Advisors feel drawn to cryptocurrency wave as clients ask questions
When the market collapsed in March 2020, financial advisor Ivory Johnson, founder of Delancey Wealth Management, decided it was time to introduce cryptocurrencies to his clients.
“I did it because I saw how active the Federal Reserve was and how diluted the dollar,” which would be incredibly inflationary, Johnson said.
A recent poll from the Financial Planning Association and Journal of Financial Planning shows Johnson’s strategy may be part of a growing trend.
As investors become increasingly interested in cryptocurrencies, financial advisers are feeling a new urgency to offer investments to clients.
About 49% of advisers said clients had asked questions about cryptocurrencies in the past six months, up from 17% in 2020, according to the survey.
More of these financial professionals – 26% – plan to increase their usage and recommend cryptocurrencies over the next 12 months.
Currently, 14% of advisors use or recommend these investments. This represents less than 1% in 2019 and 2020.
“People are realizing now that this is not going to go away,” said Tyrone Ross, CEO of Onramp Invest, a provider of “crypto asset” management technology for financial advisers. The company collaborated with the FPA and the Journal of Financial Planning on the investigation.
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Advisors who do not adapt could risk being left behind.
“Clients come to the advisors now knowing more than the advisers,” Ross said. “Advisors are absolutely terrified because you never want to look stupid in front of your client.”
While Johnson said most of the advisers he talks to are still unfamiliar with cryptocurrencies, that could change as new certifications emerge and brokers adopt technologies to manage those assets.
“Every time something gets more and more adopted, the price goes up exponentially, and we start to see that with bitcoin and other cryptocurrencies, and I think that’s another case of the bull.” Johnson said.
Advisors who are now integrating cryptocurrencies typically add a 1% to 2% allocation, Ross said. However, those who are more committed to the strategy can reach 3-5%.
Ross also has his own consulting firm, devoted entirely to cryptocurrencies. This means no traditional assets, such as stocks or bonds.
As these new investments emerge, the pressure is still on for advisers to incorporate traditional financial planning into conversations around crypto. That means finding out how much clients own and how that measures up against their risk tolerance, Ross said.
Onramp recently launched a crypto-asset integration platform to help registered investment advisers integrate bitcoin, ethereum, and other investments into wallets.
Ross said the company was trying to provide the resources he wanted when he started his practice in 2017.
Now the challenge for the company is to meet the demand it sees, Ross said. More than 300 advisers signed up in the first two days of its May 25 announcement.
Onramp is currently raising funds to meet this demand from investors such as Eterna Capital, Gemini Frontier Fund and Ritholtz Wealth Management, which also uses the company’s technology to integrate cryptocurrencies into client portfolios.
For advisors and investors alike, the first step is simply to educate yourself before embarking on these investments, according to Ross.
Onramp offers a training program, dubbed Onramp Academy, for advisors who want to learn about digital assets.
The bitcoin white paper, written by the creator of the cryptocurrency under the alleged pseudonym Satoshi Nakamoto, is also a great place to start, Ross said.
Other resources recommended by Ross include the book “Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond” by Chris Burniske and an educational website hosted by Jameson Lopp.
“Educate yourself on that,” Ross said.
“If you are educated about it and feel like this is an investment for you… maybe put in a little bit of it that you would spend an evening at dinner and leave him alone,” he said.