‘We don’t talk about crypto’: time for wealth firms to change their tune?

Since 2016, James Rockwell has made it his mission to help solve the communication challenges faced by investment advisors as they make recommendations and discuss portfolio performance with clients. And from his perspective, those are challenges set to compound amid an ongoing land rush into a new space of disruptive asset classes.

“We’re seeing cryptocurrencies and NFTS showing these very intense returns and getting a lot of air time right now,” Rockwood says. “And that causes an issue for advisors of how to talk to clients about how they interact with those products.”

Recently, Natixis released its findings from a global poll of investment professionals, which included 166 fund selectors in North America who collectively represent US$3.9 trillion in client AUM. Among those North American respondents, two thirds (67%) said they don’t think individual investors should have exposure to cryptocurrency, and more than eight in 10 (86%) said those types of assets need to be more transparent. Another 84% took the view that they need to be subject to some type of regulatory oversight.

But with headlines covering stories of NFTs selling for tens of millions of dollars, and crypto investments similarly registering eye-popping returns, Rockwood says many investors will find it hard to ignore or shake the fear of missing out on the opportunities from a new asset class.

“The issue for advisors and wealth firms becomes how they can take positions in areas where regulation still needs to catch up,” Rockwood says.

While it might have been easy for advisors to wave off cryptocurrencies as an investment oddity just a few years ago, clients who ask about them are becoming more insistent. In its North American survey, Natixis found 40% of fund selectors say their clients are increasingly demanding cryptocurrency solutions.

Approximately the same number (42%) feel pressure to add cryptocurrencies to appeal specifically to younger investors. Indeed, 45% of the North American respondents said they are already offering digital currencies. And of that group, 39% have plans to further expand their existing offering.

Still, 71% of the respondents were of the view that their firm needs more education in digital assets and cryptocurrencies before investing in them. In line with that, Rockwood says firms should recognize that client questions about crypto assets are only going to continue, and they need to think about how advisors should be speaking to clients about them.

“Even if the articulation is around how these are so new, they don’t really have a space in the client’s particular financial goal – maybe the client is looking to retire, which can require a lot more fixed income or less volatility – I think providing guidelines will be an interesting challenge,” he says.

It seems to be almost a foregone conclusion at this point, but only time will tell whether cryptocurrencies will become part of the mainstream investment landscape. And if they do become a staple investment vehicle, that begets the question of how regulators will move to bring them into the advice channel.

“If that happens, then the industry will have to think about how to start providing recommendations around that,” Rockwood said. “Given the news we’re already seeing around crypto assets, I think it’s something that’s important for firms to address.”