Podcast #15: Web Portal Update, Schwab, Cryptocurrency

Listen to the podcast below to hear Jill talk about

• Web portal update
• Schwab – TD Ameritrade acquisition update
• Cryptocurrency
• Seabin, seagrass beds, and Friends of Notre-Dame de Paris

Script:

Hi Everyone,

I hope you’ve been vaccinated and are cautiously getting out and about.

We are updating your web portal to a new and improved version including more security. Your initial login to the new portal will require two factor authentication. After the first time you are good to go. Over the coming days, you will be receiving a link to a video providing a tour of the new portal and how to navigate it.  There will also be a PDF file with instructions and screen shots available.

I have two topics today I want to discuss.

The first is to update you on the Schwab acquisition of TD Ameritrade. Schwab now projects it will cost an additional $400 – $600 million to integrate with TD Ameritrade. The estimate for total integration is in the range of $2 – $2.2 Billion with a B. It is also going to take longer. Instead of 18-24 months we’re now talking 30-36 months. At the earliest, we’re being told April 2023.

So where does that leave us? Actually, in a bit of a dilemma.  You may recall that one of the reasons we were so happy with TD Ameritrade was their technology – not only within the company but with outside vendors and their level of integration.

When the acquisition was announced, the vendors, understandably, stopped working with TD Ameritrade to concentrate on Schwab and other custodians. We are pretty advanced on the technology spectrum and stagnating for another two years with our software companies could be a problem while other custodians will move ahead with what they offered to their advisors.

If we were to move to another custodian, it would require all accounts to be re-established with the new custodian’s forms. While the process is electronic, the forms are pre-filled and only your signature would be required, it is still a big project. The phrase for this is called re-papering.

On the other hand, we could wait and just transition to Schwab with little, if any, requirements to re-paper. If we feel the level of service or technology isn’t adequate, we could then look at other custodians and re-paper if the move is of benefit to clients in spite of re-papering.

At the moment, this is the way we are leaning. However, we are still concerned about the technology issue and are discussing with our current software vendors their interface with TD Ameritrade during this transition time. As I’ve said before, stay tuned.

The next topic I want to discuss is digital currency sometimes referred to as cryptocurrency. Bitcoin is a well-known example. This is a huge topic with many issues. I’m going to try to keep it at a high level to give you a flavor of what is occurring and its ramifications.

Crypto or digital currency is not something you would use to buy coffee at Starbucks. However, if you have ever taken a cruise, your dollars aren’t needed. You have shipboard credit and activities are charged to your room. Only at the end of the cruise do you settle in dollars. You buy goods and services with your cruise card. That is the equivalent of cryptocurrency. Another example is frequent flier miles. You can use the points earned to buy goods and services. No dollars required to exchange points for goods and services.

There are over 6,000 cryptocurrencies at this time but we don’t know which ones will survive.

Let’s start with some background. Technology has changed just about every facet of our lives. We only have to look to the entertainment industry to follow the trend. We used to go to movie theaters to watch movies. Then, after a time, we could see them on TV. The next advancement was a movie available on a Betamax machine. Betamax gave way to VHS which then gave way to DVDs. Now, we have streaming. The changes have largely been brought on not only by technology, but also high-speed internet.

The one area that hasn’t had much disruption but is on the cusp for major change, is money and financial services. In a society that moves quickly via the internet and the upcoming 5G networks, money still travels slowly – through banks or stock exchanges.

Each activity runs through an institution. If I give you a check on my Bank of Marin account and your account is at Wells Fargo – you deposit it at Wells. Wells deposits but can take the money back if my account doesn’t have enough money to cover the check. This is frequently why you see 10-days holds on large checks. Each bank has its own database and they do not talk to each other.

On the other hand, blockchain is made up of software networks that DO speak to each other. The first example was the Bitcoin Blockchain. It is the first database, available worldwide, that anyone can see but is not controlled or run by anyone.

You may have heard of Venmo, now owned by PayPal. It is a mobile digital payment service. If you and I are on the Venmo platform, I can instantaneously send you a payment with my mobile device. It is one database and it knows if the money is there or not.

