Be Proactive on Cryptocurrency: Talk to Clients Now

Calling cryptocurrency a hot topic in the financial universe would be an understatement. Given the extensive media coverage that this new asset has received, financial advisors need to proactively broach the subject with their clients. It isn’t simply a question of demonstrating value for clients — brushing up on cryptocurrencies and talking with clients about whether or not such investments align with their goals is the fulfillment of an advisor’s fiduciary duty.

For investors, the biggest downfall involves allocating money and resources into investments that are not in alignment with their goals. It can be very tempting to invest in an initial coin offering or a cryptocurrency, but a key component of an advisor’s value proposition, as well as their duty as a fiduciary, is to prevent investors from making short-term, emotionally driven decisions.

It’s easy for investors to put their money into cryptocurrency investments, so advisors should begin an educational, meaningful conversation about this asset before clients are tempted to invest in something that they may not fully understand. Clients may not think to bring up the topic during annual meetings or other interactions with advisors, so the latter can take the initiative.

Start by saying, “You’ve probably heard a lot about cryptocurrencies. Is this something you’re interested in?” If a client has already invested in cryptocurrencies, the advisor can follow up with, “What are your goals for that investment? And how does that investment fit into your overall investment strategy?”

Another very important question to ask is, “Do you understand the risks involved?” Even though the word “currency” is part of “cryptocurrency,” a cryptocurrency is not a broadly accepted currency — it’s an asset that some would consider very speculative. Advisors demonstrate enormous value for investors interested in cryptocurrencies by working with them to make sure they have the appropriate means and understanding to place a bet on this type of asset — and by reminding them to think about what impact a cryptocurrency investment would have on their holistic financial picture before placing such a bet.

Don’t End Up Like Kodak

Advisors can’t appropriately advise their clients on cryptocurrencies unless they themselves are familiar with the asset. It would be a mistake to assume that the cryptocurrency fad will eventually fizzle out — after all, Kodak made that assumption about digital cameras. In late 2017, CME Group launched Bitcoin futures, and ETFs investing in companies that develop the blockchain technology underpinning Bitcoin and other cryptocurrencies are popular with investors. In other words, cryptocurrencies aren’t going away any time soon.