The WEALTHTECH Book

Trust Arbitrage and the Future of the Wealth Manager – How Blockchain Innovations Can Crack the Code

By Partha Chakraborty, PhD, CFA

CEO, Switchboard Systems, Inc

The firm has historically exploited trust arbitrage, especially true for wealth managers. Autocracies, a beneficiary of trust arbitrage, lost ground to democracy when the “founding fathers” endowed certain rights to the individual. We argue that blockchain innovations potentially bestow the same attributes to economic agents at an atomic level, thus reducing the impact of trust arbitrage. If and when that happens, performance and client service remain the two levers a wealth manager can work with. Will it be back to the basics or the doomsday ahead for today’s wealth managers?

The concept of the company, “the firm”, persists and prospers even when other authoritarian experiments have failed in history. Utopian visions of “productive agents” coming together to perform one economic task only to regroup thereafter has not happened, even in a “networked/connected economy”. It has been a secular trend that authoritarian constructs have given way to political constructs that explicitly allow for reasonably free association and commerce. Public space is by and for the people.

It can be argued that many public goods could, individually, be produced by profit-seeking private entities more efficiently. That said, nobody wants a return to authoritarian disbursal of essential public goods – no privatized police or judiciary is ...