Why dodging crypto conversations could cost advisors

New research suggests advisors who let cryptocurrency fears get the better of them will miss a multibillion-dollar opportunity

Why dodging crypto conversations could cost advisors

While advisors may be inclined to dismiss cryptocurrencies as nothing more than speculation, those who refuse to engage with interested clients may end up leaving billions of dollars on the table.

Using a five-year model, new research from Broadridge Financial Solutions has found that financial advisors and wealth managers are set to receive up to US$4.6 billion in incremental fee revenue through cryptocurrency. And while interest in crypto is commonly ascribed to younger investors, research from Gemini pegs the average age of crypto investors at 38, while the average “crypt-curious” individual is 44.

“[M]anagers and advisors may lose existing clients and assets if investors do not view them as having a viable cryptocurrency solution,” said Uday Singh, managing director and head of Broadridge Consulting Services, and Mike Tropeano, senior director and engagement manager for the Broadridge Wealth Consulting Practice, in a piece published by Barron’s.

Referencing Gemini’s findings, Singh and Tropeano said nearly four fifths of U.S. crypto holders (77%) are younger than 45, and many are set to benefit from the ongoing massive intergenerational transfer of wealth. Another 20 million U.S. adults, the survey found, will enter the crypto market “very soon.”

To retain the assets of crypto-involved clients, the two encouraged advisors to start thinking about working with a liquidity provider that can offer a wide variety of coins, and is nimble enough to expand into new coins as they come into market. Advisors must also decide on a custodian, the duo added, while considering factors such as security, costing model, and ability to meet service needs.

“Other guidelines [in custodian selection] include developing an understanding how instant settlement will work and considering the impact to clients of maintaining cash balances at the provider,” Singh and Tropeano added.

With respect to the actual client conversations around crypto, a note from Capital Group about bitcoin offers some suggestions. According to Barbara Burtin, an equity investment analyst at the firm, advisors should encourage clients to dedicate just a small portion of their portfolio to the mainstay cryptocurrency given its extreme volatility. Douglas Upton, another equity investment analyst, said investors should also be informed of its limitations, including its limited practicality from a power-consumption perspective and the low likelihood of government-sanctioned usage without regulatory controls.

Ninou Sarwono, an emerging technologies specialist at Capital Group, emphasized the groundbreaking potential of the tech underlying bitcoin. And at the more practical level, Burtin said exploring controlled bitcoin use with clients could unlock valuable insights into their actual risk tolerance.

“Behaviour is so important when investing,” she said. “It’s more than Bitcoin. It’s a social experiment.”