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Cryptocurrency could be a perfect addition to a financial services practice if you are looking to grow and maintain your business.
Why should I say this when we know that most consultants would never tell their clients to allocate more than 5% of their portfolio to cryptocurrencies?
Adam Blumberg is a certified financial planner and has been in financial services for 12 years. He is also co-founder and chief educator of Interaxis, a company seeking to bridge the educational gap between digital assets and traditional finance. He will attend CoinDesk’s Bitcoin for Advisors conference November 9-10 to explore the benefits of digital assets.
The answer is in the demographics and investment habits, styles, needs and goals of those who do and may find cryptocurrencies interesting. Gen X and millennials have lived most or all of their adult lives with the Internet. They have gotten used to having all their services on demand and having the ability to check everything related to facts and prices.
Price control became the norm with financial advisors over a decade ago, leading to the rise of robo advisors. I was early in my career in FA when Betterment and Wealthfront were launched and I saw the roll call. I already had customers asking me about my fees and how they were justified in consideration of returns.
Other advisers kept repeating – and each other – that they couldn’t be replaced by a computer. “Our jobs are too important.” And now, advisors are just as shy about cryptocurrencies, at the risk of missing out on the next disruptive trend in the industry.
Robo advisors currently have over $ 100 billion in assets under management (AUM) and the average age of investors is well below 40. Those investors have not seen the need to pay more than 1% to financial advisors who they did little more than pass the investment function to a third party, who charged additional fees, just to underperform the market.
The stories are there for consultants to tell their clients, and the infrastructure has been built to help make crypto a smart game in financial planning.
Additionally, we’ve seen the growth of Robinhood, where 80% of users are millennials, as well as apps like Acorns and Stash that offer a highly customizable, digital experience.
The bottom line here is that if Gen X and millennial investors want a certain way to invest, save, or transact, they’ll find it and help dictate rates and services. Cryptography is likely to be the next investment frontier.
Let’s take a look at that group’s attitudes towards investing. According to CB Insights, 33% of millennials think they don’t need a bank and 83% express openness to alternative investment strategies.
Currently, the age group with the largest number of bitcoin investors is the 25-34 group, according to Grayscale (like CoinDesk, a unit of the Digital Currency Group). However, the average age for those interested in bitcoin is 42, or those who are in their peak and growing earning years!
Read More: More than half of financial advisors want better regulation before investing in Crypto
Pair these statistics with the fact that this group will inherit over $ 60 trillion over the next three decades and are plotted to quintuple their wealth by 2030.
What you have is a group of smart investors with growing incomes and wealth who know what they want to invest in and are wary of paying extra fees.
Crypto gives financial advisors a chance to offer something to those younger investors that many advisors can’t or don’t want to talk about. Clients want it and they want the help of their advisor. More than half of Grayscale respondents said they would be more motivated to invest in bitcoin if their advisor recommends it.
Crypto can adapt to changing pricing structures and service offerings. For consultants offering subscription, flat-rate, hourly, or project-based services, crypto solutions fit very well. Having conversations about where crypto makes sense and helping clients securely understand, buy, store and account for their crypto is highly sought after by retail investors.
Crypto also offers advisors the opportunity to offer alternative investments to clients who would not otherwise qualify as accredited investors. From protocol tokens to Reg A + offerings, cryptocurrency investing can be seen as a highly liquid alternative risk asset, with a bare minimum, in which this generation is much more open to investing.
While many financial planners have shied away from robo-investing due to perceived dangers, it’s important to note that cryptocurrencies don’t have to cut an advisor’s revenue stream. For example, if a financial advisor uses AUM as their primary source of fees, they can hold it through funds on custodial platforms or through third party separately managed account services (SMAs) to manage clients’ crypto allocations.
Read More: Damanick Dantes – 4 Graphs That Show Why Financial Advisors Should Care About Bitcoin
The main point is that this highly sought-after customer demographic is interested in alternative investments, and in particular cryptocurrencies. Being able to at least have conversations with them, understanding where it fits in a portfolio, and being able to relate it to their lives and financial goals is a big step towards conquering their growing business. The ability to provide different rates and bidding structures is even more important as financial services revenue models continue to change.
Bitcoin and other cryptocurrencies have had a great year in terms of recognition and adoption. Bitcoin has made significant gains over traditional indices such as the S&P 500, while PayPal is preparing a crypto payment function, proving that the industry isn’t just for dark market trades.
The stories are there for consultants to tell their clients, and the infrastructure has been built to help make crypto a smart game in financial planning. It’s time for financial advisors to tackle the future of digital investing.
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