Zelle is another digital payment system owned by Early Warning Services – which in turn is owned by Bank of America, Capital One, JP Morgan Chase, and Wells Fargo to name a few. With an app, you can instantaneously send a payment over your internet connection. Again, one database fed by all these banks. In both Venmo and Zelle, transactions are in dollars. Each has one database not available to the public.

Enter Blockchains that are the catalyst for the coming changes. Blockchains are a digital ledger of transactions. It is distributed and duplicated across networks of computer systems on the blockchain. A blockchain is a software network that is decentralized, frequently public and crosses many computers. There are no employees. They cannot be altered retroactively.  As transactions come in, they are stored as a block and added to previous blocks to make a chain. Think of it as taking a paper clip and hooking one end to the next paperclip.

An example is Bitcoin blockchain. Bitcoin is a digital currency aka cryptocurrency. There are no trading fees and no exchange such as a stock exchange. Who is the biggest blockchain company – it may surprise you. IBM.

Transfers are made at the speed of the internet. And, instead of closing at 5:00 PM and weekends, it is accessible 24/7. Blockchains use the various digital currencies.

At this time, moving money is one of the slowest activities in the world. A wire sent internationally from Bank of America for $10,000 takes 2 business days and there is a fee of 1-4%. Alternatively, there was recently a money transfer of $1.1 Billion on the bitcoin blockchain. It settled in 10 minutes and cost 57 cents.

Another example of how blockchains are being used is the escrow companies. They are the middleman between the buyer and seller. What are they really doing? They are saying I need the following documents for the sale and once received, the money can be transferred. For that they get a fee of perhaps thousands of dollars. Well, if you think of the logic, it is really an if/then statement. If my checklist is complete, then I can transfer the money. Software programs can be written to review the documents for what is needed and then transfer the money. Do we really need the escrow agent? There is already a name for this – smart contracts.

Owning/using cryptocurrency is not without risk. There are cryptohackers, malware, potential regulations, and whether or not your cyptocurrency will retain or lose its value. And of course, there are criminals who use digital currencies to make it harder to trace them.

Companies like Visa, PayPal, Microsoft are examples of companies accepting bitcoin.

The next step that occurs is what is called digital property rights. Going back to our bank example, each of us has a bank account number that is unique to us within our bank’s database. In the cryptocurrency world, we have what is called a digital wallet

We’ll save the digital wallet discussion for another time. Just a word to the wise, don’t lose the key or password. There is no company to send you a link to reset your password. You lose whatever cryptocurrency that is in the wallet.

So, to me a logical question is how are the governments of countries going to deal with an alternative money system? Unlike currencies around the world, there is no central authority, no banks and cryptocurrency is not backed by any government. How do you implement monetary policy if you have no control?

Governments can’t allow cryptocurrency to replace sovereign currencies. Central banks are already studying the situation. There is recognition that digital currency is coming whether you want it or not. What about the government issuing the digital currency? There is already a name for it – govcoins.

China banned private companies from issuing cryptocurrency. However, they are testing digital currency in one of their provinces to see how it works. They are also trying to become a big player in the blockchain world. Don’t kid yourself, they are out to dominate with their currency.

Right now, the dollar is the pre-eminent currency in the world. Sixty-one percent of foreign bank reserves are denominated in the dollar. Oil is quoted in dollars, many of the developing country currencies are pegged to the dollar. Since so many transactions worldwide depend on the dollar, any reduction in its use as the preeminent global currency will be a problem for the U.S. economy.

How prevalent is cryptocurrency becoming? Facebook, with their single database of millions of users is planning on a private platform for cryptocurrency.

Stay tuned. This is definitely not going away.

On a lighter note, after a successful crowdfunding campaign in 2016, Seabin has been introduced into our oceans. Its function, operate as a trashcan by vacuuming garbage in the area surrounding it.

Experiments in planting seagrass beds as a way restore coastal ecosystems are proving successful. Mature seagrass beds capture carbon 35 times faster than the tropical rainforests.

Lastly, how do you feel about adding something new to your family? Now through crowd funding by Friends of Notre-Dame de Paris, you can adopt your very own gargoyle or demon through a donation.

Until next time.