Only 1% of financial advisors frequently engage in discussions about cryptocurrency with their clients, primarily due to concerns about potential legal liabilities and associated expenses if the investment goes wrong. A report by CoreData found that 89% of financial advisers in Australia have never provided advice on cryptocurrency, citing issues with professional indemnity insurance coverage as a significant factor. Other reasons for advisors’ reluctance include the prevalence of scams in the cryptocurrency space, limited information compared to traditional assets, the absence of historical performance data, and the lack of clear regulations. Despite these challenges, CoreData believes that there is an opportunity for advisory firms to specialize in or enhance their understanding of this emerging asset class.
Interestingly, the survey also showed that 67% of crypto holders expressed interest in receiving professional advice on the subject, particularly those who hold cryptocurrency due to their belief in its potential for value appreciation or concerns about inflation. Advisers who are willing to develop their skills in the area of crypto-assets may have the opportunity to build a unique offering for their business. As younger generations, who are more digitally savvy, become a larger part of the market, the demand for digital assets, including cryptocurrencies and tokenized real-world assets, is expected to rise. Therefore, building expertise in blockchain-based assets is seen as a crucial consideration for future-proofing advisory practices in Australia.
In light of this evolving landscape, financial advisors are starting to allocate around 3.5% of a client’s portfolio to Bitcoin. If this practice becomes widely adopted, the inflows into the crypto market could be staggering, potentially in the trillions. Managed funds are also now able to expose themselves to crypto, further demonstrating the growing interest in this asset class. Morgan Stanley, a leading financial institution, is reportedly considering expanding its sales of Bitcoin ETFs by allowing its brokers to actively recommend these products to customers. Currently, the firm offers Bitcoin ETFs on an unsolicited basis, but enabling advisors to actively recommend these products could potentially broaden its customer base, despite the additional liability it may expose itself to.
While some financial institutions, like Raymond James Financial and Vanguard, have chosen not to offer cryptocurrency products due to concerns about their suitability for long-term portfolios, others like LPL Financial are evaluating which Bitcoin funds they could offer to customers. This shift in attitude towards cryptocurrencies and blockchain-based assets signals a growing recognition within the financial industry of the potential opportunities and risks associated with these emerging technologies. As the market continues to evolve and attract a broader range of investors, financial advisors who are willing to develop their expertise in this area may find themselves well-positioned to capitalize on the growing demand for digital assets among clients.
