Speaking to ifa, Assured Support principal Sean Graham said the increasing popularity of cryptocurrencies poses a number of challenges for financial advisers.
“The problem is that it’s mums and dads jumping into it at the moment, and from conversations I’ve had with advisers, they feel under pressure from clients who want to chase that growth or are asking them to do it,” he said.
According to Mr Graham, while cryptocurrencies are not classed as financial products under most circumstances, advisers still need to be aware of how their clients intend to use them and discuss the risks associated with doing so.
“If you’re an adviser who doesn’t want to recommend cryptocurrencies but your client comes and asks you to include them in the portfolio, then you have a best interests duty to address that,” he said.
“That might be to warn them of the risks and dangers of cryptocurrencies or the limitations, and I don’t think that’s necessarily being done.”
Equally, Mr Graham said, advisers who do want to recommend cryptocurrency investment to their clients should be wary that they may come under greater scrutiny from ASIC moving forward.
“There are some advisers saying they can recommend it because it’s not a financial product, well, it may be in some circumstances and if you read the tea leaves, it’s going to be more highly regulated in the future,” he said.
“The reality is that everything is okay when prices are going up, everything’s sailing along and no-one complains, but once the bubble bursts, if and when it does, and people start to lose money, those clients are going to be the ones that are arguing they weren’t adequately informed and should have been warned.”
Cryptocurrencies may also pose a risk for advisers’ professional indemnity insurance coverage, Mr Graham said, as many PI policies exclude cover for non-financial products.
“We don’t know exactly how it’s going to work because it’s never been tested, and realistically you don’t want to be the first one to test it,” he said.
How likely are you to recommend cryptocurrency investment to your clients? Have your say in the latest ifa straw poll: https://www.ifa.com.au/polls/46-how-likely-are-you-to-recommend-cryptocurrencies-to-your-clients
Sean Graham will be speaking at the ifa Business Strategy Day in March. For more information visit https://www.ifa.com.au/business-strategy-day
[quote=Jape]Boof, don’t you get it? Advisers are not licensed for this so we need to stay well away from it, quite apart from the fact that many of us believe crypto is rubbish.[/quote]
I fully understand. I know advisers aren’t licensed for this at the moment, but that’s not to say they won’t be in the future? Why not gain some understanding and get ahead of the curve? Why do you believe crypto is rubbish? (or were you speaking on behalf of others?)
Last try. 1. People such as your good self, and equally keen, were on forums just like this in 1999 talking up tech stocks like Davnet (which is now worth $0) and then in 2006 talking up boom stocks like Babcock & Brown (which is now worth $0). The point being that whatever is “trendy” at any point is frequently misunderstood and/or over priced and not usually a good investment.
2. Crypto fans have a flawed understanding of currency and value. Currency such as the AUD is issued by the Reserve Bank under the authority of the sovereign government which has the power of taxation. Crypto is issued by someone, somewhere with negligible authority and credibility and certainly no sovereign power whatsoever. Most Advisers understand the benefit of economic efficiency of instantaneous settlements for value, but this iteration of the means of achieving this is not the final stage.
3. Highly qualified Advisers have very responsible jobs with a great deal of responsibility, not the least of which is not to pretend to be an expert on speculative matters, such as this, which they are not – speaking only for myself.
I don’t disagree with anything you have said Jape. It’s great to have open discussions about this. It is probable that people on forums such as these at a similar time were also talking about Apple, Amazon and Google as well as the companies you have mentioned. We all know what has happened with these three since then.
Regarding cryptocurrencies, I would not be recommending them to my clients either at this stage, however I have a keen interest in the progress of this technology. The only reason they are ‘trendy’ is because of the incredible inflows of fiat money into the space in the last year or two, however Bitcoin has been around since 2009 and has been developed into a stronger and more resilient system ever since. This is not a ‘get rich quick scheme’ and thinking about it just in terms of the fiat value right now is somewhat missing the point. A censorship-resistant, decentralised form of currency has massive value in the world right now (particularly in politically volatile areas) and this will only grow as the government tries to slowly remove (paper) cash from the system. It’s not so much needed here in our comfortable western society, but people in countries like Venezuela and Zimbabwe (to name but two) are finding it hugely useful.
My key message here to people in a position to advise others is to take an interest in this technology and learn the basics, rather than simply dismissing it. This technology is not going to go away and if you do take interest and do some reading you will see the huge amount of work that is going into this behind the scenes. By having a basic understanding of this technology, you will be better positioned to have an open discussion with your clients. Make no mistake, millennials WILL be asking about this more and more as time progresses and if you are able to have some level of discussion with them about it, this will only help to build rapport and may secure you a good client, even though you may never actually advise them on cryptocurrency.
