There’s Considerable Misinformation That FAs Must Look Beyond to Effectively Capture Opportunities for Clients with Digital Assets Investing
Financial advisors can be a cautious bunch – and with good reason: As professionals whose mission is to look out for their clients’ best interests, many advisors are reticent to recommend investments they may see as a fad or flash in the pan.
Crypto investments often get lumped into a bucket with other strategies that seem speculative, unsteady or otherwise dubious, simply because they’re still in their infancy compared to more established asset classes, and many advisors aren’t up to speed on digital asset technology.
The digital asset space is rapidly maturing, however. It has already reached a point at which the infrastructure, tools and support exist to meet even the most hesitant advisors where they are.
Yet there are still more than a few myths that seem to raise their heads in discussions on why more advisors aren’t jumping into crypto. As I talk to advisors, firm executives and other leaders in the wealth management ecosystem, these are three of the most persistent myths.
Myth 1: Crypto is too complicated, and it would take too much time and effort to learn a new way of managing clients’ investments.
Companies such as Coinbase have platforms that have removed many of the technological barriers and flattened out the learning curve for individual investors to invest in crypto, but financial advisors are mistaken if they think solutions and platforms don’t also exist that make crypto easier for them to manage on behalf of their clients.
Put another way, it’s not the case that managing multiple clients’ crypto accounts is the equivalent in work hours and complexity of managing a whole separate book of business. For example, one misconception I’ve heard incorrectly holds that an advisor needs a separate hardware wallet for each client. This would be unscalable, unmanageable and a security nightmare.
There are, in fact, tools to manage multiple client accounts easily. A new generation of advisor-focused digital asset management platforms, coupled with institutional grade custody and security from digital custodians like Gemini have completely removed this issue from the board. These solutions enable advisors to scale their practice in digital assets beyond just a wallet for each client and free them to provide clients exposure to a diverse array of coins and tokens.
Moreover, for each of the core infrastructural elements advisors use to manage traditional investments, there’s now an analog on the crypto side. Various providers have built crypto-investing solutions for custody, compliance, asset management, portfolio management and account management, among other capabilities. There are, for example, a range of separately managed account, or SMA, options for digital assets.
The full ecosystem exists because innovative tech providers have built it for financial advisors who have configured their service models around investing in traditional currencies. While the names may be different on the crypto side, the way these platforms and solutions work is conceptually the same, removing much of the learning curve for advisors to get involved.
Myth 2: Crypto investing is fundamentally a DIY effort for investors – and Millennials prefer it that way.
While it’s true that younger investors generally are more tech-savvy and crypto-friendly, that doesn’t necessarily mean that they don’t need or want an advisor to help manage their crypto assets.
For the earliest crypto adopters – the developers and computer experts who first started to spread the word about the asset class – crypto investing truly was a DIY effort requiring deep tech skills.
Today, however, the “second wave” adopters are working professionals who don’t have the time and bandwidth to manage all their investments– crypto or otherwise – on their own.
Moreover, as mass-affluent baby boomers leave behind their assets to their Millennial children and grandchildren as part of the generational transfer of wealth that’s already under way, the appeal of crypto is likely to continue broadening beyond its initial base.
In short, if Millennial investors don’t already need advisors to manage their crypto investments, they will before long – they just may not know it yet.
Myth 3: Advisors should “educate before they allocate.”
There’s a pervasive notion in the market that advisors, rather than taking their first steps to engage in crypto, should fully educate themselves about the nuts and bolts of the space before making recommendations to clients.
There’s a problem with this approach: Crypto valuations move so quickly, and opportunities in crypto investing are expanding with such momentum, that there’s an immense opportunity cost for investors who sit on the sidelines. Waiting even a few months can cause investors to miss a chance to garner meaningful returns, so it benefits clients to jump in sooner rather than later.
Don’t misunderstand me: Education is crucial to making sound recommendations to clients. Yet in traditional investing, advisors routinely recommend asset classes about which they may not have expert knowledge. Has every advisor who recommends a particular real estate investment trust done an in-depth due-diligence analysis on it? Does every advisor who recommends options know the nuances of the Black-Scholes pricing model?
Those who want advisors to pump the brakes as they educate themselves on crypto to the nth degree forget that, for every other asset class, it’s common practice to rely on expert third-party asset managers to do the due diligence and heavy analytical lifting. The same is true with crypto – an advisor just needs to know enough to ask the right questions of the experts, understand the answers and discern the right recommendation for their clients.
To be sure, there are advisors who prefer to manage portfolios themselves, but the vast majority would rather outsource that task and spend their time and energy doing what they do best – cultivating relationships with clients and building their practices. The solutions and platforms exist for them to do the same with crypto investments.
Find the Facts to Demystify Crypto Investing
In the end, the advent of crypto as an investment option does not change advisors’ responsibility to act as stewards of their clients’ investments.
Yet there remains substantial misinformation about what it takes for advisors to incorporate crypto into the services they offer. Many advisors’ perceptions about what crypto investing looks like – the infrastructure and services available and how they can ready themselves to make sound recommendations – are outdated and inaccurate.
The simple reality is that there are tools and platforms to help advisors serve the digital asset investing needs of clients, and demand is growing among investors for the steady advice advisors can provide on crypto.
They don’t need to be experts, but advisors do owe it to themselves and their clients to know the myths from the facts.
Dan Eyre is CEO of Blockchange, Inc., the leader in digital asset investing solutions for wealth managers and asset managers, through the company’s BITRIA crypto SMA and TAMP platform.