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Cryptocurrency is growing in popularity, with more than 10% of those surveyed in a recent CNBC poll saying that they've invested in crypto. Investors cite the ease and excitement of trading, as well as the potential for short-term earnings, as their reasons for buying cryptocurrencies. While many are drawn to crypto for the immediate benefits, survey data shows that 60% of crypto investors are interested in long-term growth as well.
This presents an opportunity for financial advisors to attract these investors as clients. Crypto investors are focused on an asset class that is volatile but showing long-term potential, and few of them have a personalized financial plan. Advisors need to understand how crypto markets work and how to make crypto part of a balanced portfolio to take advantage of this opportunity.
Benefits of a financial planner over an investment advisor
While the distinction between the titles financial planner and investment advisor isn't clear cut, marketing yourself as a financial planner has several benefits, especially for crypto clients. These clients need a long-term, holistic strategy that considers their personal financial goals and guards against the volatility of crypto markets.
Investment advisors tend to focus more narrowly on investments, which is probably where a crypto investor's attention already is. Considering investments as part of a lifelong, big-picture plan is essential for financial security.
How a planner can help crypto investors
A good planner can help crypto clients get the most out of their investments. Investors should have a plan to minimize their tax burden. Investors can offset taxes on other assets with crypto losses while avoiding wash-sale rules. However, legislators are working to change this policy, so advisors need to stay up to date on the best tax strategy for crypto investors.
Advisors can also help crypto investors work their digital assets into their future planning. Long-term investments, including crypto, are an essential part of any retirement plan, especially as company pension plans are becoming increasingly rare. The excitement factor of crypto investing can be a great way to motivate younger people to invest for the future. One survey found that fewer than 66% of millennials have any retirement savings at all, but interest in crypto can help inspire more optimism about an investor's financial future.
The individualized, decentralized nature of cryptocurrency can add complications to estate planning. There is no way to access these assets without the associated private keys, so investors need to have a plan for how to securely pass these to their loved ones. This becomes especially important when crypto is a substantial portion of a client's wealth.
Since a will becomes public after the person dies, these documents can't be used to list crypto private keys. Instead, those with a significant amount of their wealth in cryptocurrency can leave private keys with a trusted friend or family member, transfer their crypto assets to a trust or use a multi-signature digital wallet instead of a traditional individual one. Financial advisors should understand all these options so they can help their clients make the best decision for their situation.
Why planners should understand crypto
There are reasons advisors might be hesitant to give advice on cryptocurrency investments. Since this is a newer asset class, advisors might feel uncomfortable with their level of knowledge, not want to deal with changing regulations, or see crypto as gambling rather than a secure investment. Investment firms don't usually offer a way for clients to automatically put a certain portion of their portfolios into crypto, so advisors would have to direct clients to invest on their own.
While a bit of wariness about a new type of asset is natural and useful, crypto isn't going anywhere, so advisors should learn about crypto markets and make themselves available to new crypto investor clients. In fact, advisors have a fiduciary duty to give well-informed suggestions on the investments their clients are interested in, including cryptocurrency.
Crypto has been attracting investors for over a decade, and this is unlikely to change. By gaining an understanding of crypto markets, advisors can attract new clients who have already had success with crypto. Spending some of your time learning about crypto and gaining credibility with crypto investors is a worthwhile move as digital currencies continue to become more mainstream.
Crypto investors and financial advisors can benefit from one another, but only if advisors commit to understanding cryptocurrency. Crypto investors can use the expertise of a financial advisor to protect and grow their wealth in the long run. Financial advisors can attract a new group of clients by building knowledge of crypto markets and helping crypto investors with their overall financial plans. Crypto is likely to continue to grow in value and popularity, and so are financial advisors who understand it.
Steve Larsen, CPA, CFP® is co-founder of PlannerDAO, a cryptocurrency education community for financial planners. He is also co-founder of the Certified Digital Asset Advisor (CDAA) designation, as well as an adjunct professor of finance at Gonzaga University where he teaches classes in cryptocurrency and financial planning. To learn more about PlannerDAO, please visit plannerdao.com.
Read more articles by Steve Larsen
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