Rather than specific stocks (such as the companies both you and I have mentioned above), it is more like talking to people at the same time (mid-late 90s) about the internet as a whole and the difference that the internet can and will make to the world. Like any new technology (electricity, cars, credit cards, the telephone, to name but a few), people were cautious and had genuine concerns, but the benefits were large enough that they ended up taking over and most of us couldn’t imagine the world without these technologies now. Cryptocurrencies are like internet protocols (TCP/IP et al) rather than an ‘app’. They can be built upon and expanded. Now is just the beginning.
Before dismissing this as a fad (we’ve well and truly passed that point), go and listen to any of the ‘Bitcoin Basics’ talks by Andreas Antonopoulos (available for free on YouTube) and tell me that you honestly believe there is nothing to this.
In the last few weeks Bitcoin has crashed more than the Australian share market has ever crashed in recorded history (ie. 1884 onwards). Ouch
You should at the very least read the ATO ruling on CGT implications regarding Crypto. It is treated the same way as property
Where are the morningstar reserach reports. Sorry not on my APL!!!!
It would be wise for advisers to learn about this space. It isn’t going away. Sticking your head in the sand doesn’t stop the world from happening around you. All jokes aside, there are some brilliant innovations in cryptocurrency and one key tenet that I feel worth mentioning here is that not all cryptocurrency is supposed to work as or replace traditional fiat currency. The more you read about this, the more you realise you do not know. It’s a rabbit hole for sure, but an extremely interesting one! For anyone who wants to learn more about this, start with the capitvating speeches of Andreas Antonopoulos (look him up on YouTube).
Gotta love people who use the word “space” in sentence…and, no thanks, I would rather not get my investment research from YouTube.
If the more you read the more you realise what you do not know, how can you possibly learn about this ‘space’? Worth bearing in mind that one definition of ‘space’ is an area with nothing in it. ‘Advisers’ might be better off reading economic history: it generally takes a long time for people to work out how to make money from a new technology.
Goofey: It’s good to be loved! Not sure what’s wrong with the word ‘space’ with reference to a broad area of knowledge? Please educate me. In any case it seems that both you and Santayana both understood what I meant, so my message was still received.
Again, you’re welcome to continue trying to avoid this new asset class, but in the long run you are only detrimenting yourself. You may or may not be aware that a huge amount of useful and valid information (including about investing) is available on YouTube and I will continue to use it as well as other mediums to obtain information. Did you watch any of the videos prior to commenting?
Santayana: I’ve been researching this space (yes, space) in earnest for around 6 months including reading books, listening to podcasts and finding other credible sources of information as available. Is that enough to make me an expert? Absolutely not, hence my comment about the more I read the more I realise I don’t know. Over time I will fill in more of the knowledge gaps and build up a more solid foundation. It’s no different to reading about any other complex topic, the same principle initially applies.
I’m not sure why I really responded to these comments as they serve no useful purpose (apart from the economic history comment that is). In any case, one can only lead a horse to water….
One word… “tulips”
Good reference. Most people wouldn’t know the story of the Dutch Tulip mania in the 17th C. Maybe there’s something about it on YouTube!
Tip toe, through the tulips…
Guessing you’re referring to the tulips that enable anyone with just a smartphone and internet connection to effectively be their own bank and transfer value anywhere in the world, within hours (at worst) over a trustless network with no intermediary?
I’m looking forward to the time when more open minded people fill the financial advice industry. Until then we’re stuck with this….
Boof, don’t you get it? Advisers are not licensed for this so we need to stay well away from it, quite apart from the fact that many of us believe crypto is rubbish.
I currently know nothing about investing in Japanese Yen or Swiss Francs. Why then would I be expected (by clients or employer) to know any more about a new type of currency when there is no real world expectation that I know about 99% of existing currencies.
Gee, if only financial planners had an industry body that looked after them, went into bat for them and stopped this nonsense in its tracks for them instead of scurrying off thinking how to flog them a course that addresses it.
What about the requirement to assess whether you have the expertise to advise in an area and decline to provide advice where you don’t? The complexities associated with various cryptocurrencies means not every adviser will be in a position, or want, to play in this space and this article implies they’re obliged to which simply isn’t the case, regardless of whether the client requests it.
This implies that advisers also need to be well versed in lotteries, bingo, poker machines, and horse racing. They are also popular with many clients.
and Pork Bellies futures LOL
Unless they are on the APL (of investments that can be recommended) you can’t advise on crypto currency anyway. You are licensed to advise on financial products. Just because something may not be a financial product, such as a motor bike, this does not make you Evel Knievel.