Here are three types of cryptocurrencies which would help one understand the way crypto works.
Financial advisors are learning about crypto and digital assets, or they choose to take the time to learn about them. Part of that solution is calculating return on investment (ROI) – the time and cost of learning new asset classes and ecosystems versus the projected ability to generate short-term and long-term income that knowledge provides. If you are that financial advisor, ask yourself, "Will I find new customers? Will I increase sales with existing customers? Will I only worry about losing my current customers who want to invest in cryptocurrencies?" question - why should I worry To, answer that question, we can take a look at some of the types of clients you might encounter so you can see if this fits into your practice and new year's growth plans.
When we identify these types of clients or client memes, to use appropriate crypto terminology, we look at the goals, needs, conversations and strategies that advisors will use in their planning relationships. I will also anticipate this by stating that I am not one of the customers or potential customers who are not interested in crypto. At this stage, I recommend not investing in cryptocurrencies to advisors who are trying to sell clients. For someone who had not shown any interest, the risk was too great.
A crypto curious investor is someone who has shown an interest in investing in crypto but has not yet tried it. Your fluctuations can be caused by a fear of losing money or a fear of technology. Or maybe they are just waiting for you, their advisor, to learn about crypto. I can't tell you exactly what these clients look like in terms of age, economic demographics, or risk profile. Crypto-curious customers need some training, starting with technology. The conversation might start with “I am interested in cryptocurrency” or “I read this article about Bitcoin” or “My brother/daughter/neighbor makes money with cryptocurrency”.
Your task is to first find out why you want to dig into cryptocurrency before you familiarize yourself with all your new knowledge of crypto. This world can be amazing to the uninitiated (as you know). Once you understand why they want to invest, you can compare your knowledge of cryptocurrencies with their needs and risk profile. You can start your training here if you need to, with some hope. For example, let's say you have a checkup twice a year with a client who is moderately risk-averse and who is most likely nearing retirement age. He tells you that his son told him to buy bitcoins to protect against inflation. You now have a great opportunity to combine your crypto knowledge with your plans.
There is, of course, a need for those nearing retirement to adjust to inflation, and you can better explain that need based on their situation. However, you also need to talk about volatility and talk seriously about risk. If you both agree, then you can create a plan that meets the client's risk profile, needs and goals by adding cryptocurrencies. These solutions are likely to include solutions that are secure and easy to manage via a custodial platform and are easy to report. For revenue reasons, and therefore return on investment, you might be able to charge a project just to help this customer buy some bitcoins and keep them safe. If this is a retirement savings account, it also makes sense to create a separate managed (SMA) account for this customer that fits your AUM asset management (AUM) model.
Your training and knowledge will be invaluable to these customers, as well as setting expectations and planning.
You will meet several clients and potential clients who have already started looking for crypto on their own. When you explain that you're learning to make digital assets part of your practice, you'll be surprised how many of your customers and prospects pull out their phones to show off their Coinbase or Gemini accounts. You may have purchased Grayscale Bitcoin Trust (GBTC) in an account you manage or through your own brokerage account.
Luckily, there are some good conversations going on here. What did you buy? Why did you buy? How do you feel about volatility? The ability to listen to and understand some of the arguments is invaluable and now make it an investment rather than speculation for your clients. May or may not have a strategy in place for your step so far, which is the perfect starting point to compare your knowledge of crypto with your risk profile and other plans to strategize your digital asset that fits your risk, goals and needs etc.
For example, a customer shows you their Coinbase account worth several thousand dollars of several different tokens. You already have the potential for a project cost that includes documentation of the amount, basis and motive. You can then work with your client to develop a plan for possible new portfolio allocations or move on to a more manageable solution that could become part of your AUM. Again, rather than speculating, your education and knowledge, as well as your ability to plan, need to be assessed and result in some increased sales through project fees or AUM.
These are customers who have been in cryptocurrencies for a while and can become quite rich or very rich - sometimes called "whales". The focus of crypto education for consultants is very helpful for clients who want to do small distributions. Cryptocurrency is where you can really attract some great new customers. I've seen these customers ranging from some who invested in a few bitcoins early and own a significant stake in the remainder of their fortune, to those who invested heavily in multiple tokens, venture capitalists, or those who started or have already started protocols that have started. tokens are enough.
For several years, these prospects were reluctant to seek advice, fearing that someone in traditional finance would try to divert them from crypto or fail to understand investing at all. The reality is that like any major business owner or investor, this whale needs the help of a financial planner. Once you understand digital assets, you can help these clients in many ways and show more value than any other advisor on your team. For these prospects - and it's more than you think - you can be the adviser who isn't telling them to sell, but the one who helps them with all the parts of the financial planning you offer to other clients. Just as you wouldn't advise business owners to sell their businesses or sell equity to early founders to invest in more traditional assets, you wouldn't advise this whale to do the same.
You can ask questions and start a conversation about distribution in crypto life, risk and finance. Together you can work on the security of your digital assets, income and expenses as well as real estate planning. You can become a valuable supporter of their plan by engaging attorneys and accountants as needed to structure their investments. While this may not be an AUM growth game, you can plan a steady project or monthly service fee for these clients by showing how their crypto assets affect their costs and lifestyle, and strategies for risk assessment and future investments.
This is likely to be the case for future customers as they have assets held in different technologies and forms, as well as the revenue and returns generated by different protocols and investments. The work you do to make speculation or venture a strategic part of their financial life is invaluable to this growing class of investors.
Benefits for your practice
The decision to invest time and money in learning a new asset class may seem difficult given the relatively low prevalence of cryptocurrencies. However, as we discussed, with these three types of crypto clients, the potential for additional revenue through project fees, hourly rates, service contracts, or AUM is evident.
By better understanding these types of investors, you can attract new clients and generate additional income with existing clients while preventing them from leaving. Most importantly, you'll be able to provide value and advice in a way that's much closer than just managing your investments. You conduct interviews with clients who demonstrate that you understand and care about their financial lives.