Op Ed: Why Your Financial Advisor Won't Talk to You About Bitcoin

Bitcoin is in the news, and we've all seen the stories about early investors who've made millions and driven away in new lambos . So it's only natural that people who haven't invested already are wondering if they should. Unfortunately, when they turn to their financial advisors for help, they're often let down by professionals who can't or won't discuss it. Why won't more financial advisors talk to their clients about bitcoin and other cryptocurrencies? Here are several explanations.

Your Advisor's Firm Forbids Recommending Cryptocurrency

Merrill Lynch, Morgan Stanley, JPMorgan and Wells Fargo reportedly do not allow their financial advisors to make cryptocurrency recommendations to clients. Wells Fargo only allows advisors to give their clients research primers on digital currencies, and Merrill Lynch bans its advisors from trading bitcoin futures and Grayscale's Bitcoin Investment Trust .

Other advisors who aren't banned from discussing crypto with clients are hiding behind their "fiduciary" duties. That's hogwash. An advisor's fiduciary duty requires them to act in their clients' best interests.

In the case of cryptocurrency, that duty should mean providing well-informed, unbiased information, not refusing to discuss it or to make recommendations about potential investments. Adding an alternative asset such as bitcoin to an investment portfolio can provide an additional source of uncorrelated alpha, the holy grail of investment portfolio allocation.

Although bitcoin is a highly volatile and relatively nascent investment vehicle, speculative and alternative investments are used quite frequently in the investment world - think commodities, precious metals and master limited partnerships. Although bitcoin isn't right for everyone's portfolio, for those with higher risk tolerance levels, allocating a small portion to this emerging asset class should be, at a minimum, a discussion point with their financial advisor.

Some Financial Advisors Don't Understand Bitcoin

Most financial advisors, like much of the population, have at least heard of bitcoin, but many have not taken the time to research it on their own; instead, they rely on watercooler conversations or the most recent sensationalist media story to form their opinions. While that approach may be fine for someone with just a passing interest in bitcoin, it's not acceptable for someone who works in the world of money and investment management.

Although bitcoin and cryptocurrencies have a technical aspect that can be difficult to wrap your head around if you don't have a background in cryptography or programming, there are plenty of other concepts that financial advisors generally learn about that aren't always easy to understand either, such as options, futures, swaps, derivatives and short positions.

It may not be the perceived level of difficulty, then, that's keeping financial advisors from learning about bitcoin. Rather, they might have bought into the narrative that bitcoin is a scam or a fad. Scams have been perpetrated, no doubt. Hackers have siphoned money from cryptocurrency exchanges , leaving customers with empty online wallets. Fraudsters have raised money through false initial coin offerings and then disappeared. But these events do not make investing in cryptocurrency a scam any more than Bernie Madoff's pyramid scheme made investing in the stock market a scam. True, we don't yet know whether bitcoin or any other cryptocurrency will have long-term value or whether someone who invests in bitcoin today will be thrilled with or devastated by that investment five years from now.

Beyond the technical aspects of bitcoin and the blockchain, its underlying technology, financial advisors need to take the time to understand why bitcoin was invented in the first place and what problems it was designed to solve with our current antiquated global monetary and payments system. As the world's first truly borderless digital currency, its potential to disrupt the current status quo in banking and finance is only beginning to be understood.

Further to this point, like it or not, education in the field of cryptocurrency investment is about to become mandatory for financial advisors looking to obtain the coveted and difficult-to-earn Charter Financial Analyst Designation ( CFA ). The CFA Institute recently announced that, beginning in 2019, cryptocurrency and blockchain topics will be part of the exam , indicating that these topics are important enough that advisors who use its letters should understand them.

The Bitcoin-Blockchain Connection

What we do know is that bitcoin's underlying blockchain technology is likely to be one of the biggest innovations of our time. Blockchain technology is considered to be on par with the internet regarding the impact it will have on our world. What we're just beginning to experience is being called the fourth industrial revolution .

