A man passing the Bitcoin symbol in the window of a company offering blockchain application services on December 21, 2021 in Berlin, Germany. Bitcoin and other cryptocurrencies surged in 2021.
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Financial advisors are reluctant to incorporate cryptocurrencies into their client portfolio. They probably can no longer ignore alternative assets.
In one study, Cerulli Associates found that 45% of advisors said they plan to use cryptocurrencies in the future in response to client inquiries.
On the other hand, only 7% of advisors say they are currently using these assets based on their own recommendations, and 10% are using them at the request of their clients.
According to Cerulli, investors are interested in their exposure to these assets, with 80% of advisors saying that clients of all ages are asking about cryptocurrencies.
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By comparison, according to a June 2021 survey by the Financial Planning Association and the Journal of Financial Planning, about 49% of advisors say clients have asked about cryptocurrencies in the last six months.
One of the main reasons for the growing interest of investors is the surge in cryptocurrencies last year.
Their market capitalization surged to $ 3 trillion in 2021, but fell to about $ 2 trillion this year.
Freefloat market capitalization, which represents the amount of cryptocurrencies available for trading on the market, is approximately $ 1.3 trillion. Bitcoin and Ethereum make up the majority.
Matt Apkarian, Principal Analyst at Cerulli Associates, said:
Still, financial advisors remain bullish on other alternative assets.
Private equity accounted for 20.9% of the advisor’s alternative asset allocation in 2021, and other private investment (debt, natural resources, infrastructure, real estate) accounted for 20.6%. Non-transactional real estate investment trusts account for 18.6%.
Cryptocurrencies make up only 2.3% of the advisor’s alternative distributions.
By 2023, advisors expect to increase their exposure to alternative infrastructure, increasing 2.5% from their current allocations and 1.3% in other areas such as hedge funds and private equity risk, respectively. increase.
However, exposure to cryptocurrencies is expected to increase by only 0.2%.
Why advisors hesitate
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Cerulli found that there are reasons financial advisers are reluctant to spend more on cryptocurrencies.
Some hesitate because they don’t have time to understand the crypto market, while others are afraid to violate their fiduciary duty. Also, their platform may not include cryptocurrencies as an investment option.
In particular, the regulation of these assets is still lacking. Approval of Spot Bitcoin exchange-traded funds could still take years, Apkarian said.
Independent registered investment advisers may be able to bring in these assets first due to their flexibility in size and management structure.
However, large financial companies are also adding expertise in this area.
In the meantime, private investors may have access to cryptocurrencies outside of their relationship with advisors through platforms such as Robin Hood and Coinbase.
Even if they don’t control their assets, it’s up to the advisor to ensure they have a complete picture of the client’s exposure to cryptocurrencies, Apkarian said.
“They can at least make sure they understand what their clients have in their external assets,” Apacarian said.