Thought Leadership in Action

Close to 30% of financial advisers are using or expect to use cryptocurrency in their clients' portfolios, according to a recent survey by Cerulli Associates. Cryptocurrencies such as Bitcoin and Ethereum provide an opportunity for financial advisers and platforms to work with regulators to further the cause of offering retail investors thoughtful and balanced access to cryptocurrency products.

The increased volume of U.S. product filings, the listing of multiple Bitcoin exchange-traded funds in Canada and investors being poorly served by the existing stable of products could all serve to nudge regulators toward approving such products.

 "As established financial services firms will at times make it difficult for investors to access these products, investors will establish relationships with external providers, resulting in brokerages turning away clients while traditional managers appear to struggle to integrate a newer product set," says Daniil Shapiro, associate director at Cerulli.

Here's how advisers can embrace cryptocurrency.

An Emerging and Volatile Asset Class

Cryptocurrency is not appropriate for every investor or adviser, nor is it straightforward to understand. Still, advisers who do not try to gain some knowledge of the asset class may miss out on opportunities.

 Given the wild swings in value and growing interest from ordinary investors, regulators are taking a closer look. "The public's anticipating some profit based upon the efforts of some entrepreneur or computer-science group that's raised money from the public. That fits in our broad remit at the [Securities and Exchange Commission]," SEC Chair Gary Gensler told the Wall Street Journal in a recent interview. He says that the commission is focused on investor protection.

 Advisers can help clients navigate the uncertainty. "There is a risk to asset managers in not taking a view on the emerging asset class," Shapiro says. He recommends that advisers develop a view of the cryptocurrency ecosystem and deliver value to clients by offering education and guidance.

Interest in Cryptocurrency Continues to Grow

It's still early days for advisers dealing with cryptocurrencies in client portfolios. Regulators continue to examine the space, and the tax implications for investing in crypto can be complicated.

 The 2021 Trends in Investing Survey, conducted by the Journal of Financial Planning and thFinancial Planning Association, found that roughly 14% of advisers used or recommended cryptocurrencies this year, up from 1.4% in 2018, when the survey first asked about crypto. More than a quarter (26%) of advisers said they plan to increase their use or recommendation of cryptocurrencies over the next 12 months, and nearly half (49%) of advisers indicated that clients had asked about investing in cryptocurrencies within the last six months, up from 17% in 2020.

 "With most of the public poorly informed about what digital assets are, I find it comforting that more financial advisers are involved in conversations about the topic and the role such assets should or should not have in clients' portfolios," says Dan Moisand, practitioner editor of the Journal of Financial Planning.