Despite cryptos becoming mainstream and their increasingly rapid institutional adoption, financial advisors are still reluctant to offer them. Now, a new whitepaper says that those who ignore the asset class due to lack of belief or knowledge may find their clients turning elsewhere for advice.
A new Cerulli Associates whitepaper, “Cryptocurrency: Navigating a Frontier Asset Class for Advisors and Asset Managers: Cryptocurrency Is Too Impactful to Ignore,” found that only 7% of advisors report that they currently use cryptocurrency based on their own recommendation, with a slightly higher 10% reporting they use cryptocurrency by client request.
The whitepaper noted that the lack of regulation is a key factor bringing forth security concerns, though expected future regulation will serve as a boon to adoption of the asset class.
“Advisors owe it to their clients to understand the world of cryptocurrency, so at the very least they have reasoning to support their viewpoint for not including it in their portfolios,” Matt Apkarian Senior Analyst, Product Development and author of the whitepaper writes. “Some view this as part of advisors’ fiduciary duty — a simple lack of understanding of cryptocurrency is not doing the client justice in assessing investment opportunities available.”
A key finding is that over the next two years, 24% of financial advisors expect that they will be willing to use cryptocurrency by client request, while 45% of advisors expect they will be using cryptocurrency at some point per clients’ requests. Still, only 31% of advisors say they expect to be recommending cryptocurrency use in client portfolios at any point.
Brock Pierce, Bitcoin Foundation Chairman, told GOBankingRates that investor demand has already been driving all kinds of financial institutions to embrace cryptocurrencies and that many of the largest investment banks have spent the last five or more years getting deeper into the space and, only recently, have started to explore actual trading and offering of investment vehicles to their clients.
“Goldman Sachs recently partnered with Galaxy Digital to offer their clients exposure to Bitcoin and Ethereum, so I expect to see many other financial advisors follow in their footsteps and figure out how to offer cryptocurrency exposure to their clients to meet the continued demand,” Pierce said.
The whitepaper stated that regardless of beliefs, cryptocurrency represents opportunities for financial advisors to gather assets. According to the Financial Planning Association, 80% of financial advisors report they are being asked about cryptocurrencies, while only 14% are using or recommending cryptocurrencies.
“The wariness of advisors to enter the space should be relieved over time as regulation and security improve,” Apkarian wrote in the whitepaper. “Security concerns often stem from headlines regarding cryptocurrency wallet hacks and data breaches at exchanges. Top-tier exchanges will surely prioritize security to protect their clients’ personal information.”
Matthew Le Merle, managing partner at Blockchain Coinvestors, told GOBankingRates that the research from the CFA, Bitwise and now Cerulli all demonstrate the same thing: that advisors know digital monies, commodities and assets are part of their future, but haven’t really gotten on board yet.
Russia’s invasion of the Ukraine and the President’s executive order are “suddenly accelerating the reality of digital monies, commodities and assets,” Le Merle said.
“Digital natives who are in their early 40s or younger all want cryptocurrency and digital money, and today they are 50% of the American people and moving into their peak earning and saving years,” he continued. “They are not the clients of wealth advisors. The advisor industry is going to get a sharp shock over the next few years when it realizes it can’t win this generation of clients if it can’t offer cryptocurrencies and digital monies and assets. Today’s reports and surveys miss this inevitability because they talk to today’s advisors about the clients they serve today.”
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