With projected growth of more than 1.68 billion in 2023, the future for the 8,500 trust companies vying for position in the sector looks bright.
Even in the midst of a global pandemic, global wealth has increased 56% in the last decade and another 15% in the last two years.
However, the challenges for the different players in this market, be they small law firms or large banking institutions, persist.
In reality, they persist and at the same time renew themselves.
In a few words, the macro trends that have affected the sector, in some cases for at least two decades, are as follows:
the increase in fiscal voracity of most governments and fiscal cartelization among those with the highest taxes,
the reduction of the right to privacy,
the demonization of the rich,
the weakening of property rights,
the increased use of new technologies, such as blockchain, smart contracts and artificial intelligence, and
the increase in investments in digital assets by high-net-worth individuals and families, as well as their value.
In this brief article we will address these last two trends, basically because we have already dealt with the others at length on several occasions.
Like other sectors that provide professional services, the fiduciary sector is also experiencing an increase in the use and adoption of technology to handle what lies ahead. Of course, technology will not replace humans in tasks that require cognitive skills, but it will make the difference between those who learn to incorporate it and those who do not. It will also determine a change in our daily lives, since we will spend more time on higher value tasks and less on administrative or routine issues, which will be resolved by technology. In a way, this is what happened in the banking sector. Until not long ago, there was no home banking, and 100% of the needs were resolved in the branches or by telephone with the participation of people. Today, this is not remotely the case, but that did not make the banks disappear or stop growing.
A recent Deloitte Digital study of the wealth management and preservation industry forecasts three key trends from 2022:
the emergence of new technologies,
technological change from support to value generation, and
the rise of the platform ecosystem.
Not surprisingly, our clients are interested in an entirely new asset class that includes NFTs (or Non-Fungible Tokens), CBDCs (Central Bank Digital Currencies), Cryptocurrencies and the Metaverse, all of which are assets whose existence or structuring it would be impossible without blockchain.
According to the IBM definition, Blockchain is a shared and immutable ledger (although it should be noted that not all blockchains are immutable) that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, a car, cash, land) or intangible (intellectual property, patents, copyrights, trademarks). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and costs for everyone involved.
Why is blockchain important?
Businesses run on information. The faster they get it and the more accurate it is, the better. Blockchain is ideal for obtaining such information, as it provides immediate, shared and completely transparent data stored in a distributed ledger (which can be unalterable) to which only authorized members have access. A blockchain network can track orders, payments, accounts, production details, and much more. Plus, because users share a single source of truth, you can see all the details of a transaction from start to finish, allowing you to build greater trust and efficiency, as well as more opportunities. In the case of the trust industry, these characteristics of blockchain technology in turn bring peace of mind to customers, who will be able to access exact information 24/7 and whose transactions will have – for example – a certain date at all times, and also to governments, who want to know everything…
In this context, it is not surprising that the World Economic Forum has estimated that by the year 2025 10% of the world’s GDP will be stored in blockchain and that the impact of this technology could be as great as the Internet revolution. This already implies a great challenge in terms of its management, imposing on professionals the need to be trained in these technologies and their particularities.
The more we fiduciary professionals learn about technological advances, the better prepared we will be to meet the changing demands of our clients. At the end of the day, technology is a tool to enhance our work and make us more efficient.
I don’t think trustee-less trust is something that will become a new standard any time soon, but we have to be prepared for our role as private client attorneys and/or trustees to be superseded, at least partly because of technology. And this is going to happen in the short term, whether we like it or not.
The trust industry has always existed in a “face-to-face” ecosystem and, although technology simplifies (or eliminates) many of the internal management tasks and improves efficiency, the work of the trustee still requires cognitive management skills typical of human beings, especially in a context as volatile and unpredictable as the current one.If we make good use of technology, clients will not have the need to look for 100% IT solutions for estate planning or asset protection, which It grants little margin of action against decisions that require complex evaluations, being able to risk the assets to pre-established automated solutions that are not convenient.
It is true that big changes are coming, but if we educate ourselves correctly on emerging technology, new digital assets and the reality of blockchain, we will continue to provide the best possible service to our clients.
So what are our top three predictions in this field?
1) The fiduciary sector will incorporate new technologies (blockchain, smart contracts and AI) in the very near future and this will completely transform our day-to-day experience (and that of our clients).
2) The trustees that do not offer to publish the trusts they manage on the blockchain (providing registration time and extra security to their clients) will lose all the advantages it offers, or will even be left out of the industry in the medium term.
3) There will be trust structures that will not require having a corporate or individual trustee (the aforementioned “trustee-less trusts”), but will work automatically, but this option will only be available for direct trusts, not for discretionary ones and even Some of the pioneering jurisdictions in this industry are yet to pass specific legislation. We see this as a change in the medium or long term.
In short, blockchain technology has come to revolutionize numerous industries, and fiduciary will not be remotely the exception. It is therefore time for professionals active in the sector to make the decision to incorporate it so as not to be left behind by their competitors.
It is no longer a luxury, but a necessity.
Martin Litwak is a lawyer specializing in international estate planning and investment fund structuring. He is the founder of Untitled (formerly known as “Litwak & Partners”), a law firm and Legal Family Office. He currently serves as CEO of the firm. He is also the CEO of Smart Structuring, a Blockchain platform that allows trusts to be stored and managed.
Camila Da Silva Tabares works in the Corporate & Funds area of Untitled SLC. She has a Diploma in Management & Strategy in Cybersecurity and in Estate Planning & International Taxation.
Disclaimer: The information and/or opinions expressed in this article are the sole responsibility of Martín Litwak and Camila Da Silva Tabares and do not necessarily represent the points of view or the editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.