Adam Blumberg is a Certified Financial Planner. He is also co-founder and chief educator for Interaxis, a company trying to bridge the education gap between digital assets and traditional finance.
Financial advisors are either learning about crypto and digital assets or making the decision to take their valuable time to learn. Part of this decision is a return on investment (ROI) calculation – the time and expense of learning a new asset class and ecosystem vs. the projected short-term and long-term revenue-generating ability that knowledge provides.
If you are that financial advisor, you’re wondering, “Am I going to find new clients? Am I going to increase revenue from existing clients? Am I just going to worry about not losing my current clients who might want to invest in crypto?”
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These are certainly valid and understandable questions – why would I bother? To answer this question, we can look at some of the types of clients you might encounter, so you can determine if this fits in your practice and growth plans going into the new year.
When identifying those client types, or client memes, to use the proper crypto terminology, let’s look at the goals, needs, conversations and strategies advisors will employ in their planning relationships.
I will also preface this by stating that I don’t include those clients or prospects who are not interested in crypto. I don’t advocate advisors trying to sell clients on investing in crypto at this point. The risk is too great for someone who has yet to express any interest.
The crypto curious
The crypto-curious investor is someone who has expressed some interest in investing in crypto, but has yet to try. Their hesitation may be due to a fear of losing money or a fear of the technology. Or maybe they’ve just been waiting for you, their advisor, to learn about crypto. I can’t tell you exactly what these clients may look like in terms of age, economic demographic or risk profile.
The crypto-curious client will require some education, starting with the technology. The conversation will likely start with “I’m interested in crypto …”, or “I read this article about bitcoin …”, or “My brother/daughter/neighbor made some money in crypto.”
Your job will first be to understand why they want to look into crypto, before jumping in with all your newly minted crypto knowledge. This world can be overwhelming to the uninitiated (as you well know).
Once you have an understanding of why they want to invest, you can compare what you know of crypto to their needs and risk profile. This is where, if appropriate, you can start with your education, along with some expectation-setting.
Let’s say, for example, you have a semiannual review with a client who is pretty risk-averse, and possibly close to retirement age. She tells you her son says she should buy bitcoin as an inflation hedge. You now have a wonderful opportunity to pair your crypto knowledge with your planning chops.
There is certainly a need for those near retirement to offset inflation, and you can better explain this need based on her situation. However, you also need to discuss the volatility, and have a serious conversation about the risk.
If you both agree, you can create a plan that fits a client’s risk profile, needs and goals through adding crypto. This solution will likely involve some solution that is safe and easy to manage from the custodial platform, and easy to report.
For revenue purposes, and, therefore, ROI purposes, you may have the ability to charge a project fee just to help these clients buy some bitcoin and hold it safely. If this is for a retirement account, it might also make sense to establish a separately managed account (SMA) for these clients, which would fit under your assets under management (AUM) model.
Your education and knowledge will be extremely valuable to these clients, as well as the setting of expectations and planning.
The crypto newbie
You will encounter some clients and prospects who have already started dabbling in crypto on their own. When you make it clear that you’re learning how to make digital assets part of your practice, you’ll be surprised how many of your clients and prospects will break out their phone to show off their Coinbase or Gemini accounts.
They might have already purchased Grayscale Bitcoin Trust (GBTC) in an account you manage, or through their own brokerage account. Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.
Fortunately for you, there are some good conversations to have here. What did you buy? Why did you buy? How have you felt about the volatility? The ability to listen and understand some of the reasoning is valuable, and what makes this now an investment rather than speculation for your client.
There may or may not be any strategy to their moves thus far, which is the perfect entry point for you to match what you know of crypto with their risk profile, and other plans, in order to create a strategy for their digital assets that fits their risk, goals, needs, etc.
For example, a client shows you their Coinbase account with a few thousand dollars’ worth of several different tokens. You now have a project fee potential, which includes documenting amounts, basis and reasoning behind each one. You can then work with your client to develop a plan to possibly create a new portfolio allocation or go to a more managed solution, which could be part of your AUM.
Again, your education and knowledge, along with your ability to create a plan rather than speculate, should be appreciated and lead to some increased revenue via project fees or AUM.
The crypto native
This is the client who has been in crypto for some time, and could be moderately or extremely wealthy – sometimes referred to as a “whale.” So much of the focus on crypto education for advisors has been on helping those clients who want to make a small allocation. The crypto native is where you can really bring on some large new clients.
I have seen these clients range from some who invested in some bitcoin early and have a sizable position relative to the rest of their wealth, to those who have heavily invested in a few tokens, venture capitalists, or those who started or were around for the beginning of a protocol which launched a token.
For a few years, these prospects have been averse to seeking an advisor, for fear that anyone in traditional finance would try to steer them away from crypto or not understand the investment at all. The reality is that these whales need help from a financial planner just as any business owner or large investor would.
Once you understand digital assets, you can help these clients in so many ways, and show more value than any other advisors they have on their team.
For these prospects – and there are more than you think – you can be the advisor who isn’t telling them to sell, but the one who helps them with all the parts of financial planning you offer to any other client. Just as you wouldn’t recommend a business owner sell their business or an early founder sell their equity to invest in more traditional assets, you won’t advise these whales to do anything similar.
You will get to ask questions and start a conversation about allocation within crypto, risk and financial life. Together, you can work on security of their digital assets, income and expenses and estate planning. You get to be the valuable quarterback of their plan, bringing in attorneys and accountants where needed to structure their investment.
While this is likely not an AUM growth play, you can create a robust project or monthly service fee plan for these clients, helping to show how their crypto assets affect their spending and lifestyle, and creating strategies to assess risk and future investments.
These are likely what clients in the future will look like, as they have assets custodied in various technologies and forms, and income streams and yield generated from different protocols and investments.
Your work to turn this from speculation or venture into a strategic part of their financial life is invaluable for this growing class of investor.
Benefits for your practice
The decision to invest time and money into learning a new asset class might seem difficult, given the view of the relatively small allocation to crypto. However, as we have discussed, with these three types of crypto clients, the potential to add revenue via project fees, hourly fees, service contracts or AUM is apparent.
By better understanding these types of investors, you can add new clients and generate additional revenue from existing clients while keeping them from walking out the door. Most importantly, you are able to provide value and advice in ways that are much stickier than simply investment management. You will be having conversations with clients that show you understand and care about their financial lives.