Crypto Investors, Here’s Why Your Financial Advisor Isn’t Talking About Bitcoin to You
Why your Financial Advisor Isn’t Talking to You About Bitcoin
Bitcoin has been a household name since 2017. Curious investors around the world want to hear about bitcoin – but financial advisors often refuse to talk about it.
Eric Jansen at Bitcoin Magazine recently explored the issue in an opinion piece titled, “Why Your Financial Advisor Won’t Talk to You About Bitcoin.” Jansen tried to determine why there was a clash between investors interested in bitcoin and advisors who refuse to talk about it:
“it’s only natural that people who haven’t invested [in bitcoin] already are wondering if they should. Unfortunately, when they turn to their financial advisors for help, they’re often let down by professionals who can’t or won’t discuss it. Why won’t more financial advisors talk to their clients about bitcoin and other cryptocurrencies?”
Jansen proposes several reasons why financial advisors refuse to talk to clients about bitcoin. Some reasons are obvious – like company or bank rules forbids advisors from recommending cryptocurrencies to clients, or that many financial advisors don’t know enough about bitcoin and crypto to recommend it.
Here are a few of the reasons why your financial advisor won’t talk to you about bitcoin, according to Eric Jansen:
Your Advisor’s Firm Forbids Recommending Crypto
Some financial institutions have banned financial advisors from recommending cryptocurrencies. These financial institutions don’t hate cryptocurrencies: they’re just concerned about ordinary investors getting burned by the hype of crypto without understanding the risks.
Merrill Lynch, Morgan Stanley, JP Morgan, and Walls Fargo are four major financial institutions that allegedly forbid financial advisors from making cryptocurrency recommendations to clients.
“Wells Fargo only allows advisors to give their clients research primers on digital currencies,” explains Jansen, “and Merrill Lynch bans its advisors from trading bitcoin futures and Grayscale’s Bitcoin Investment Trust.”
The Fiduciary Duty Excuse
Some advisors try to use their fiduciary duty as an excuse. That fiduciary duty states that the financial advisor is required to act in the client’s best interests. Some advisors cite this duty when refusing to recommend or discuss cryptocurrency with clients.
However, Jansen sees this excuse as “hogwash”. If a financial advisor was genuinely acting in a customer’s best interest, then the advisor would provide well-informed, unbiased information about the topic – not refusing to discuss it or make recommendations about potential investments.
Many Financial Advisors Don’t Understand Bitcoin
Virtually all financial advisors have heard of bitcoin. However, many advisors do not sufficiently understand it. Some have done due diligence on bitcoin and explored how blockchain technology works. Others have relied on water cooler talk to form their opinions on bitcoin.
Sure, there are a handful of financial advisors with in-depth knowledge about bitcoin and cryptocurrencies. However, these advisors continue to be in the minority.
That could change over time. As Jansen points out, you don’t need a degree in computer science to understand bitcoin, and financial advisors routinely recommend complex products they don’t fully understand:
“Although bitcoin and cryptocurrencies have a technical aspect that can be difficult to wrap your head around if you don’t have a background in cryptography or programming, there are plenty of other concepts that financial advisors generally learn about that aren’t always easy to understand either, such as options, futures, swaps, derivatives and short positions.”
Jansen believes that it’s not the complexity of bitcoin that has forced users away; instead, it’s the pervasive view that bitcoin is a scam, a Ponzi scheme or a pyramid scheme. Views like this are pushed forward by people who have a fundamental misunderstanding about the decentralized nature of crypto.
Financial Advisors Are Already Inadvertently Recommending Blockchain Investments
Jansen brings up another interesting point: today’s financial advisors are comfortable recommending traditional stock picks, including companies on the S&P 500 that have already invested significantly into blockchain technology.
Blockchain technology underpins most cryptocurrencies. The technology can be entirely separated from bitcoin and other cryptocurrencies. Today, banks, supply chain firms, and other institutions are using blockchain to revolutionize business processes.
Even if your financial advisor doesn’t realize it, he or she is already effectively recommending an investment in blockchain technology when they choose certain major stocks.
Your Financial Advisor is In Denial About the Staying Power of Crypto
Some financial advisors are in denial about bitcoin. Let’s face it: most internet-savvy people heard about bitcoin back in 2011-2013 and we all wished we had bought. Many of us avoided buying bitcoin because we were in denial that some piece of code could have such enormous value.
Some financial advisors may also be in denial about bitcoin. They might see it as a passing fad that will inevitably disappear.
These financial advisors may be right. Crypto could be a passing fat that we forget about 10 years from now. However, the likelihood of that is dropping with every year crypto continues to grow.
Two Reasons Investment Advisors Should Start Recommending Crypto Trading
There are genuine benefits to crypto trading in the mainstream investment world. Here are two reasons identified in Jansen’s writeup:
Diversifying Into Crypto Gives You Uncorrelated Alpha
in terms of finding uncorrelated alpha, the “holy grail of investment portfolio allocation.” Bitcoin and crypto markets have little correlation with modern financial markets, which is why some investors find it prudent to invest a small percentage of their funds into crypto.
Bitcoin Isn’t the Only Volatile, New Investment Vehicle on the Market
Some traditionalists decry bitcoin and cryptocurrencies for being a nascent investment product. It’s risky. Prices are fluctuating wildly.
Risk, however, is a natural part of the investment world. Every investment carries some degree of risk. Furthermore, cryptocurrency prices aren’t exceptionally more volatile than commodity stocks and precious metals. Emerging market stocks – say, in the marijuana industry – are also fluctuating wildly.
Conclusion: Financial Advisors Don’t Earn Commission on Bitcoin
Perhaps the number one reason why financial advisors aren’t recommending bitcoin is because they don’t earn commissions on bitcoin. Financial advisors earn commission when recommending various financial assets to customers. Typically, a financial advisor will only earn a commission when that financial asset can be purchased through their employer’s platform – say, a big brokerage account.
This is just one of several reasons why financial advisors don’t like to talk about bitcoin. Here’s how Jansen sums up the issue:
“Financial advisors should be willing and able to discuss bitcoin and cryptocurrencies with their clients in the same way that they discuss other alternative investments such as gold, hedge funds and real estate investment trusts. Even if they don’t want to recommend investing in bitcoin, ether, litecoin and the like, they should at least inform their clients about how they work, the pros and cons of purchasing them, and where they can seek additional trustworthy information.”
With that in mind, Jansen recommends seeking out a financial institution that is comfortable speaking about bitcoin with clients.
Eric Jansen is founder, president, and chief investment officer of AspenCross Wealth Management. You can view his full guest post on Bitcoin Magazine here: https://bitcoinmagazine.com/articles/why-your-financial-advisor-wont-talk-you-about-bitcoin/.