For a profession that is supposed to be data-driven, financial advisors frequently rely on their gut.
Decisions about the future come at us rapidly. Should I partner with another advisor? Do I need a third portal for my clients to log in to? Is this canned newsletter service the missing piece to growing my practice?
Experienced financial advisors find themselves at another crossroads, as if our to-do lists need to be longer. Not since “commission vs. fee” and “to annuity or not-to-annuity” have we faced a similar choice.
Should you incorporate cryptocurrency as part of your financial advisory practice, and if so, how?
Working with digital assets as a fiduciary advisor is a big, complex decision. You may feel uncertain today, but rest assured, you'll find the answer in the same place you always do - at the intersection of what you know and what you believe.
At Defi Steward, we face the same dilemma. How do we responsibly incorporate groundbreaking technology that will impact our clients, practices, and families?
What we know and believe will evolve, and tomorrow may bring a game-changing technology or headline. Regardless, a fiduciary has to start somewhere, and so do we. Advisors have a right to know the experience and convictions upon which our advisor software is built.
Crypto is infrastructure, not an asset class
In two years of publicly advocating for digital assets, the most common question received from podcast and TV hosts is, "how much of your client's portfolio should be allocated to crypto?"
Even if all clients shared the same goals and risk tolerance, that would still be the wrong question. As would "how much of your client's money should be allocated to stocks?"
Crypto promises not to provide outsized returns, an inflation hedge, or a non-correlating asset to your portfolio. Crypto is the system that will deliver these existing strategies more efficiently.
Crypto is not a new color in the pie chart; it’s the whole damn pie.
Equities will be bought and sold on the blockchain, trading 24/7 around the globe. Fixed income options will not be limited to whatever happens to be sitting in your custodian's inventory that day. Advisors will search for yield backed by real-world assets. The rates will be higher because multiple layers of Wall Street underwriters and syndicates have been removed.
Real estate, commodities, alternatives, and even insurance will be delivered on blockchain technology, and much of it already is.
We don't believe crypto is a new asset class to be allocated. Crypto takes the investment strategies you know and love and makes them better.
Multiple entry points
Consumers of crypto media continually hear about the need for a "killer app" to bring the masses on-chain. They tell us people won't move money into a digital wallet because the banking system works just fine.
This well-meaning criticism misses the point. We are continually looking to improve or diversify the way we conduct our business. People are built to evolve.
Did nobody use the internet because the newspaper worked just fine?
What was the killer app for smartphone adoption? There wasn't one; it was the app store itself that ushered in billions. Users adopted smartphones for a virtually unlimited number of reasons, most for a small convenience they saw others taking advantage of.
Crypto doesn't need a killer app; crypto is the killer app.
Just as some fired up an AOL account for email and others for the news feed, crypto adoption will look different for everyone.
Many will want a collectible from their favorite band, some will need to learn Web3 for their new job, and a growing number appreciate the benefits of freedom and privacy.
Regardless of the catalyst, fiduciary advice will remain consistent: keep your wallet secure, avoid scams and rug pulls, separate investment from speculation, and at least have a vague idea of what you are trying to accomplish.
Common sense advice is what financial advisors are already doing for their clients. Whether buying a silly NFT or transferring a Roth IRA into Bitcoin, clients need your help.
As a fiduciary, you need tools to provide that guidance. Defi Steward is here for all of it.
Do the best we can with what we have
Many of us are drawn to crypto because of the fairness it can bring to the financial system. True believers gaze into the future and see what is possible, with people in remote corners of the world managing their finances with complete security and autonomy.
We can build that world but will have to make a few compromises. On the great crypto journey, we must embrace mildly depressing quotes like "don't make perfect the enemy of great" and "TradFi probably isn't that evil."
To advance toward utopia, money needs to move on-chain. Any money, any chain, anytime; it just needs to get there.
Custodians will need to onboard, onramp, and move normies on-chain. Hedge funds must create products for high-net-worth investors unavailable to the masses. And sadly, we need reluctant financial advisors to allocate 1% of their client portfolios to a Bitcoin ETF.
The solutions above are as necessary as they are offensive. True believers may not like compromise, but we dislike stagnation even more. A Bitcoin ETF may not help your clients in a zombie apocalypse, but it's much better than another random iShares fund.
Alt-chains and ex-clients
Financial advisors in the vanguard of the crypto movement have been infected with a disease: SOS, or Shiny Object Syndrome.
With an overwhelming news cycle and near-exponential innovation, crypto always distracts us from our core mission. After all, why stake our Ether when we can leverage our staked Ether on an experimental alt-chain?
It's not bad for advisors to experience a few rug pulls, lever up their holdings, or donate a day’s pay to what is clearly the next big thing in NFTs. This is how we learn.
More importantly, this is how we learn what not to do for our clients. It may be exciting to find an 800% return on a random crap chain, but is this something a fiduciary should recommend to a client who has put their financial future in your hands?
If so, ask yourself one simple question: What about Ethereum and Bitcoin doesn't provide enough risk or enough return that motivates you to search for more of either?
There are two blockchains, and only two blockchains that are battle-hardened and worthy of recommendation by a fiduciary. The future may be a multi-chain nirvana where we can move money risk-free to the alt-chain de jour, but it's not the present.
The present is what works, not what could work.
Advisors afflicted with SOS want their clients to experience the same wonder they have. Your clients want sound financial advice, even in crypto.
Keep it simple, and you will keep your client.
Where does this leave you, as an advisor, trying to navigate the wild west for your clients? Back where you started, at the intersection of what you know and what you believe.
As a fiduciary, you know that any asset owned by approximately 20% of the adult population warrants your attention and your comprehension.
As an experienced professional, you believe there are no free lunches.
You can build from there, but please do it quickly. Advisors who have been in the crypto space for several years are suffering from acute cases of SOS, and it is spreading fast.
We need the next wave of fiduciaries to arrive with the knowledge, open-mindedness, and, most importantly, skepticism to determine what is best for our clients.