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Financial advisors are reluctant to discuss cryptocurrencies with clients due to legal concerns, a survey finds
Last Updated: May 13, 2024 9:11am EDT | 2 minute read
Only 1% of financial advisors frequently discuss cryptocurrencies with their clients due to concerns about potential legal liabilities and associated expenses if the investment goes wrong.
According to CoreData’s “Australian’s Crypto Investors”. relationshipa staggering 89% of financial advisors said they had never advised on cryptocurrencies.
“One of the most important reasons why consultants are not talking about cryptocurrency is due to concerns about not being covered by professional indemnity (PI) insurance,” the report states.
“Without IP coverage, advisors risk large legal fees if clients claim their advice has led to financial loss or damage.”
Why don’t financial advisors discuss cryptocurrencies?
Numerous other factors contribute to advisor hesitancy, including the prevalence of scams in the cryptocurrency industry, limited information compared to traditional assets, lack of historical performance data, and lack of clear regulations.
“Unlike traditional assets, cryptocurrency currently lacks ratings from research institutions and clear advice from governing bodies. While there is historical data on blockchain, cryptocurrency’s history is relatively short and its future uncertain.”
However, CoreData believes that the reluctance of most advisors to explore the cryptocurrency market presents an opportunity for advisory firms to specialize or improve their understanding of this emerging asset class.
Financial advisors are starting to budget $BTC, approximately 3.5% of a client’s portfolio. If this practice were adopted on a large scale, inflows into cryptocurrencies would be staggering, in the trillions of dollars.
On top of this, managed funds are now also able to expose themselves to cryptocurrencies…
— Sam (@SamCKx) March 19, 2024
Interestingly, the survey revealed that 67% of cryptocurrency holders expressed interest in receiving professional advice on the topic.
The highest demand for advice has come from individuals who hold cryptocurrencies because they believe in its appreciation potential or out of concerns about inflation.
“For advisors looking to develop their expertise in the industry, crypto-assets represent an opportunity to build a unique offering for their business,” the survey states.
“Practices that are committed to developing expertise in the area will have the ability to grow their assets under management among cohorts of cryptocurrency-curious investors, as well as experienced cryptocurrency holders who have built wealth via blockchain,” he added.
As younger, digitally savvy generations become a larger part of the market, demand for digital assets, including cryptocurrencies and real-world tokenized assets, is expected to increase.
As a result, developing expertise in blockchain-based assets becomes a crucial consideration for future-proofing advisory practices in Australia.
Morgan Stanley will allow brokers to recommend spot Bitcoin ETFs
As reported, Morgan Stanley, a major financial institution, is explore the possibility of expansion its sales of Bitcoin ETFs allowing its approximately 15,000 brokers to actively recommend these products to clients.
Currently, Morgan Stanley offers Bitcoin ETFs on an unsolicited basis, meaning clients must approach their advisors independently to express interest in investing.
By allowing advisors to actively recommend these products, the company could potentially broaden its client base, although it would also expose itself to additional liability.
Some financial institutions, such as Raymond James Financial and Vanguardhave chosen not to offer cryptocurrency products, citing concerns about their suitability for long-term portfolios.
LPL Financial, the largest independent brokerage with more than 22,000 brokers, announced in February that it planned to evaluate what Bitcoin funds it could offer customers.