As cryptocurrency grows in popularity, financial advisors are likely to face more questions from clients about whether Bitcoin, Ethereum and other blockchain investments should have a place in their portfolios.
One financial expert who is embracing crypto as part of his consulting practice is Tyrone Ross, a financial consultant and startup advisor who is passionate about working with people at all stages of their financial lives and empowering them to be knowledgeable investors.
After starting his career in advisor relations at a Wall Street firm and then working as an advisor at Merrill, Ross launched his own practice in 2017 to bring together his interests in serving a wide range of clients, as well as cryptocurrency investing and startup ventures. Below, he shares insights on how he built his practice and why he believes crypto could have a significant place in asset management.
- As cryptocurrency becomes more popular, financial advisors are more likely to face questions about the suitability of crypto investments.
- Tyrone Ross, a former investment advisor at Merrill, believes that cryptocurrency investments are undervalued by financial specialists.
- Many institutional asset managers are now considering small allocations to bitcoin and other cryptocurrencies.
- According to Ross, financial advisors should follow the latest crypto research and news in order to stay aware of the investment potential of digital assets.
- Cryptocurrency is also one of the few investments available to unbanked individuals.
Is There a Place for Crypto in Your Practice?
The growth of cryptocurrency has been one of the big trends of the past few years, but it tends to get a bad rap in the advisory space. While financial advisors are permitted to give advice on cryptocurrency-related assets, they are often told to be extra careful when doing so and proceed with caution.
In November 2022, the CFP Board of Standards went to great lengths to warn Certified Financial Planners (CFP) about the risks of digital assets. The influential overseer of professional standards said these investments are more dangerous than others and reminded advisors that they don’t need to advise on them.
These words are likely to make financial advisors even more cautious about getting involved in
this up-and-coming asset class. There are some exceptions, though, including Ross, who believes that ignoring the potential of crypto assets could be a mistake.
"From a financial advisor standpoint, it's hard to ignore the characteristics of Bitcoin and what it may mean for a portfolio," he says. "If you look at a 1-2% portfolio allocation and what that means for returns, I definitely think it's something that financial advisors should realize has an attractive return profile."
Further emphasizing why he believes cryptocurrency to be a viable asset class, Ross explains that it's important for advisors to read the latest research on cryptocurrency through resources like Delphi Digital and Coin Metrics, and to learn more about its potential.
"There are a few things that still need to be addressed from a regulation standpoint and custody standpoint," he says. "But overall, the infrastructure now is a lot better than it was in 2017—the derivatives market has been built out and there's a lot more liquidity in the system."
The total value of the cryptocurrency market, as of Dec. 5, 2022.
Benefits of Crypto Investing
Another reason Ross is passionate about cryptocurrency is that he believes it can offer financial opportunities to those who currently don't have them. "My fascination with crypto, and one of the things that I think is underrated and not talked about enough, is how it’s an outlet and a help to those who are unbanked," he says, highlighting the importance of creating a more accessible financial landscape and serving a truly diverse set of clients.
This interest goes hand-in-hand with Ross' desire to help clients develop financial literacy and come up with strategies to address their individual circumstances, whatever they may be.
"Crypto is the answer to getting the unbanked banked, to getting them exposed to investing and saving. Beyond that, it's about making a client's priorities the core piece of the advisor-client relationship and educating them on the things that can help them meet their long-term goals. Cryptocurrency is only one piece of that puzzle, but it can be a significant one."
Should Financial Advisors Recommend Crypto?
There is some debate on the question of whether a responsible financial advisor should recommend cryptocurrencies to their clients. On the one hand, digital assets are highly volatile, leading most advisors to steer their clients towards more predictable assets. On the other hand, the price increases in recent years would have brought high returns to anyone brave enough to invest in them. Many financial advisors may be able to answer a client's questions about crypto, but few will go so far as to recommend them.
How Much Cryptocurrency Should I Have in My Portfolio?
Investment advice is highly personalized, based on the specific needs and risk tolerance of each individual investor. Only a qualified financial professional can help someone decide how to invest their wealth. As of 2022, most financial planners avoid recommending cryptocurrency to their clients, but some may suggest a small allocation of 1% to 5% to those clients willing to take the risk. As with any high-risk investment, buyers should not invest more money than they are prepared to lose.
Which Cryptocurrency Is the Best Investment?
Cryptocurrencies are inherently risky investments, and past results do not predict future returns. Historically, bitcoin is the most successful cryptocurrency, having kept the lead spot for over a decade. It also has the highest market capitalization, meaning that it is less susceptible to price manipulation than smaller-cap cryptos.
The Bottom Line
Working with clients to address their needs is a large part of any practice, and taking a more diversified approach to getting there could be the key to future success. For Ross, cryptocurrency is one such avenue and he believes that it could impact everything from financial literacy to estate planning.
"When it comes to tax and estate planning, there's a lot that financial advisors need to understand," he says, explaining that these types of considerations are different for those who invest in cryptocurrency and it's something advisors should be well-versed in.
Above all, Ross believes that a future-focused practice should consider how things like cryptocurrency, financial literacy, and a more diverse range of clients could shape the advisory services landscape, and how advisors can best position themselves to serve their clients' changing needs.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.