In a recent Harris poll that asked Americans about their financial priorities, consumers ranked learning about cryptocurrency second only to the topic of retirement planning. But does your financial advisor know how to answer your crypto questions?
Fortunately, a growing number of financial advisors have earned advanced designations to demonstrate their knowledge and dedication to helping clients invest in blockchain-related investments.
If you’re interested in adding digital assets to your portfolio, consider these tips to help you find a financial advisor who understands the opportunities and risks of investing in cryptocurrencies so you can make more informed decisions with your money.
How to find a cryptocurrency financial advisor
Advisors who can help you build a portfolio of stocks, bonds, mutual funds and ETFs are common. However, when it comes to digital assets such as cryptocurrencies and non-fungible tokens (NFTs), it can be challenging to find advisors with relevant credentials and knowledge.
A referral from a friend who already works with an expert advisor may be helpful, or consider using the Wealthtender directory of financial crypto advisors to begin your search online. Many financial advisors can meet you online so you can expand your search to include advisors from all over the country.
Before working with a financial advisor, it’s worth asking a few open-ended questions that will help you get an idea of whether there’s a match between you and the advisor.
A good opening question to the advisor would be to ask if cryptocurrencies are an investment vehicle in their own right. The answer gives a good indication of how the rest of the conversation will go.
Nathan Mueller, MBA, founder of BlackBird Finance, said that in his experience, calling crypto is like “nails on a blackboard” for many financial advisors. For Nathan and other advisors, however, it can be a welcome question from a customer. It is important to determine whether there will be any interfaces between the client and his financial objectives and the advisor.
Questions about crypto investments to ask your financial advisor
Based on the answer to the first question, the conversation may end abruptly or may be the beginning of a good relationship. If the signs are positive, you will want to ask additional questions. Here are a few to consider.
Do you have cryptocurrency holdings in your portfolio?
A good follow-up question is whether the advisor has personally invested in crypto. An advisor interested in the crypto space is one thing, but it can be a red flag if they are not willing to put their own money at risk. Finding an advisor who speaks with their own money on the line can be one way to validate whether they believe what they say.
What crypto credentials have you earned?
Two credentials to look for in an advisor are the Certified Digital Asset Advisor (CDAA) and Certificate in Blockchain and Digital Assets (CBDA). These relatively new qualifications cover several of the critical aspects of the asset class, including blockchain technology and decentralized finance. The qualifications give investors the assurance that the advisor has a high level of cryptocurrency knowledge and can speak with authority.
For consultants, however, the qualifications are not required, and as Nathan Mueller says,
“For me, since I like crypto but don’t have the education behind me and being held to a fiduciary standard, I will talk to the clients about the basics of crypto, how it can play an overall role in their portfolio and the associated risks. However, I will let them know that they should work with an advisor specifically trained in this area if they want recommendations on which cryptos to buy, hold and sell.”
Do you help other customers with their crypto investments?
At this point, there is a good chance that there will be a match and the beginning of a good working relationship. But before you get too far ahead of things, you might want to know if you are the only crypto client the advisor is working with, or one of many.
There is an argument for being the only customer – the advisor is completely focused on you. However, if you are one of the few crypto clients with an experienced financial advisor, many of the detailed, technical questions you have have probably already been asked. You should expect substance in what they say rather than something filling a light reply.
Should I invest directly in cryptocurrencies or use investment vehicles such as an ETF or IRA for exposure?
As you might have guessed, a client should ask this question as soon as an advisor/customer agreement is in place. It’s a reasonable question because while plenty of exchanges offer a direct route to cryptocurrencies ownership, there are several alternative indirect ownership methods as well.
An expert advisor with the right references can advise on the pros and cons. The ProShares Bitcoin ETF, Grayscale Trust and CME Bitcoin Futures are examples of alternatives; the latter is a leveraged instrument that entails additional risks.
And a financial advisor who knows the ins and outs of cryptocurrencies can also ensure that you don’t fall victim to crypto scams.
What are the tax implications of holding cryptocurrency directly?
Another pertinent question concerns the tax implications of both direct and indirect ownership of cryptocurrencies. Working with a financial advisor has the advantage of giving you the pros and cons of each investment option and how they will affect your taxes.
You are likely to find dozens of financial advisors in your area who can help you achieve your financial goals with a tailored strategy. However, it can be more challenging to find a financial advisor who is familiar with working with cryptocurrency.
Hopefully, these questions will help you identify a financial advisor who understands digital assets and can help you incorporate blockchain-related investments into your portfolio.
Source: Harris Poll: 2022 Wealth and Wellness Index (PDF)
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About the author
Tim Thomas
Tim Thomas helps traders and investors achieve their financial goals.
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This post Does your financial advisor speak crypto?
was original published at “https://wealthtender.com/insights/investing/does-your-financial-advisor-speak-crypto/”
