While crypto may be “newer” to the scene than other investment options, digital currencies continue to gain traction. As a result, more and more investors are allocating a percentage of their portfolio to crypto, but most crypto investors are completely self-taught. They may have sought help from their financial advisor if they have one, but the advisers have been unwilling to help clients with their crypto investments, at least not yet.
There are several reasons why financial advisers have largely ignored cryptocurrencies like Bitcoin and Ethereum until now. Jeff Rose, longtime financial advisor and founder of Wealth hacker, a popular YouTube channel, says he understands why most advisors stay away and it’s more complex than some realize.
First, it’s a rapidly changing landscape, he says. If the advisor is not up to date with the latest information and strategies, a client could lose (or earn) a lot of money in an instant. And since most financial advisors spend most of their time studying traditional investments like stocks, bonds, and annuities, as well as creating long-term wealth plans for their clients, it’s understandable that they can’t spend that much time following the crypto markets. .
Then there is the financial aspect. Even if a client wanted to allocate a percentage of their wallet to Bitcoin, most investment firms do not offer this option. This means that the advisor would recommend a strategy and then would have to send their client to another platform to execute the trade.
“It also means the advisor won’t get paid,” says Rose.
That last part – lack of payment – could be the number one reason financial advisers don’t rush to learn all they can about digital currencies. Like it or not, but most advisors earn commissions on the investments they sell. At the very least, they earn a percentage of the money you invested with them.
If they start moving client funds from traditional investments to cryptocurrency, they will inevitably lose income. Why would they want to do this?
Other reasons counselors might not help you
There are other reasons why some financial advisers are reluctant to recommend crypto in their clients’ wallets, and many of them make a lot of sense.
Dr Erika Rasure, Assistant Professor in the Online MBA at the University of Maryville, says many financial advisers are wary of cryptocurrencies, calling them “just another form of gambling” or fad driven by media coverage smart and celebrity support.
“Often times, they neglect to recognize the powerful technologies and blockchains behind many cryptocurrencies and fail to recognize the use cases that drive market momentum and capitalization,” says Dr. Rasure.
Whether they don’t act out of fear or lack of knowledge doesn’t really matter; if an advisor thinks cryptocurrency could harm their clients instead of helping them, it’s no wonder they don’t recommend it.
Then there are questions about taxes and regulatory compliance, and many advisers looking for information uncover conflicting facts.
Brock Pierce of the Bitcoin Foundation says these questions are an important factor in keeping financial advisers simply on the sidelines. They should have their answers for their clients, and crypto assets currently have a gray area.
“The mixed messaging and regulatory uncertainty from different state and national agencies has left many financial professionals hesitant to get involved in the crypto space over the years,” Pierce said.
Finally, some financial advisers don’t even view crypto as a traditional investment, or an investment that should be a significant part of anyone’s wallet. Financial Advisor Anthony Watson of Prosperous retirement specialists is a financial professional who feels that way, and he was happy to explain why.
For an asset to be considered an investment, he says, the asset must have an expected real return. In this case, a real return is the part of the return that exceeds the rate of inflation. Additionally, asset classes that cannot contribute to the actual performance of a portfolio over time do not make sense in any portfolio.
“Cryptocurrencies are not income producing assets,” explains Watson. “They do not represent claims on an income stream and therefore cannot be valued or expected to increase in value.”
Instead, Watson says the value of cryptocurrency is determined by the supply and demand factors of an unstable and unpredictable group of market participants.
“At least the US dollar is backed by the government’s ability to tax its citizens,” he says.
Changes are coming
Interestingly, there are new platforms that make it easier for financial advisors to recommend cryptocurrency to their clients. With Onramp Invest, for example, advisors can recommend crypto and integrate digital currencies for their clients in one place, and with the best tools and technology available today.
According to Justin Castelli, chief of staff of Onramp Invest, “The popularity of crypto has created a unique situation where many clients know more about the asset class than their financial advisor – advisers are catching up.”
That’s why they are creating tools to educate financial planners, allow them to access crypto-assets held by their clients, or even allow them to allocate funds on behalf of clients with qualified custodians.
As Castelli says, “Cryptoassets present many planning opportunities that financial advisors should be aware of, regardless of their views on the asset class. “
If you have a financial advisor who is wary of crypto but otherwise enjoys their job, investing in crypto on your own isn’t that difficult either.
Dr Rasure recommends looking at platforms like Coinbase and Gemini, both of which allow individual consumers to explore, educate, and invest in cryptocurrency. However, you should take the time to do your research and make sure you understand what you are investing in.
“A successful crypto investment means researching the use cases and the technology behind the tokens, considering their risk tolerance, perhaps implementing a longer custody strategy, and preparing for fluctuations,” explains Dr. Rasure. “Not all cryptos are created equal, and while promising, this is still a speculative space.”
In the meantime, you need to protect yourself from scams and avoid getting caught up in the crypto hype. Instead of chasing the quick buck, Dr. Rasure recommends training yourself to the point where you can do a great investment thesis yourself based on research, data, and use cases.
If you plan to put only a percentage of your assets in cryptocurrency anyway, you can take care of that part of your wallet yourself, but still use the services of your financial advisor. Or, you can look for a new financial advisor who is familiar with digital currencies as well as other aspects of wealth management.
Ultimately, what you decide to do (or not to do) is entirely up to you. If your financial advisor is averse to crypto but you’re ready to get involved, you have a few thoughts.