Do Advisers Have a Fiduciary Responsibility to Offer Bitcoin?

Although cryptocurrencies have been in existence for nearly a decade, it is only in the recent past that they have come to dominate conversations among investors. Digital currencies have experienced a boom in interest and value previously unseen in the area.

Now, hundreds of cryptocurrencies have followed in the footsteps of early leaders like Bitcoin (BTC), and there are a similarly staggering number of new applications and projects making use of blockchain technology as well.

While digital currencies are undoubtedly incredibly popular, they remain a mystery in many ways. Of primary concern to many investors, analysts, and advisors, is the extreme volatility that the digital currency world as a whole has already exhibited.

Take Bitcoin as an example, the world's leading digital currency by market cap, which traded at around $17,000 as of December 2022, after briefly trading at record highs above $69,000 earlier in 2021.

With cryptocurrency becoming a bigger part of the investing picture, where the total market value of all cryptocurrencies is around $1 trillion, do financial advisors have a fiduciary duty to consider digital currencies as investable assets?

Key Takeaways

  • The market value of all cryptocurrencies has reached $2.35 trillion.
  • This higher value has driven the increasing interest of investors.
  • As cryptocurrencies such as Bitcoin have become more mainstream, many brokerages and financial advisers are offering clients access to these assets.
  • As a new asset class, crypto in small amounts could be a good way to diversify a portfolio.
  • Because legal and regulatory decision-making concerning Bitcoin and the blockchain space is still unclear, some big brokers are shying away from advising their retail clients to buy.

Some Big Brokerages Shy Away

In the past, many of the major brokerages, such as JPMorgan Chase, Wells Fargo, Morgan Stanley, and Merrill Lynch have asked their advisers to not offer recommendations on cryptocurrencies.

For its part, Wells Fargo has issued research primers on digital currencies, and it also lets its advisers present these documents to their clients. However, it stops there, not allowing advisers to make specific recommendations on account of the complexity and volatility of the space.

The biggest reason why advisers may shun cryptocurrencies is that they remain largely unregulated. The actual infrastructure for holding these assets (custody) is also in the early stages, as is reporting on buying and selling.

Reasons for Recommending

The lack of regulation hasn’t stopped investors from asking their advisers about crypto. This comes as many large institutions are also looking for ways to embrace Bitcoin. Fidelity Investments allows customers to post bitcoin as collateral for loans, while PayPal allows customers to buy and sell this digital asset.

A fiduciary duty requires that one party (the adviser) act in the best interest of the other (the client). 

An adviser’s fiduciary duty means they cannot act negligently, make unnecessary trades, or misrepresent a transaction. Other than that, many advisers have a lot of discretion about what is and is not in the best interest of their clients. 

That said, some advisers are embracing crypto for more risk-tolerant clients. A Bitwise Asset Management and ETF Trends survey from 2020 found that 6% of advisers were allocating a portion of assets to cryptocurrency. The majority of those investing in digital assets are doing so for the high potential returns, the survey found.

A useful rule of thumb has been to invest a small percentage of assets into cryptocurrencies, so it won’t be detrimental if it becomes worthless, but can have a meaningful impact if it gains traction.

So, many advisers may still be hesitant to provide recommendations on these digital assets, as they don’t have a fiduciary duty to offer them. However, they may soon lose business to the competition if they don’t embrace them. The other side of things is that many clients may invest in cryptocurrency without telling their advisers.

With that, advisers may consider at least educating clients about cryptocurrency and the safer ways of investing in the asset. Questions about crypto will undoubtedly arise. Being educated on access to it and the investing risks involved could be useful for advisers as they guide clients.

Guidance For CFP® Professionals

In 2022, the Certified Financial Planner Board of Standards issued guidance for CFP® professionals to follow when recommending cryptocurrency-related products to clients. The Board does not prohibit a CFP® professional from providing financial advice about cryptocurrency-related assets; however, when doing so they should proceed with caution. They must also adhere to the same Code of Standards as with other financial products or assets. Moreover, they should be competent to provide such advice consider the particular attributes, risks, and uncertainties that cryptocurrency-related assets present.

Is Investing in Bitcoin Risky?

Bitcoin has only been around since 2009, and in that time it has risen from several cents to many thousands of dollars. Investing in bitcoin, or any other cryptocurrency, carries a certain level of risk. The value of bitcoin and other cryptocurrencies can be highly volatile, and there is always the possibility that you could lose money if you invest in them. In addition, the technology underlying some cryptocurrencies is still relatively new and untested.. For these reasons, it is important to carefully consider the potential risks before investing in bitcoin or any other cryptocurrency. It may be wise to consult with a financial adviser before making any investment decisions.

How Much Bitcoin Should I Have in My Portfolio?

The amount of bitcoin that you should have in your portfolio will depend on your individual financial circumstances, goals, and risk tolerance. It is important to consider your overall investment strategy and the specific role that bitcoin will play in your portfolio. Some investors may choose to allocate a small portion of their portfolio to bitcoin as a way to diversify their investments and potentially generate additional returns. Others may choose to avoid investing in bitcoin altogether due to its high level of volatility and potential risks.

Is Bitcoin a Scam?

No, bitcoin is not a scam. Bitcoin is a digital currency that was created in 2009 as a decentralized, peer-to-peer payment system. It uses cryptography to secure and verify transactions, and operates on a decentralized network of computers that collectively manage the blockchain, a public ledger that records all bitcoin transactions. While there have been instances of fraudulent activities involving bitcoin, such as scams and hacks, these are not inherent to the bitcoin network itself. As with any investment, it is important to carefully research and evaluate the risks before deciding whether to invest in bitcoin.

The Bottom Line

Financial advisers are regulated by the Investment Advisers Act of 1940 (not Financial Advisors), they have a fiduciary responsibility to act in the best interests of their clients. This means that they must offer investment advice that is suitable for their clients based on the clients' financial circumstances, goals, and risk tolerance. Whether or not an adviser has a fiduciary responsibility to offer advice on bitcoin would depend on the specific circumstances of the client and the adviser's expertise in this area. While bitcoin and other cryptocurrencies can offer new opportunities as an alternative asset class, it also comes with unique risks and uncertainty. It is important for clients to discuss their investment goals and risk tolerance with their advisers in order to determine the best course of action.

Investing in cryptocurrencies and 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.

Article Sources
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  1. CoinMarketCap. "Bitcoin."

  2. CoinMarketCap. "Today's Cryptocurrency Prices by Market Cap."

  3. PayPal. "PayPal Launches New Service Enabling Users to Buy, Hold, and Sell Cryptocurrency."

  4. Fidelity Digital Assets. "Fidelity Digital Assets Adds Collateral Agent Capabilities, Will Custody Bitcoin Pledged On Loans Financed by BlockFi."

  5. Bitwise Investments. "The Bitwise/ETF Trends 2020 Benchmark Survey of Financial Advisor Attitudes Toward Cryptoassets," Page 6.

  6. CFP Board of Standards. "Notice to CFP® Professionals Regarding Financial Advice About Cryptocurrency-Related Assets."

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