There's more interest than expected and more clients want to include it in portfolios, says advisor
Advisors should do a deep dive to learn about cryptocurrency so they can have an informed discussion with their clients, Steve Willems, a wealth advisor in Abbotsford, British Columbia, told Wealth Professional.
“This is the fastest adoption of any technology in recorded history,” Willems, a CFP from Willems Wealth Planning Group with Assante Financial Management Limited, said. “It’s even more than the internet back in 1997, when there were 150 million internet users. At that time, it was growing at a rate of 63% a year in terms of the number of users on that network. Today, there are 100 to 150 million cryptocurrency users – but, interestingly, it’s growing at a rate of 113% a year, which is almost twice the rate that the internet grew in those years.”
Willems said the rate of adoption is accelerating, which is “why we feel that it’s our job to dedicate brainpower to thinking through this. I think we’re past the point of just being able to put our heads in the sand and wish it away. The whole space is worth $2.5 trillion dollars. It’s not just something that you can dismiss anymore.”
While younger investors may be driving that, he noted older clients are interested in learning about it, too.
“Most people are aware of it, but they don’t know how they should think about it, and they’ve never had it professionally unpacked for them,” said Willems.
He recommended that advisors learn about it because it could be as society-changing as the introduction of electricity and the automobile in the 1920s.
“There’s a possibility that the innovation occurring in this space, as evidenced by its rate of growth, could lead to a future world that might be difficult to imagine today,” said Willems.
Given that he’s had “dozens and dozens of conversations” with clients, he encouraged advisors to check out all the free resources online and learn enough to help their clients decide whether they want to include it in their portfolios.
“Once they learn about the space, the majority are interested in creating a sleeve within their asset mix,” said Willems. “The minority, once they do come to that understanding, together with us decide that they’re not interested. But, more and more are choosing it. It’s almost a surprising level of interest.”
Willems suggested advisors consider three things.
“First, advisors should be committing to an intellectual deep dive to actually look at what’s going on here or the rate of growth, at its current pace, is going to leave them behind,” he said. “Professionally, I think they owe it to their clients to bring their capability and competency up to the level of being able to have a professional conversation about this. They don’t need to be the expert who knows everything, but they also can’t put their heads in the sand.
“When I’m chatting with other advisors, the second thing is that they may not have given much thought to is where they should place this investment,” he said. That can be done in a number of ways, including through a tax-free savings account. “Many don’t think about it that way, but there’s obviously tax optimization concerns that the advisor needs to think about. That’s an important part of the puzzle.
“The final thing is: what’s your exit strategy?” he asked. Even though Bitcoin has dropped in value by 80% five times in history, he said advisors need to work with clients about what they’ll do if it drops – or rises – again. Will they hold it if it drops? Will they prune profits – and at what point – if it soars? “You want to think about these considerations in advance, so it’s not haphazard and emotional. It’s built on a plan.”
Advisors should also work with clients on “regret minimization”, so they won’t feel badly that they included, or excluded, cryptocurrency from their portfolios.
“I would never have expected to be speaking on this topic a year ago,” said Willems. “But I think it’s something that folks should commit to learning more about. Once you start discussing it with clients, the conversations are actually fun to have.”