and barterable assets would allow this set of holdings to be managed like an asset class, providing relative value opportunities and enabling professional managers to adjust the holdings to maximize an investor’s buying power. Adding other wealth categories allows those decisions to be made against a broader set of assets.
For more information or to request a presentation on the 2024/25 Future of Investing findings, please contact your Franklin Templeton representative or reach us directly at [email protected]
Endnote
- On an annual basis, Franklin Templeton’s Industry Advisory Services team conducts off-the-record, unscripted interviews of leaders across the financial services industry. This year, we were fortunate enough to hear from 85 leading thinkers controlling over US$50.1 trillion of assets under management across the financial services industry about their views on the future of investing between March and September of 2024. Input came from a broad cross-section of the industry—asset owners, private banks, wealth managers, consultants, investment managers, crypto firms, academics, industry leaders and fintech firms. Conversations took place formally as part of free-ranging, qualitative, off-the-record, survey interviews, and informally during one-on-one sessions where the implications and plans for each organization are discussed and explored. Each of these inputs added to an emerging picture of an industry that is changing rapidly and across multiple dimensions. Interviews were conducted globally with about two-thirds of discussions held with leaders of firms based in the United States, and the other third spread between Europe and Asia.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Companies in the technology sector have historically been volatile due to the rapid pace of product change and development within the sector. Artificial Intelligence is subject to various risks, including, potentially rapid product obsolescence, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.
Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.