Financial advisors warm to cryptocurrency to meet client demand

Financial advisors have stepped back to integrate cryptocurrency into client portfolios. They will probably not be able to ignore the alternative assets for much longer.

Cerulli Associates, in a study, found that 45% of consultants say they expect to use cryptocurrencies in the future in response to customer inquiries.

Meanwhile, only 7% of consultants say they currently use these assets based on their own recommendations, and 10% use them due to client inquiries.

Investors are curious about the burden on these assets, with 80% of advisers saying that customers of all ages have asked them about cryptocurrencies, according to Cerulli.

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In comparison, a June 2021 survey by the Financial Planning Association and the Journal of Financial Planning found about 49% of advisers asked clients about cryptocurrencies in the last six months.

One important reason for increased investor interest: The growth of cryptocurrencies has seen last year.

Its market capitalization rose to $ 3 trillion in 2021, before falling to about $ 2 trillion this year.

The free float market capitalization, which represents the amount of cryptocurrencies available for trading on the market, is approximately $ 1.3 trillion. Bitcoin and Ethereum contain a lot of it.

“If consultants do not include it or have at least some sort of attitude about it, then they are putting themselves at a disadvantage and could potentially lose clients over it,” said Matt Apkarian, senior analyst at Cerulli Associates.

However, financial advisors continue to be more bullish on other alternative assets.

Private equity accounted for 20.9% of advisory alternative asset allocations in 2021, while other private investment – debt, natural resources, infrastructure and real estate – represented 20.6%. Net-rated real estate investment confidence accounted for 18.6%.

Cryptocurrency accounted for only 2.3% of the advisors’ alternative distributions.

For 2023, advisors expect to strengthen the alternative burden on infrastructure, with an expected 2.5% increase in their current allocation, as well as other areas such as hedge funds and venture capital, with an increase of 1.3% for all expected.

Cryptocurrency burden, however, is expected to increase by only 0.2%.

There are reasons why financial advisors are retiring to increase how much they devote to cryptocurrencies, Cerulli found.

Some may shy away from it because they do not have the time it takes to understand the cryptocurrency market, others may worry that they are violating their fiduciary duty. In addition, their platforms may not include cryptocurrencies as investment options.

Notably, there is still a lack of regulation of these assets. The approval of a spot Bitcoin exchange-traded fund could take several more years, Apkarian said.

Independently registered investment advisers can integrate these assets first, due to greater flexibility due to their size and management structure.

However, large financial firms also contribute their expertise in this area.

Meanwhile, individual investors can gain access to cryptocurrencies outside of their advisory relationship via platforms such as Robinhood and Coinbase.

It is up to the advisors to ensure that they have a complete picture of their clients ’exposure to cryptocurrencies, even if they have no control over those assets, Apkarian said.

“They can at least make sure they have an understanding of what their clients have in external assets,” Apkarian said.