Today’s post will center around a recent study from Cerulli Associates. Cerulli conducted some fantastic research into cryptocurrency as an investment and how financial advisors are (or are not) utilizing it in client portfolios.
Background
It’s tough to have a conversation about investing today without mentioning Bitcoin. Maybe you’re a Bitcoiner, maybe you’re not, but it’s difficult to go without at least touching on its impressive history as an investment over the last 13 years. At time of writing, one Bitcoin fetches approximately $22,000. You could scoop one up for less than $3,000 just five short years ago.
Bitcoiners are known for ragging on advisors for not recommending and even discouraging their clients from investing in the asset. Many clients have missed out on the impressive investment gains enjoyed by Bitcoin enthusiasts because of this hesitation. That might be changing in the not-so-distant future, though.
Cerulli Associates found that 45% of financial advisors expect to include crypto assets in client portfolios over the coming years. Many factors are contributing to this change of heart:
- Clients are asking for it
- Bitcoin’s liquidity is increasing, making it easier to allocate positions
- Solutions are arriving to make investment easier
- Bitcoin is starting to become more and more “mainstream”
There’s a Long Way to Climb
Despite the rosy predictions of 45% of advisors utilizing it in the future, only 7% are currently implementing cryptocurrency into client portfolios. This represents an opportunity, no doubt. But it’s also a massive hurdle to overcome.
As also mentioned in the article, a fair number of advisors are reluctant to recommend and speak on cryptocurrencies due to their lack of education in the space. This, in my opinion, is a lazy excuse.
Bitcoin has now existed for more than 13 years and has grabbed headlines for at least 10. Since it’s the best performing asset during this same time period, financial advisors – the people in charge of finding investment opportunities for their clients, among other things – should be educated on the matter. Additionally, there are hundreds of podcasts, articles, and YouTube videos to consume. There are even formalized education CE programs tailored to advisors.
Getting to the Root of the Issue
I am a financial advisor and understand their incentives. I believe that the main reason most advisors are not educated on Bitcoin and/or why they aren’t allocating client dollars to the asset class is due to a lack of tools to assist with implementation.
As it stands today, many advisors are literally not allowed to offer Bitcoin products. Some of the largest RIAs and broker/dealers are still treating Bitcoin as complete voodoo, prohibiting advisors’ access to Bitcoin-related products.
Take Grayscale Bitcoin Trust, for example. This product has been around ever since late 2013, has $14 billion of AUM, and a return of ~15,000% since inception. That’s not a typo! Yet plenty of broker/dealers still do not allow advisors to invest assets into the fund.
Incentives drive our every action as humans. Advisors are primarily compensated on transactions their clients make or the amount of assets under management (AUM) they oversee. If an FA isn’t allowed to be compensated for recommending a Bitcoin product to a customer, that removes nearly all incentive for the advisor to learn about the products or the asset.
Aligning the Incentives
There are advisors out there that see the value in Bitcoin, however. Watchdog Capital was created for these advisors.
Watchdog Capital consists of free market enthusiasts. Because of this, we want our advisors to be able to offer any product they could think of, as long as the product is within the realm of current regulations and is in the best interest of the client.
We are very much looking forward to hiring on financial advisors that are determined to do right by their client and getting them exposure to this new monetary network that is Bitcoin. The clients of our advisors will be able to allocate assets to Bitcoin-related products in traditional form, such as ETFs and stocks. But Watchdog advisors will also be able to purchase and sell native bitcoin for their clients and help them with self-custody best practices as well.
We are at a vital point in bitcoin’s adoption curve. Watchdog aims to equip our advisors with every tool they need to ensure their clients’ financial success.
If you are an advisor finding yourself in this handcuffed position, let’s discuss potential solutions. You are your clients’ most trusted financial resource, and they will look to you amid the coming uncertainty.
If you are a client of an advisor that does not allow advice or transactions relating to bitcoin, Watchdog Capital is happy to answer questions you may have. You can find us on our website, or can email me directly at trent@watchdogcapital.com.
Trent is a CERTIFIED FINANCIAL PLANNER™ at Watchdog Capital. He has a passion for traditional finance and Bitcoin, and is eager to see how the two worlds interact with each other.