Forward-thinking companies - and these aren't limited to startups - are implementing blockchain solutions to improve everything from supply-chain management to cross-border payments to securities settlements.

JPMorgan and Morgan Stanley, despite their mandates to their financial advisors, are investing in bitcoin-linked, exchange-traded notes, which Goldman Sachs and Barclays are also reported to have invested in. And Goldman-funded, blockchain tech startup company Circle has acquired a major cryptocurrency exchange, Poloniex . These are just a few examples.

Advisors should be able to speak intelligently with their clients about whether they might want to invest in companies that are ahead of the curve in developing and deploying this new technology. True, anyone who invests in an S&P 500 fund already has exposure to some of these companies, but many of the most promising use cases are being developed by lesser-known companies and numerous startups worldwide.

Well-informed advisors should be comfortable discussing not only the pros and cons of investing in bitcoin but in answering questions regarding investment opportunities in blockchain-focused ETFs, as well as individual companies and projects developing new and compelling blockchain use cases.

Your Financial Advisor May Be in Denial

Financial advisors may be in denial about these changes, partly due to its potential disruptive impact on the very way they make a living today, perhaps. Cryptocurrency and blockchain technology, combined with artificial intelligence, could change how financial advice is delivered and how financial products are sold and marketed. Financial advisors may have to work harder and find new ways to deliver value to their clients.

Providing investment management alone may not be sufficient, as that work is increasingly being done by algorithms that construct and manage portfolios for clients automatically. And individuals increasingly have direct access to diversified investments with rock-bottom fees, meaning they don't necessarily need an advisor to place buy or sell orders for them.

These changes are already well underway, and advisors who don't adapt in the next three to five years could become obsolete, especially as younger, tech-savvy consumers make up an increasingly larger part of the market. People skills like empathy and compassion, teaching and motivating, could become more important than the ability to analyze investments.

Furthermore, clients who continue to find value in one-on-one professional financial advice may be able to more easily transfer their assets from one advisor to another using blockchain technology, a shift that will require advisors to do more to provide exceptional service if they want to keep their clients.

Your Advisor Doesn't Earn a Commission or Fee on Bitcoin

Former long-term Merrill Lynch financial advisor Jack Tatar, the co-author of the book "Cryptoassets," feels big brokerage firms are shortchanging clients by not discussing bitcoin with them. I couldn't agree more. Why aren't they discussing it?

In addition to the reasons stated earlier in this article, the real reason the financial services industry isn't high on bitcoin is because they didn't create it and aren't set up to make money from it. Indeed, if your advisor were to recommend that you buy bitcoin, he or she would not earn a commission on the transaction. So why bother discussing it right? Wrong.

While many independent financial advisors are fee-only, registered investment advisors who could, if they so chose, offer fee-based consulting services to help clients better understand bitcoin, the options for buying it, safely storing it, etc., very few seem to be doing so. As a result, most individuals are not getting the advice they need and want when it comes to getting involved, or not, with bitcoin.


Financial advisors should be willing and able to discuss bitcoin and cryptocurrencies with their clients in the same way that they discuss other alternative investments such as gold, hedge funds and real estate investment trusts. Even if they don't want to recommend investing in bitcoin, ether, litecoin and the like, they should at least inform their clients about how they work, the pros and cons of purchasing them, and where they can seek additional trustworthy information.

Not doing so is irresponsible. It's easy to lose money on cryptocurrency if you don't understand the risks, which go beyond the typical investment risks most people are familiar. With cryptocurrencies, you need to understand a whole new set of risk factors, including the risk of your digital assets being stolen if left on an exchange that gets hacked, and the risks associated with the loss or theft of your private keys, to name a few.

Individuals looking to invest in bitcoin or other crypto assets should seek out advice from financial advisors who are well versed in this arena and who can provide invaluable guidance in helping them safely navigate the complexities of investing in bitcoin and other crypto assets.

This is a guest post by Eric C. Jansen,founder, president and chief investment officer at AspenCross Wealth Management. It is provided for informational purposes and should not be construed as legal advice. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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