Why advisors have a fiduciary duty to be trained in cryptocurrency


If a client came to you about a traditional investment opportunity, you would make sure to research the topic and give your best advice.

Why, then, are so many financial advisers nervous when it comes to learning about cryptocurrency? After all, it is your fiduciary duty to give your clients your best advice on a wide range of investments. Even if your best advice is to run – very, very far – from the volatile crypto market, you owe it to your clients to understand the market and be able to explain why you are achieving a certain recommendation.

Financial planner and blogger Michael Kitces, who is no fan of investing in cryptocurrencies, made this point clear with Tyrone Ross, CEO of Onramp Invest, in a recent discussion at the conference in Bitcoin for Advisors 2021 line sponsored by CoinDesk. Kitces highlighted many obstacles for financial planners in orienting their clients to crypto, but agreed with Ross that the industry needs to provide better training for cryptocurrency advisers.

Immediately after this conference, the The SEC announced approving the development of bitcoin futures ETFs, a move that opens the door to a wider range of crypto investors without touching all of the volatility of direct investing in cryptocurrencies.

After all, the idea behind the development of cryptocurrency was to provide equal access and equal opportunity to financial resources for everyone. In the world of financial planning, advisers can be limited by industry regulations, company rules, and their own individual knowledge. The only piece of pie you can control there is your level of knowledge.

Cryptocurrency is here to stay

If you’re one of those financial planners who thought cryptocurrency was like the modes of investing of the past, you can’t just hide your head in the sand and hope that it is gone when you take the money. air. Investing in cryptocurrencies has been around for over a decade and has exploded in recent years. According to CoinMarketCap, the cryptocurrency’s market cap hovers around $ 2.5 trillion.

Recent SEC action adds to the evidence that not only will crypto not go away; it is poised to become an important part of the work of planners and of the way financial services are delivered.

Your investors don’t want to miss out on a great opportunity. If they aren’t flooding you with cryptocurrency questions already, they will soon be as news will continue to bloom about the huge financial gains that investors are pocketing in crypto. (Of course, if you follow social media, you know people like to brag when they score big but disappear from view when they get caught with big losses.)

If you have clients who are determined to invest in cryptocurrency, they will find plenty of opportunities if you cannot or do not want to fulfill their desires. Even Paypal and Venmo allow customers to buy and sell cryptocurrency. Your investors will turn to the internet or other financial advisers if they are not satisfied with the advice they receive from you on this hot topic.

Trustees have a duty to stay educated

In order for a financial planner to approve or deny an asset class, the advisor needs to know what they are talking about. Even if you hate crypto, you owe it to your customers to explain precisely and intelligently why you are against it, why it is not in their best interest.

An article this spring in Investopedia noted that while major brokers, such as Wells Fargo, JPMorgan Chase, Merrill Lynch, and Morgan Stanley have asked their advisers not to offer cryptocurrency recommendations, Wells Fargo is issuing digital currency primers that the advisers can share with their clients.

With the limits placed on industry conferences and seminars during the pandemic, which also coincided with the crypto explosion, financial planners cannot learn from others how they manage their crypto education.

Lack of regulation and concerns about compliance are two other concerns that planners have when it comes to directing clients to crypto investments. Planners should also watch this. Peter Harrell, senior director of international economics and competitiveness at the National Security Council, told the Wall Street Journal Risk and Compliance Forum that the Biden administration will act aggressively to deal with the risk associated with investing in crypto. While some fear that too much regulation will push markets overseas, the various agencies that oversee market regulation are in some cases teaming up to determine the best way forward for digital currencies.

Matthew Kolesky, CCO for Arbor Capital Management and Director of Arbor Digital, recently wrote on Block change that planners need to stay aware of these regulatory and compliance changes and change their policy statements accordingly as they begin to dive into the crypto market. Arbor Digital lists cryptocurrency investments as “speculative” and rates the degree of risk as high.

Investopedia suggested that planners start by investing a small percentage of their clients’ assets in cryptocurrency, so if they suffered a total loss, it would have minimal effect on their portfolio.

If counselors don’t think it’s worth an allocation of their clients’ funds, they should at least consider giving it an allocation of their own continuing education. After all, that’s what it is to be a trustee.

Steve Larsen, CPA, CFP is co-founder of PlannerDAO, a cryptocurrency educational community for financial planners. He is also a co-founder of the Certified Digital Asset Advisor (CDAA) designation, as well as an adjunct professor of finance at Gonzaga University where he teaches cryptocurrency and financial planning courses. To learn more about PlannerDAO, please visit plannerdao.com.


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