Cryptocurrency, Bitcoin, and human financial advisors have a love-hate relationship. Many financial advisors have no clue what to tell their clients about cryptocurrency —since these advisors have built their careers in the traditional financial markets. Still, others are a part of financial advisory firms that are largely risk-averse and have been incredibly slow to provide internal guidance on cryptocurrency. And then there is of course a group of financial advisors that are convinced that Bitcoin, cryptocurrency, and the entire decentralized finance space is a fad, scam, and not worth your time or attention. There is a reason for that. Cryptocurrency investing as a whole is still in its infancy. Only thirteen percent of Americans bought or traded cryptocurrency in the past 12 months, according to a survey published by NORC, a research group at the University of Chicago. That number is compared to 24% of American’s trading stocks during that same period.
At Guidefi, we talk to financial advisors around the country every day to see if they are a fit for the Guidefi Advisor Network. As a result, we have had numerous conversations with independent financial advisors and we have asked about their thoughts on cryptocurrency. Some chuckled at the concept of digital wealth and others have questioned if there were really Bitcoin or crypto millionaires out there. (We know that there are.) If your advisor laughs at you when you ask about cryptocurrency, it might be time to find a new financial advisor. We recommend paying close attention to how your financial advisor reacts to your cryptocurrency inquiries. Also feel free to share with them that in August 2021, JP Morgan started offering Bitcoin Funds to their high net worth clients. So what do we recommend that you do if your financial advisor is saying no to crypto? Here are four issues to consider and our thoughts on how best to move forward.
1) Determine If Your Financial Advisor Understands the Cryptocurrency Space Try to determine if your financial advisor is proficient in cryptocurrency and decentralized finance. Consider the age of your advisor. Age is not always an indicator of cryptocurrency proficiency, but it may be an indicator of having an advisor that may only recommend comfortable, tried, and true traditional market investment strategies. Ask how long your advisor has been knowledgeable about the space, and if they are current investors. Ask for their recommendations on cryptocurrency security and custody options. Ask about the best ways to gain exposure to the industry. If your advisor is not able to answer those basic questions, they may not be knowledgeable enough to provide you with an informed viewpoint on cryptocurrency. Perhaps it is time to consider having a different financial advisor for your cryptocurrency investments.
2) Consider How Your Financial Advisor Is Compensated. Be sure that you understand how your financial advisor is being paid for their services. If their compensation model is commission-based or a percentage of traditional assets under management, a cryptocurrency investment portfolio may not offer the same profitability margins for your advisor. As a result, there may be a stronger incentive to encourage you to stay in stock-based ETFs or mutual funds. However, there are several ways to gain exposure to cryptocurrency that involve traditional market investment products. A financial advisor that is knowledgeable about cryptocurrency should be able to share these options with you.
3) Consider Your Advisor's Compliance Restrictions On Cryptocurrency. The regulatory environment and oversight jurisdiction for cryptocurrency is evolving constantly. Some people even say that it is still in its infancy. Because of this many financial advisors are unable to gain advisory “clearance” from their internal compliance departments or broker dealer partners to recommend cryptocurrency to their clients. This week for the first time, the industry got a view into the Security and Exchange Commission’s priorities on cryptocurrency. SEC Chair Gary Gensler shared that focusing on investor protection is his greatest priority. Chair Gensler has also made it known that the SEC is requesting an expansion of its existing authorities to regulate the space. Once the regulation priorities in the space have been more clearly defined, we believe more financial advisors will likely become comfortable recommending cryptocurrency as an asset class.
4) Consider Enhancing Your Knowledge of the Cryptocurrency Space. An informed client is the best client for any financial advisor. Whether you are planning to use a financial advisor to help manage your cryptocurrency investments or not, consider becoming a student again and learning about the cryptocurrency space. The cryptocurrency space is rampant with scams, fraud and misinformation. So make sure you are connected to reputable sources of information. Follow Guidefi on LinkedIn to get news and commentary on cryptocurrency investing. Guidefi's wealth education services area, called Guidefi Academy, is launching its first course for retail cryptocurrency investing called Cryptocurrency 101. This video-based on-demand course is designed for busy professionals with little knowledge of blockchain or cryptocurrency. Sign up for the waiting list for the course here.
Cryptocurrency investing gives you the freedom to manage your wealth on your own terms. You may decide that you need a separate financial advisor to handle your cryptocurrency investments or no crypto-focused financial advisor at all. Whether you choose to work with a financial advisor or not, Guidefi is prepared to support your cryptocurrency investing journey through access to our community, consulting services and cryptocurrency education courses. Consider signing up to join our community at www.guidefi.com to let us help you learn how to build, grow, and protect your crypto wealth.