Advisers love to hate crypto. And with good cause. Crypto is about as uncorrelated with equities as a stag do is with beer. It’s as much like gold as the stuff you pan at Legoland is. It’s not just fraudsters who want to evade traditional banks, it’s money launderers too.
Advisers can’t ignore digital assets
Crypto, in short, sounds like the very antithesis of sound financial planning. Good planners ask great questions to find solutions to problems with money. In the words of former Bank of England governor Mervyn King: crypto is a solution in search of a problem.
But advisers can’t ignore digital assets. Far from it. They should probably be keeping a keener eye on them than ever. Because the space throws up a whole host of planning challenges that the profession needs to be aware of.
Let’s start with the wealth generated for those who rode the crypto boom. Imagine a client has finally decided now is the time to dispense with their digital assets holdings. Despite the crypto winter, remember that if you bought crypto in 2019, say could still be cashing in a 600% gain. That could provide a pretty sizeable lump sum to advise on, and a potentially lucrative new client base for financial planners.
The same goes for anyone who ran a crypto business and wants to get out now the going is a bit tougher. Or anyone who ended up executing a sale of their crypto firm while the going was good enough. With the crypto winter came a whole spate of redundancies. Again, that’s a whole lot of people now in need of direction both in their financial and their personal lives.
What if digital assets get back into boom territory? There might be – within reasonable limits for clients where it makes sense to take risk – chances to pick up winners in EIS and VCTs, say, to help generate a bit of excess return in our low yield environment.
These are situations where advisers can do what they do best, and make a positive impact to help give people clarity over their situation. It happens to be with clients who had some involvement in crypto, but the basics remain the same.
Stopping bad decisions
What about another key part of an adviser’s job: stopping people making bad decisions? Again, opportunities abound here for planners to prove their worth.
What if a new client comes to you with a significant chunk of crypto in their wallet, and doesn’t know what to do with it now the tide is going out? What if they’ve racked up a major position they’re scared of?
What if they’ve spotted a brand new opportunity they want in on and want some reassurance from their trusted adviser? Stopping someone being scammed can be as valuable as putting them into the right investment.
At some point advisers are going to have to sit up and take notice. Some of the UK’s biggest providers for intermediaries like Abrdn, BlackRock and Fidelity are already playing around with various uses for blockchain technology.
And what if, God forbid, the government introduces a digital pound or some other form of central bank digital currency? Planners might suddenly have to catch up to a new world where platforms deal primarily with Britcoin investors.
A leap into the known
A leap into crypto shouldn’t be a leap into the unknown though. Financial planners can leverage the same tenets that have served them so well with traditional investors to make the most of an often-maddening situation in digital assets.
First of all, just like any other investment, do the due diligence on your platform. You or your client don’t want to be stung by the next FTX. While regulators and the likes of Binance continue their legal battles, it might be wisest to sit on the sidelines.
Advisers diversify their clients’ portfolios of traditional assets. So why not their crypto assets if it comes to that? That will at least mitigate what feel like inevitable the suspension at whatever digital platform is going through its teething troubles this month.
Traditional advisers also want to hold client assets in the most efficient way possible. Crypto platforms operate different rates for staking, for example, that are worth investigating.
Most importantly, remember the cardinal rule of modern planning: trying to time the market is a fool’s errand. Yes, you can help client’s manage their crypto holdings. But just like any other asset, anyone promising their client they can buy lower and sell higher than the next man is in for a hiding.
For some clients, a small amount of high-risk investment makes sense. Planners can apply this to crypto by making sure no one invests more than they can afford to lose. The collapses of Silvergate and Silicon Valley Bank showed just how many depositors would have bust the traditional insurance limit and been left nursing huge losses if the government hadn’t stepped in.
Good advisers, using their founding in tried and tested planning principles, can make sure the next wave of clients don’t get caught out again.
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