Crypto for Advisors: Advisors and Crypto

At Consensus 2024, held in Austin, there was an exclusive RIA & FA Day session. Approximately 120 financial advisors spent the day learning about digital assets, engaging with industry thought leaders and networking with peers.

The energy was positive, and the conversations meaningful, with investors’ interest in this asset class growing. Although the event was closed-door, key themes are worth sharing. Thank you to Adam Blumberg, one of the day’s contributors, for highlighting trends and takeaways in today’s newsletter.

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Consensus 2024: A Breakthrough for Financial Advisors and Crypto Integration

Consensus 2024 marked a significant milestone for the crypto industry, driven by positive legislative developments and the approval of an Ethereum ETF. The atmosphere was electric, with enthusiasm reaching new heights.

FA/RIA Day: A Focused Learning Experience

Thursday was dedicated to financial advisors and registered investment advisors (FA/RIA), drawing approximately 120 professionals keen to explore integrating crypto into their practices. The day was filled with insightful discussions, networking opportunities and expert guidance.

The recent ETF approvals and bullish price trends have piqued the interest of more advisors and investors, creating a fertile ground for knowledge-sharing and growth.

Prioritizing Practical Integration Over Technical Jargon

The primary objective of FA/RIA Day was to provide actionable insights on incorporating crypto into financial practices. Instead of delving into the technical intricacies of blockchain and price movements, the focus was on practical application within a financial advisory context.

Education: The Cornerstone of Crypto Adoption

A recurring theme was the crucial role of education. Advisors must understand the available options, strategic allocation, investment theses, regulatory landscape and compliance requirements.

Equally important is the need to educate investors. Despite growing awareness of bitcoin and crypto, a significant knowledge gap persists. Effective education equips advisors to discuss crypto allocations confidently and have informed conversations with clients.

Exploring Investment Options

Panel discussions covered a range of investment options, including direct ownership, custody through SMA platforms, ETFs and investments in public companies like MicroStrategy and bitcoin mining companies.

Each option has its pros and cons.

While direct ownership embodies the ethos of crypto, it introduces compliance and administrative challenges that many advisors prefer to avoid.

ETFs provide price exposure to the underlying asset without the complexities of custody and reporting, making it easier for advisors to allocate within any account type, integrate investments into AUM and reporting, and facilitate rebalancing, as do public company investments.

Conversations and Portfolio Allocations

Understanding crypto is one thing; fitting it into a portfolio is another. Advisors shared their experiences in client conversations and their strategies for crypto allocation.

These discussions often involve setting realistic expectations, aligning with clients’ investment goals and conducting thorough risk assessments to gauge tolerance for volatility.

We heard that generally, advisors allocate 2-5% of a portfolio to crypto, categorizing it as an Alternative Investment. ETFs have enabled advisors to discuss the benefits of rebalancing and its positive impact on portfolio performance.

Advisors must also determine the most suitable accounts for crypto holdings, whether taxable or non-taxable, such as IRAs.

Navigating Compliance and Regulation

Crypto’s intersection with politics in the U.S. adds a layer of complexity. Positive legislative momentum was evident just before Consensus, with several Democrats supporting pro-crypto regulation.

A conference highlight was a keynote chat by CFTC Commissioner Summer Mersinger, who outlined the CFTC’s perspective on crypto regulation and its implications for financial advisors. The need for regulatory clarity remains paramount as advisors navigate this evolving landscape.

Consensus 2024 underscored the growing integration of crypto in financial advisory practices. By focusing on education, practical application and regulatory insights, advisors are better equipped to meet the rising demand for crypto investments and guide their clients through this dynamic asset class.

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Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.