Where are we going to be in 2030, what does it mean for you, and how can you make money investing in the future? I am doing a series of predictions and projections in numerous industries. These are my views and how I personally see the industries going in the future.
Here are a few of my thoughts about Finance and Accounting:
1. Financial Advisors will be actual professionals paid on an hourly basis.
- Goldman Sachs just cut it’s fees on a recent investment product by 90%. They no longer need an army of brokers to distribute their products for two reasons:
- Transparency into fees and information has educated the consumer out of being (mostly) susceptible to strong-armed sales tactics.
- Technology and marketing has changed so that Goldman and all of the other big investment houses can distribute their products direct to the consumer without paying giant broker fees to big egoed brokers who demand giant salaries and bonuses.
2. The total number of tax accountants will shrink by 90%.
- One of two things is going to happen
- Tax law simplification – It should happen, but I don’t believe it will
- Automation – Tax law compliance for 99% of Americans is already a commodity. With advancements in AI and machine learning, the human portion of filing taxes will become extinct.
3. Bookkeeping is dead.
- (see automation above)
4. Counseling is in.
- A new breed of financial advisor will emerge that works only to help business owners feel good about the decisions they are making.
- More and more, business owners will require personal and corporate financial advisors to help them understand the overwhelming amount of data being processed through their accounting systems.
5. Bank financing of small business will slow and require further look at banking regulation and ultimately lead to massive bank consolidation.
- Banks who finance small business loans are largely lending blind. The inept quality of financial statements requires bank underwriters to make assumptions. With machines inputting data, it will be much easier to see an accurate picture of the health of their customers, and banks are going to be very frightened.
6. Blockchain will replace debits and credits and all other accounting principles for the first time in 500 years.
- To understand blockchain, think about finance going from 2d to 3d. Today, a transaction occurs, and a debit (the left side of the equation) and a credit (the right side of the equation) are created. As long as those two sides equal each other, the transaction is complete and we can have trust that it was recorded correctly. This is the way accounting has been done for 500 years. Blockchain allows a third dimension to the transaction. The debit and credit highlight how something happened. Blockchain provides authentication on “what” happened providing a 3d lens into the transaction and giving much greater detail in each accounting entry.
7. Cash will be extinct.
- It is reported that nearly 90% of all of the $20 bills in circulation have some trace amounts of cocaine on them. Why? Because the only people still using significant amounts of cash are criminals. Soon, the government of the US and other countries will become so reliant on digital currency (whether Bitcoin, ApplePay, Venmo, or a credit card) that they will stop printing currency and instead rely solely on digital currency.
8. Micro-fund investment managers are going to dominate.
- Raising capital through online exchanges, these managers will not raise multi-billion dollar funds to line their pockets with management fees while simultaneously underperforming their market benchmarks. Fund managers are going to go small. Get lean and raise relatively small funds (under $100 million) and take fees only above and beyond returns that that are acceptable to their investors.
- For example: I could raise $50 million from 100,000 people around the globe to invest in a large commercial real estate project. Those investors will have little or no rights to the decision making, but they may be under a fee structure that only rewards the manager after certain returns are provided. For example, investors may get 12% and then the fund manager may take all profits above 12%. Lower risk for the investors, better alignment between manager and investor, and more incentive for the manager to deliver excellent returns.