This article examines the current maturity stages of new financial products like tokenisation, fractionalisation, and tax harvesting. It explores what drives their growth, their early adopters, and whether they are moving beyond the adoption phase into substantial growth. In the next 12 months, we will also track whether innovations like tokenisation and fractionalisation could achieve what mutual funds have done for alternative assets like stocks and bonds.

Innovation and maturity: Tokenisation, fractionalisation, and tax harvesting
Tokenisation, fractionalisation, and tax harvesting are all at different stages of maturity within the financial market. Tokenisation platforms are leading the way, driven by increasing interest from institutional players. Tokenisation involves converting real-world assets, like real estate or commodities, into digital tokens on blockchain networks, making ownership more accessible and tradable. As Maveric's 2024 Wealth Management Report - Redefining the Financial Advisor states, platforms like Polymath, Securitize, Tokeny, and tZERO are leading the tokenisation movement, providing diverse solutions for asset tokenisation. These platforms are essential in helping investors access previously illiquid assets, promoting liquidity and broader participation.

Conversely, fractionalisation refers to breaking financial securities into smaller units and democratising access to high-value investments. Fractional ownership is transforming the accessibility of mutual funds, real estate, and private equity.

The benefits include broader participation from investors with limited capital and more robust risk management strategies. Tax harvesting, meanwhile, is an increasingly popular strategy used by high-net-worth individuals to minimise capital gains by offsetting gains with losses. However, it has yet to reach the same level of technological enablement as tokenisation and fractionalisation.

What does the future hold for these innovative products? Are they poised to disrupt wealth management like mutual funds did for stock investing?

Early adopters and the driving forces
The early adopters of these innovations vary widely across markets and investor classes. Tokenisation, for example, has garnered substantial interest from institutional investors and private equity firms. Maveric's 2024 Wealth Management Report states that the collaboration between Securitize and BlackRock demonstrates that institutional players are taking significant steps toward tokenising private assets. BlackRock’s selection of Securitize as the transfer agent for its first tokenised fund shows how tokenisation is shifting from experimentation to mainstream adoption.

Regarding fractionalisation, younger investors and those seeking entry into traditionally high-barrier markets are leading the adoption. Fractionalisation's ability to lower entry barriers makes it attractive to Gen Y/Z investors, who are often more open to non-traditional investments and more inclined to embrace digital wealth management solutions. Investors can now purchase fractional real estate units, private equity, or even classic art, allowing for a diversified portfolio that would be out of reach through traditional ownership.

Tax harvesting, although not as transformative as tokenisation or fractionalisation, is gaining traction among wealthy investors and financial advisors seeking to optimise returns. Platforms integrating AI for automated tax harvesting are also seeing early adopters among tech-savvy investors aiming for strategic tax efficiency.

Regulatory restrictions
Despite the growth potential of tokenisation, fractionalisation, and tax harvesting, regulatory restrictions pose a significant challenge. Jurisdictions worldwide have varied acceptance levels, leading to a fragmented regulatory environment that hinders scalability. Compliance with securities laws, anti-money laundering (AML) regulations, and investor protection standards remains complex, particularly for tokenised assets. For instance, a recent Deloitte report highlighted that over 60% of tokenisation initiatives face delays due to regulatory uncertainty. Additionally, the SEC's stance on tokenised securities in the U.S. has increased scrutiny, slowing adoption across financial markets.

Growth beyond adoption: Who is driving it?
Tokenisation is beginning to move beyond early adoption into a growth phase, driven mainly by collaborations between established financial entities and blockchain-based platforms—case in point. Franklin Templeton’s partnership with Stellar to launch the Franklin OnChain U.S. Government Money Fund is a notable example of tokenisation reaching new heights. With over US$270 million in assets under management, this collaboration underscores the scalability and growing institutional trust in blockchain technology for investment purposes.

Similarly, fractionalisation is increasing adoption in the real estate and alternative asset sectors. Platforms offering fractional real estate shares enable investors to gain exposure to property markets without the required substantial capital. This democratisation of high-value assets transforms people's investments, bringing new growth opportunities in the wealth management industry. Tax harvesting is still evolving but remains an integral component of portfolio management, particularly among high-net-worth individuals aiming for enhanced returns while minimising tax liabilities.

Can fractionalisation and tokenisation revolutionise the industry much like mutual funds did?
Tokenisation and fractionalisation can make alternative assets accessible, transparent, and liquid, just as mutual funds did for stocks and bonds. By breaking down previously illiquid assets, such as real estate or fine art, into manageable units, these innovations allow a more comprehensive range of investors to participate in markets that were once exclusively the domain of the wealthy.

Fractionalisation, like mutual funds, allows for diversified portfolio options and risk mitigation by spreading investments across multiple assets. Tokenisation goes even further, leveraging blockchain technology to add transparency, traceability, and enhanced liquidity. For investors, this means easier access to assets and more confidence in their security and transferability. In essence, tokenisation and fractionalisation democratise investments, offering wealth creation opportunities to investors previously excluded from certain asset classes.

A parallel with mutual funds: Will history be repeated?
The impact of mutual funds on traditional stock investing was monumental, democratising access and creating a diversified, manageable approach to investments that previously demanded significant expertise and capital. Tokenisation and fractionalisation seem poised to repeat this narrative for alternative assets but at a much faster pace. As mutual funds did for stocks, these innovations turn exclusive asset classes—like real estate, art, and private equity—into more accessible, liquid opportunities for a broader spectrum of investors.

Conclusion: A new frontier in wealth management
The journey of tokenisation, fractionalisation, and tax harvesting is at different points in the wealth management growth cycle. Tokenisation is quickly moving into the growth phase, supported by institutional partnerships and increased trust in blockchain technologies. Fractionalisation is steadily gaining traction, especially among younger and entry-level investors, while tax harvesting remains a powerful yet less technologically mature tool for optimising returns.

Together, these innovations promise a new era of wealth management—one in which accessibility, transparency, and diversification redefine how investors engage with financial assets.