What Are The Details About Advisors Having A Fiduciary Responsibility To Offer Bitcoin?
There is a lot to be understood regarding the cryptocurrency investment portfolio. Here are the details.
Where Is The Bitcoin Investment Pointed To?
It was found that although cryptocurrencies have been in existence for nearly a decade it is the only one in the recent past that they have come to dominate conversations among investors. Thereby over a roughly two-year period, those digital currencies have experienced a boom in interest and value previously unseen in the area. There are now hundreds of cryptocurrencies following in the footsteps of early leaders like Bitcoin as well as 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. Thereby it is of primary concern to many investors, analysts, and advisors in the extreme volatility that the digital currency world as a whole has already exhibited. Thereby to take Bitcoin as an example, it is the world’s leading digital currency by market cap rose to prices of roughly $ 20,000 per token as of the last few days of 2017. Finally, it dropped significantly early in 2018 before climbing back up again. It was at its highest point during this upswing as BTC didn’t even reach half of the value that it enjoyed just a few months prior.
As of now, BTC is hovering around $ 7,500 while the investors are still buying the cryptocurrency at this time last year seeing their investments up by a factor of four roughly. There was approximately 5% of Americans or about 16million people owned BTC as of the first months of 2018 according to Forbes. This is why in this complicated investment scenario what is the role of a financial advisor?
Big Brokerages Tend to Prohibit Recommendations
There are many major brokerages in this case that includes JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), Morgan Stanley (MS) and Merrill Lynch, where they all have prohibited their financial advisors from recommending cryptocurrencies to clients and as of late 2017, there has been BTC reaching ever higher to new record levels, as Merrill banned the trading of Bitcoin futures as well as the Bitcoin Investment Trust coming as an investment product related to the cryptocurrency and offered by Grayscale. Whereas when it comes to its part, Wells Fargo has issued research primers on digital currencies however it stops there not allowing advisors to make specific recommendations on account of the complexity and volatility of the space.
The question arising here is why do these brokerages not allow their advisors to recommend Bitcoin and other digital currencies? While certainly the extreme volatility and unpredictability of the space is a primary concern. Whereby it is beyond that though there is a sense of regulatory uncertainty surrounding the cryptocurrency space and even now as the US SEC has already worked to clarify aspects of the digital currency space, there remains a great deal that is uncertain.
While it is important that for example, the debate continues as to the exact conditions under which token can be considered financial security which has so far been a very small number of digital currency assets that have been registered as securities and yet the SEC has suggested that securities laws of various types may apply to space. Whereas from the perspective of a financial advisor or brokerage it is a dangerous place to be, while an advisor recommends that clients buy a particular digital currency and the SEC later deems that asset to be unregistered security, it would surely mean trouble for all parties.
Reasons for Recommending
It is evident that while many brokerages and advisors choosing to remain out of the cryptocurrency fray, others are believing that it is worth exploring as former Merrill Lynch financial advisor and co-author of the book, cryptoassets, Jack Tatar believes that big brokerages are doing clients a disservice by avoiding the digital currency space. He says that you’re taking the ability of an advisor who has a lot of education and knowledge and you’re telling them they can’t even discuss this with a client and adding to it that its only matter of time maybe three or four years from now when you have several cryptocurrency ETFs available. These firms then will back-track their policies but meanwhile, investors will have missed an opportunity for gains.
Furthermore, Tatar believes that digital currencies ought to be treated as an alternative asset class arguing that if the financial services industry had created Bitcoin, everyone would have Bitcoin in their portfolio right now. Continuing on he suggests that products created by financial services include collateralized mortgage obligations volatility indices and similar products that might otherwise not be considered suitable investments and yet they are because of who created them. This is essentially why he believes that big brokerages are avoiding digital currencies because they haven’t managed to set themselves up in such a way as to profit from the space.
Even though there are advisors who tell clients about cryptocurrency investment opportunities it is despite employer policies prohibiting this action as brokers may not be allowed to execute that which is a cryptocurrency trade and they can still tell those clients to make a personal investment in the area for instance.
While there are others like independent financial advisor Ric Edelman of Fairfax, Virginia aiming for an approach somewhere in between the two extremes as he does not proactively recommend digital currencies to his clients however in case they ask about them, he offers advice and tells them that if they choose to invest, they should do so with no more than 2% of a portfolio and that they should be prepared to lose it all.
The Final Words
That is why Edelman and others imply caution is key, but it’s also important to note that brokerages completely deny the existence of this new space of cryptocurrency. Suggesting far more he says that the industry is slowly changing but the big brokerages remain unconvinced.