Is It Time To Go If Your Financial Advis...

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.


 

Human Advisors Vs Robos: How Do You Choo...

 

Robo-Advisors are a pretty popular investment approach option these days. These advisors typically differ from brokerage to brokerage,but the idea is that a complex computer algorithm can manage your investment portfolio better than a human Financial Advisor. Companies like Betterment, Personal Capital, Ellevest all have great Robo-advisor options. In addition, these companies offer customer support for questions about the site or the service. 

 

What's Great About Robo-Advisors (Pros)

 

1) Cost: (sort of): Most people believe that Robo-Advisors are always cheaper than human Financial Advisors but that is not always true. This is because there are different types of human Financial Advisors: Fee Only, Hourly, Fee Based. The difference lies in how these advisors get paid. Fee Only Advisors set their own flat fee prices, and Hourly Advisors  are paid hourly. Fee Only Advisors also typically charge at least 1% of the total value of your portfolio.  Robo Advisors can charge as little as .25% of assets under management all the way up to 2%+ of AUM --so you really need to read the fine print when you are comparing advisors. Fee Based advisors earn commissions on the investment projects they recommend. 

 

2) Lower Minimum Amounts- Depending on the Robo-Advisors you choose, these advisors can have a lower bar to get started. Personal Capital has a minimum investing amount of $50,000 and other advisors like Personal Capital or Ellevest allow you to get started investing with only $1000 to $5000. As a point of comparison, some human advisors (mostly private wealth managers) require at least $500K of investable assets, but others (like many of the advisors in the Guidefi Advisor Network) can help you start investing with as little as $1000. 

 

3)  Simplicity: Most Robo Advisors pride themselves on ease of use. Many have cool simple apps and interfaces that put you in the investment driver seat.

 

What's Not So Great About Robo-Advisors (Cons)

 

1) Money is personal and Robo-Advisors Are Not: Robo Advisors are not customized to your individual needs and they are not designed to be. Robo Advisors assume a base of knowledge and aren't available to talk you off the ledge after a significant market downturn. They can't help you adjust to personal life changes that impact your finances and they don't allow you to see your whole financial picture. Taxes, estate planning are typically left out of view when dealing with a Robo-Advisors.  

 

2) No Face to Face Meetings: If you are the type to "Set It And Forget It" then a Robo Advisor approach might work best for you. But if you would like to sit down and meet in person or virtually with your Financial Advisor and have a relationship with that person, a human advisor is likely a better option for you.

 

3) Robo-Advisors can be limiting: Robo-Advisors are limited by asset class.  Sophisticated and newbie investors may want a broader investment portfolio with a wider range of asset types than a typical Robo-Advisor offers. Of course whether you are an expert or a new investor you may be limited to the Robo-Advisors online community or glossary for additional information about an investment choice. 

 

The Final Analysis

No matter which approach you opt for, selecting a Robo-Advisor versus a human Advisor is a personal choice. When you are making the decision, please be sure to consider  the level of investment guidance you need to suit your individual style, personal goals, and your level of baseline knowledge. If you are looking for a great culturally competent advisor of color be sure to sign up to be matched on our site.