The Certified Financial Planning (CFP) Board dropped its “Notice to CFP Professionals on Financial Advice on Cryptocurrency-Related Assets” On December 5th.
The board notice is a 14-page report outlining a number of risks associated with investing in cryptocurrency. It sets out some standards that financial advisors can adhere to in their decision to provide or not provide cryptocurrency investment advice.
As defined by the CFP Board, this advice includes “communications that, based on their content, context, and presentation, would reasonably be viewed as a recommendation to take or refrain from taking a particular course of action.”
In short, the report clarifies the CFP Board’s “Code and Standards,” which does not prohibit advisers from giving crypto advice or prevent them from giving any crypto advice. It emphasizes that financial advisors should adhere to a fiduciary duty when providing advice on crypto by taking fully into account the goals, risk tolerance, and personal/financial circumstances of the client. And it outlines the competency standards needed to provide advice related to cryptocurrency.
On giving versus not giving advice
The report explains in detail: “The CFP Code and Board Rules do not require a CFP professional to offer Financial Advice to a Client on every Financial Asset that is available on the market. A CFP professional does not violate the Code and Standards when the CFP professional does not provide Financial Advice on cryptocurrency-related assets.”
However, the CFP Board’s caution on advice should be interpreted to mean that financial advisors without a crypto education should not only avoid giving advice in support of cryptocurrency, but also give advice against it.
Financial advisors with no crypto education can no longer legitimately argue that cryptocurrencies are “Ponzi’s”, “beanie babies” or “tulips” since all those characterizations are not based on facts or research. Statements may work over a beer with friends, but not in financial planning with clients. In such settings, misrepresenting bitcoin is a form of advice, and there are far too many advisers in this field today.
About responsibilities to customers
The notice mentions: “A CFP professional must comply with fiduciary duty, which states that a CFP professional must act as a fiduciary, and therefore act in the best interest of the client, at all times when providing financial advice to a customer”.
This means that if you, as a financial advisor, feel that it is irresponsible and illogical for your client to invest in cryptocurrencies, you should advise against it.
That said, I have not seen a single adviser make a specific and compelling case against a bitcoin allocation. While the math favors bitcoin’s addition, FUD (Fear, Uncertainty, and Doubt) often gets in the way.
Bitcoin is not going away because the The FTX crypto exchange was allegedly a criminal enterprise. Bitcoin will remain around for generations to come because bitcoin it’s money, help small business owners Y helps resolve ESG concerns.
Not only that, information on how to smarter gain exposure to a variety of crypto assets is now available. The Digital Asset Classification Standard (DACS)Created by CoinDesk Indices, it provides reliable, comprehensive, and industry-standardized definitions and classifications for digital assets.
About the competition
It corresponds entirely and exclusively to each adviser to refrain from giving advice.
But the report explains that “a CFP professional must comply with a duty of competition when providing financial advice on cryptocurrency-related assets.”
I don’t have an opinion on all esoteric investment strategies, and you don’t need to either. But it is important that, as advisers, we are honest with clients when there is an area of investment in which we are not fully informed.
The comment from most crypto advisors should be, “I haven’t done the work to provide any analysis on this.” In my opinion, this applies to 90% or more of all advisors.
That being said, cryptocurrency has gone mainstream, so there is less and less room for excuses as to why you haven’t spent time researching this growing asset class. CNBC He even has bitcoin listed on his ticker, so customers of all ages see and hear about him and will ask him questions about it.
I recommend that in 2023 you commit to educating yourself more about cryptocurrency as a financial advisor. Fortunately, there are excellent resources for doing this.
For books, I recommend reading “The Bitcoin Standard,” “Tomorrow’s Price: Why Deflation Is the Key to an Abundant Future,” “The Bullish Case for Bitcoin” Y “The Invention of Bitcoin: The Technology Behind the First Truly Scarce, Decentralized Money Explained.”
And finally, this blog post here is great: “Little by little, then suddenly.”
Expand your network
As a coach, know that there are colleagues who can and will help you learn. There will and are advisors focused on gathering knowledge and helping clients navigate Bitcoin.
I have been fortunate to connect with other advisors and recently helped start the Bitcoin Financial Advisors Network. But be prepared. People at such events may ask tough questions and encourage you to delve into preconceived notions.
It is time that as a financial industry we hold ourselves to a higher standard when discussing bitcoin with clients since as a CFP you are allowed to discuss and recommend it.
The key is to educate yourself because you are not protecting bitcoin customers by not learning about it. Taking personal responsibility to educate yourself cannot be overstated in crypto. As they say, “Don’t trust, verify.”