- Big-name brokerages forbid financial advisors from making cryptocurrency recommendations.
- The is blame on the high volatility nature of cryptocurrency as well as regulatory uncertainty.
Big-name brokerages have begun to ban their financial advisors from making recommendations for digital currencies. Since last year, the digital currency markets have fallen sharply, and as of early 2018, only about 5 percent of US citizens (about 16 mln people) owned BTC. A number of financial experts have agreed that cryptocurrencies are here to stay, however, if you’re an investor and you would like cryptocurrency recommendations from your financial advisor, then you are possibly getting out of luck.
Brokerages like JPMorgan, Merrill Lynch, Wells Fargo, and Morgan Stanley bar their financial advisors from making recommendations for digital currencies. Last year, according to the Wall Street Journal, Merrill Lynch barred the trading of both Bitcoin futures and the Bitcoin Investment Trust – a bitcoin-based investment product offered by Grayscale.
Wells Fargo published research primers on cryptocurrencies and allows advisors to present them to clients. A spokesperson said that Wells Fargo adopted a restrictive policy mainly as a result of the complexity and volatility associated with digital currencies. Certainly, cryptocurrency volatility can be jaw-dropping. For instance, BTC has dropped about 50 percent from its last Dec. all-time high.
Jack Tatar, who co-author the book “Cryptoassets” and spent almost 10 years as a financial advisor for Merrill Lynch, thinks big-name brokerages are short-changing clients. He said:
“You’re taking the ability of an advisor who has a lot of education and knowledge, and you’re basically telling them they can’t even discuss this with a client. It’s only a matter of time, maybe three or four years from now, when you’ll have a number of cryptocurrency ETFS available. These firms will back-track their policies. But meanwhile, investors will have missed an opportunity for gains.”
Jack Tatar believes cryptocurrencies should be handled like an alternative asset class. He said:
“If the financial services industry had created bitcoin, everyone would have bitcoin in their portfolio right now. Think of all the products financial services created—collateralized mortgage obligations, volatility indices. How are those considered suitable investments? Yet they were because they were created by the financial services industry.”
These big brokerages are giving cryptocurrency investments a cold shoulder simply because they have not set up themselves to make money from it yet. Another factor that aids brokers’ hesitation is regulatory uncertainty. The SEC has not yet explained precisely how it will determine if a digital coin is a financial security. Only a few cryptocurrencies have registered as securities and recently, former government regulator Gary Gensler said both Ether and Ripple should likely be considered as noncompliant securities. Hence, if a financial advisor tells investors to buy a cryptocurrency that the SEC later considers an unregistered security, such advisor could find himself in a problem.
However, some financial advisors despite their employers’ muzzling policies keep recommending cryptocurrency investments to investors. Though brokers can’t execute cryptocurrency trades for investors, they, however, tell clients to make a personal investment.
Ric Edelman, a Virginia-based independent financial advisor, doesn’t proactively advise digital currencies to clients, but if he’s asked about it, Ric tells them:
“If you choose to invest, you should do so with no more than 2% of your portfolio. Hold these assets for years and be prepared to lose it all.”
Edelman believes it’s proper for brokerages to thread crypto slowly and carefully. He said:
“But that’s different than sticking your head in the sand and denying its existence. The industry is slowly changing—the ostriches are lifting their heads up and looking around. But they still remain unconvinced.”