Does the metaverse offer anything for financial advisers?

However, what we can say with some degree of confidence is that the metaverse is looking increasingly likely to be the next iteration of the internet. As such, the metaverse is being taken seriously by an increasingly larger number of businesses.

Microsoft’s chief executive Satya Nadella says the metaverse has the potential to “not only transform how we see the world but how we participate in it, from the factory floor to the meeting room”. Facebook is so confident in the metaverse that it has renamed itself Meta and spent $10bn (£7.6bn) on its metaverse division.

What exactly is the metaverse?

JPMorgan, which recently entered the metaverse, describes it as a “seamless convergence of our physical and digital lives”.

Facebook co-founder Mark Zuckerberg says its defining quality is a “feeling of presence – like you are right there with another person or in another place”. 

In fact, many of the building blocks of the metaverse already exist in the form of popular virtual online games such as Fortnite or Minecraft. Yet the metaverse envisages a future where all these virtual worlds not only interconnect but stretch into pretty much every realm of activity. In a sense, the world of gaming is being re-branded to encompass, well, almost everything.

It is probably worth noting that while some games require you to use a virtual reality headset, most of the metaverse will be accessible on phones, tablets or PCs.

How did we get here? 

The concept of the metaverse is far from new. The term was first coined in the early 1990s by science fiction author Neal Stephenson who imagined the metaverse as a virtual-reality-based internet.

The first real foray into this new world was in 2003 with online virtual world Second Life. Second Life may have failed to take off as many predicted, but it did get many thinking about what life in a virtual world could mean. Perhaps more significantly was the launch in the same year of Roblox, an online gaming platform that supports user-created worlds. With 47mn daily users, Roblox is often now cited as an early example of metaverse success. 

Since then, many virtual gaming worlds such as Minecraft, World of Warcraft and Fortnite have sprung up and have grown large supporting economies. During the pandemic the full scope of what these worlds could offer really took off; most famously a concert by Travis Scott on Fortnite, which was watched by 45mn people, reportedly earning him $20mn. That a concert hosted within a virtual world could generate such significant sums and attract such a large audience has caused many to sit up and realise the extraordinary potential that these new worlds could offer.  

We now have what many consider to be metaverse prototypes (virtual worlds that move beyond gaming), most notably user-created virtual worlds Decentraland and The Sandbox – and their land is proving valuable. The Sandbox, which now has 2mn registered users, saw 65,000 transactions in 2021 totalling $350mn. During 2021, land values rose considerably, from $100 per land in January to $15,000 in December. 

Virtual mortgages for virtual land 

With significant investments in virtual land, it is no surprise that we now have the first metaverse mortgage. TerraZero offer virtual (non-fungible token) mortgages for virtual land and real estate. Such is their confidence in this market that they have recently acquired an 185-parcel estate, valued at approximately $2.7mn. As an aside, it is worth noting that TerraZero’s chief executive, Dan Reitzig, thinks ‘mortgage’ is a poor analogy for this form of investment, preferring to refer to "commercial real estate lending" instead. 

 The world of gaming is being re-branded to encompass, well, almost everything

Unlike the real world, the value of property in the metaverse is more closely aligned with how that asset can be monetised – in and of itself, virtual land has little value. TerraZero, for example, plan to use their virtual land to build a massive metaverse entertainment destination. 

With the advent of virtual mortgages, it does not take a great leap of imagination to foresee a larger real estate market beginning to emerge, one that also deals with credit and rental agreements. With such large sums now involved, could a virtual insurance industry spring up too? 

Market opportunity

JPMorgan estimates the market opportunity to be worth more than $1tn in yearly revenues, saying that the metaverse is likely to “infiltrate every sector in some way in the coming years”. 

Eric Sheridan, technology analyst at Goldman Sachs, estimates that the metaverse presents a $12.5tn opportunity, basing his estimate on the size of the digital economy shifting to the metaverse (currently 33 per cent) plus its rate of market expansion (35 per cent).

These predictions are perhaps unsurprising given that virtual economies are already starting to resemble our own, real-world economies. Yet unlike our economy, the metaverse economy is underpinned by NFTs, which keep a record of digital ownership that is stored on the blockchain. 

Which companies are establishing a presence in the metaverse? 

The metaverse is fast becoming populated by companies of all shapes and sizes, including many household names such as Walmart, Nike, Gap, Hulu, Adidas and Atari. Early entrants have predominantly been in the fields of tech, consumer goods and gaming. But now the metaverse is expanding into more traditional sectors. 

PwC has recently bought virtual land in The Sandbox on the basis that “the metaverse offers new possibilities for organisations to create value through innovative business models, as well as introducing new ways to engage with their customers and communities”.  

 The metaverse could enable novel ways to engage members with the ways in which their pension funds are invested.

Accounting and advice business Prager Metis has opened a three-storey property in Decentraland, which it plans to use to advise companies and clients on tax and accounting issues. They anticipate clients – especially those in the fashion and entertainment industries – will start seeking out their services in the metaverse as they begin to conduct business there. 

Perhaps most notable of all is JPMorgan, which is the first leading bank to establish a presence in there. It has done so believing that “the risk of being left behind is worth the incremental investment needed to get started”. Elsewhere, Goldman Sachs and Morgan Stanley have both said they see the metaverse as a major opportunity of the future.

Other sectors may not be establishing a presence there as yet, but they are keeping a close eye on those who are. Dutch pension fund APG (the Netherlands’ largest pension fund) recently said that it is looking for opportunities to invest in those companies that are currently laying the foundations of the metaverse, particularly augmented reality and virtual reality technologies.

Opportunities for engagement

It is not just investment opportunities that are attracting business to the metaverse. For the pensions industry especially, the metaverse could help solve one of the industry’s biggest problems. 

With an impending pension crisis fuelled by a lack of investment in retirement planning, the metaverse offers unique ways to engage with existing and potential clients. It also opens up a new world of opportunity for the ways in which scheme members can engage with how their funds are invested.  

 While the provision of financial advice in the metaverse is a long way off, it will almost certainly happen. 

At a time when more and more people are wanting to invest in ethical and sustainable pensions, the metaverse could enable novel ways to engage members with the ways in which their pension funds are invested. Imagine a virtual environment where members could engage with those companies they invest in and experience how those investments are having a positive impact on the issues they care about.

Caveats

While the provision of financial advice in the metaverse is a long way off, it will almost certainly happen, but there are a lot of hurdles to cross before we get there. It will require a regulatory rethink, especially with issues such as advice and specific issues such as money laundering, fraud, cybersecurity and the likes of the removal of geographic boundaries that the metaverse could/can create. 

The metaverse may still feel like a wildly futuristic fantasy. Indeed, it is hard to imagine entering a virtual world to go about much of our daily business. Yet, with more and more big businesses laying a stake in the ground, there will be opportunities for those that engage early.

Simply understanding this virtual new world is an important first step, but we are a long way off an adviser popping into a virtual coffee shop or golf course to discuss their finances.

Riccardo Gasparini is chief operating officer and co-founder of Collegia Pension