Consultants really feel the pull of the cryptocurrency wave when prospects 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 is and how much it dilutes the dollar,” which would be incredibly inflationary, Johnson said.
A recent survey by the Financial Planning Association and the Journal of Financial Planning shows that Johnson’s strategy could be part of a growing trend.
As investor interest in cryptocurrencies grows, financial advisors are feeling a new urgency to offer the investments to their clients.
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According to the survey, around 49% of advisors said customers have asked about cryptocurrencies in the past six months, up from 17% in 2020.
More of these finance professionals – 26% – plan to increase their use and recommendation of cryptocurrencies in the next 12 months.
14% of consultants currently use or recommend these systems. That’s an increase of less than 1% in 2019 and 2020.
“People are now realizing it won’t go away,” said Tyrone Ross, CEO of Onramp Invest, a provider of cryptoasset management technology to financial advisors. The company worked with the FPA and the Journal of Financial Planning on the survey.
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Consultants who fail to adapt could risk being left behind.
“Customers come to advisors and now they know more than the advisors,” said Ross. “The consultants are totally scared because you never want to look stupid in front of your customers.”
While Johnson said most of the advisors he speaks to are still unfamiliar with cryptocurrencies, that could change as new certifications emerge and broker-dealers use technology to handle these assets.
“Every time something is increasingly adopted, the price goes up exponentially, and we see that with bitcoin and other cryptocurrencies, and I think this is another bull case,” Johnson said.
How advisors use crypto
Advisors who are now incorporating cryptocurrencies typically add a 1% to 2% allocation, Ross said. However, those who are more committed to the strategy can be anywhere from 3% to 5%.
Ross also has his own consulting practice that is 100% focused on cryptocurrencies. That is, no traditional assets like stocks or bonds.
As these new investments emerge, pressure still remains for advisors to incorporate traditional financial planning into talks about crypto. That means figuring out how much customers own and how it matches their risk tolerance, Ross said.
Onramp recently launched a crypto asset integration platform to help registered investment advisors integrate Bitcoin, Ethereum and other investments into portfolios.
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, Ross said. More than 300 consultants signed up in the first few days of the May 25 announcement.
Onramp is currently raising funds to meet that demand through investors like Eterna Capital, Gemini Frontier Fund, and Ritholtz Wealth Management, who are also using the company’s technology to incorporate cryptocurrencies into customer portfolios.
Where to find out more
According to Ross, the first step for both advisors and investors is to educate themselves before attempting these investments.
Onramp offers consultants who want to learn more about digital assets a training program with the Onramp Academy brand.
The Bitcoin whitepaper, written by the creator of the cryptocurrency under the presumed pen name Satoshi Nakamoto, is also a great place to start, Ross said.
Other resources Ross recommends include the book “Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond” by Chris Burniske and an educational website hosted by Jameson Lopp.
“Learn about it,” said Ross.
“When you’ve cleared up about this and you feel like it’s an investment for you … maybe put a little bit in that you spend an evening at dinner and just leave it alone,” he said.