The metaverse is a rapidly expanding digital realm that is predicted to have 5 billion users and generate $5 trillion in impact by 2030, according to Citibank and McKinsey, respectively.
This presents a unique opportunity for financial advisors to capitalize on its potential size and appeal across genders, geographies and generations to connect with clients with digital tools and services, such as virtual reality trading apps or holographic investment portfolios. Young investors who have grown up in an entirely digital world currently account for 38% of the U.S. workforce and in 10 years they will account for 58%.
This is much easier said than done, given there are not yet common standards and systems for the metaverse akin to those that currently exist on the internet. Investment banking firms and financial advisors are going to need to work in lockstep with engineers to ensure interoperability, as this will be fundamental to a seamless customer experience.
For investment banking firms, wealth managers and financial advisors, there are a few steps to consider before embarking on large-scale investments in the metaverse and taking advantage of the opportunity.
It is important that firms understand that the metaverse is a collective space covering areas beyond VR, such as Web 3, non-fungible tokens (NFTs) and much more. Hence, firms need to explore broader applicability of these technologies and start with areas that make the most sense for their business.
For example, one wealth management firm that works with Infosys is actively exploring how VR and augmented reality, or AR, can be used to enhance client interactions, particularly for millennials. They will take this a step further and review other applications later this year or early next. Additionally, there is an investment bank that is executing pilot programs in NFTs and blockchain technologies.
For example, recommending investments in virtual real estate or NFTs based on a hunch, without fully understanding their value, could lead to losses. The use of avatars and virtual identities makes it easier for rogue sellers to impersonate established companies and collect personal data without permission. Investors and advisors need to be vigilant in verifying the identity and credibility of any potential partners or investments in the metaverse.
Wealth managers and financial advisors must consult with experts and engineers to make sure they know what they’re buying into before they make large scale investments in Web3 and the metaverse.
While the metaverse has the potential to create new levels of engaging customer experiences and generate significant returns, it is also important for investors and advisors to have a comprehensive understanding of which benefits they can potentially realize — as well as which benefits are likely out of reach. Failing to communicate these details can leave investors aggrieved if their expectations haven’t been met, and potentially leave these firms open to complaints of deception and fraud.
It is also important to be prepared for the volatility and uncertainty that are common with any new technology or platform. Play the long game. As with any new technology or platform, anything connected to the metaverse is destined to experience some sharp volatility, with enthusiasm driving up valuations to unsustainable levels and pessimism driving them back down. These developments will be magnified by users who have little or no experience with the metaverse.
This is an exciting moment for the metaverse, with companies in every industry and across the world working through how to make the most of it. For investment banking firms, wealth managers and financial advisors, there are potentially substantial rewards to be realized. Ultimately, the key to success in the metaverse is the same as in any investment arena: careful risk management.
Nageswar Cherukupalli is the senior vice president of capital markets at Infosys.
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