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Edelman, Other Players on Cusp of Crypto-Related Offerings

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What You Need to Know

  • Morgan Stanley's move into crypto surprised some onlookers.
  • “In the next year or two, Bitcoin will be as common in client portfolios as stock ETFs,” says Ric Edelman.
  • RIA Edelman Financial Engines aims to announce its cryptocurrency strategy for clients soon.

Shortly after Morgan Stanley announced Tuesday that it is giving some clients access to Bitcoin funds, Edelman Financial Engines said it was moving to provide its clients with an offering very soon, while other players like digital platform provider Onramp Invest are pushing to get into the market quickly, too. 

The RIA Edelman Financial Engines “is actively exploring methodologies for adding digital assets to client portfolios, and I’m hopeful that the firm will be announcing its strategy for clients within a short period of time,” founder Ric Edelman told ThinkAdvisor Wednesday.

The firm’s plan is to make digital assets available to both current and new clients at their option, based on the advice of their financial planner. Currently, the option is not being offered,” Edelman added Thursday.

The RIA, which has about $260 billion in client assets, is “not likely” to need to file any registration statements for its offering, he said, “as the firm will likely be recommending securities that invest in digital assets not the digital assets themselves. This will make adoption as seamless as every other mutual fund and ETF that the firm provides to its clients.”

Remarking on Morgan Stanley’s move this week, the industry veteran said: “I am surprised that a major Wall Street firm has opened its doors to Bitcoin before most independent investment advisors have done so, and I applaud Morgan Stanley for its leadership which will give advisors across the country and other firms the confidence that they can do the same.”

As for where the market for cryptocurrency products is headed, “In the next year or two, Bitcoin will be as common in client portfolios as stock ETFs,” Edelman said.

‘Huge’ News

“I have to be honest. I was shocked by [the Morgan Stanley news]. It’s huge,” said Onramp Invest CEO Tyrone Ross. “They front-ran [us] by like 10 months.”

While he views Morgan Stanley as “a trailblazer in terms of adopting new tech, … it’s fascinating to me that you have [broker-dealers] now moving quicker than some of the largest RIAs in the country … ,” Ross told ThinkAdvisor. “We are living in unprecedented times.”

Compared to large broker-dealers, such as the wirehouses, “I don’t think RIAs have the tools that they need” to take care of digital assets and other complex products, he explained. 

“The RIAs have to do that on their own. They have to vet the custodians. They have to vet the resource partners … ,” Ross added. “That’s why Onramp exists. Because RIAs are just unclear about all of this, and we’re trying to provide that link so they can do what now Morgan Stanley advisors have access to.”

While he “can’t give away too much” about Onramp’s digital asset plans, Ross says the firm is “going to launch soon.”

The firm is set to give RIAs “trusted education and resources,” as well as a “read-only view of assets held away [for their] clients that own crypto,” he said.

Onramp aims to “make it as easy for financial advisors to interact with Bitcoin the same way they would with Apple,” Ross said. “Literally, make it that simple and take away all the compliance and regulatory burden.” 

The launch likely will take place in May, he added. “We have some really big news coming in terms of the people that agreed to partner with us. People will be really impressed when they see some of the traditional vendors that we’re going to launch with and some of the things we’re going to announce. We’ve gotten into Fort Knox so to speak.”

Earlier RIA Moves

Overland Park, Kansas-based Mariner Wealth Advisors became the first RIA to make the Eaglebrook Bitcoin separately managed account available to its advisors and their clients in November, after it privately launched the offering to a group of clients a year ago. At the time, Mariner had about 340 advisors and $35 billion in assets under advisement.

Other firms that have waded into the crypto waters include Fidelity Investments, which disclosed in August that it planned to launch a Bitcoin fund for accredited investors, adding its establishment name and star power to the fledgling and often controversial asset class.

When asked why more RIAs haven’t rolled out cryptocurrency offerings, Tiburon Strategic Advisors chief Chip Roame said: “Many RIAs have a streamlined business model that has them holding almost exclusively ETFs and [mutual funds]. The existing digital assets products are not that, and have additional fees built in, [which is] not congruent with many RIA models.”

Also, Roame explained, many RIAs rely on their custodians (like Schwab and Fidelity) to “determine the available products, with many RIAs choosing not to invest client funds in products that cannot be held in such custodians’ accounts for simplicity reasons.”

Toronto-based CI Financial, which has acquired U.S. RIAs with about $55 billion in assets, says it was “an early entrant into the crypto space in Canada” with the launch of the Galaxy Bitcoin Fund in December. Last week, it introduced the Galaxy Bitcoin ETF on the Toronto exchange with a management fee of 40 basis points.

Today in the U.S., the only options are found in trust or private placement structures available for 200 basis points, the firm says.

“These vehicles simply do not have the convenience, flexibility and better liquidity that an ETF structure can provide,” CI Financial CEO Kurt MacAlpine said in a statement. ”As one of the fastest growing U.S. RIA platforms, coupled with our expertise in crypto, we think we can be a natural leader in this space. We do see the adoption of crypto offerings in the U.S. RIA space as a likely development as options expand and fees compress.”

‘Tidal Wave’

While some industry voices, like that of Edelman, “have been beating the Bitcoin drum for years, … acceptance has been slow,” said Craig Iskowitz, founder of the consultancy Ezra Group.

“Wall Street firms and banks were initially very skeptical about Bitcoin (Jamie Dimon called Bitcoin a fraud in 2017) but have flipped their opinions based on internal pressure from their own analysts, who see institutional acceptance growing as well as clients who are demanding access to this new asset class in their portfolios,” Iskowitz explained.

Edelman has pointed out that the Grayscale Bitcoin Trust is wildly popular with millennials, the consultant says. “But since the average age of RIA clients is 57, they’re not hearing this drumbeat yet.”

Despite these and other hurdles, “I think you will see a tidal wave of RIAs jumping in once the first U.S. Bitcoin ETF is available,” he explained. “RIAs understand ETFs and how they work. But by then, Bitcoin could be at $100K, and they’ll all be kicking themselves for missing out on the early run.”