Financial advisors need to study Bitcoin in order to prepare for a changing economic order, systemic risks and a possible return to a sound money standard.
What’s the difference between these two numbers?
The first is $100,000 compounded for 30 years at roughly the long-run rate of return for stocks, or 10%. The second is $100,000 placed into a specially selected basket of diversified stock funds that basically do the same thing — less the 2% management fee your financial advisor is charging you.
Now, I understand this is not how all advisors or financial planners make their money, but I’ve met too many people who don’t even know how much they pay their advisors. In fact, this article was inspired by one of my best friends’ financial advisors. As far as I can tell, the man has not done a thing for my friend for years aside from investing in generic ETFs and executing trades on his behalf. When it came to my friend’s questions on bitcoin, he was offered a completely unrelated ETF as an investment choice followed by radio silence.
Advisors, this question is for you: What are you going to do to ensure that the fee I highlighted at the start of this article is worth it to the client? Are you sure you’re providing as much value as you can?
Financial Advisors: Fear Disguised as Skepticism?
Financial advisors and traditional finance types appear to me to be some of the most skeptical bunch when it comes to Bitcoin. I’ve seen everything from flat-out refusals to even discuss the topic with clients, to offering them generic, crypto-affiliated ETFs to get them to stop asking questions (see above).
It’s hard to tell, but it seems like many are simply waiting for bitcoin to die, refusing to learn about an obvious passing fad, a scam, a bubble; ”see, the bubble popped! I told you it would. Good thing I protected you.”
To all the reluctant financial advisors out there, I say: I think you might be scared. Scared to learn, scared to lose clients, scared to be first, scared to embrace the unconventional. But what you really should be scared of is: the longer you blow off bitcoin, the higher the likelihood is that you will lose your credibility and lose your clients. I wrote an article recently about ignorant experts loudly proclaiming their negative opinions on the topic. Their ignorance will be punished by the free market of ideas, but yours doesn’t have to be. You still have time.
Where to Start?
One of the most difficult parts about explaining bitcoin to a financial advisor is how to value it. I recommend the following resources for financial types:
The first step would be the familiarizing oneself with the wealth of knowledge there, ranging from basic explanations of what Bitcoin is, to Greg Foss’ mathematical model for how to value bitcoin using sovereign credit default swaps.
You could also check out Fidelity’s 2022 report “Bitcoin First.” It’s a pretty comprehensive report on Bitcoin, written by financial types, for financial types. I think it does a really good job explaining how Bitcoin is different from the rest of crypto; In this market, diversification isn’t your friend. I would also recommend searching for Morgen Rochard, CFA, CFP®, RLP® on Twitter, Spotify, and YouTube. As evidenced by the letters after the name, she knows what she’s talking about.
Lastly, while doing research for a potential consulting gig, I found a website that shows investment returns and volatility for a traditional 60/40 stock to bond portfolio with a 2% allocation to bitcoin. Yes, the asset is volatile, but isn’t the most basic investing advice to literally anybody to have a long time horizon? Said another way, getting into bitcoin at $60,000 doesn’t mean you’re stupid — it just means you were a little too late to that party, and a little too early to the one we’re having now.
Technology Doesn’t Have to be Scary
Financial advisors have a fiduciary duty to act in the best interest of their clients. This means that they must provide investment advice that aligns with the goals, risk tolerance, and overall financial situation of each individual client. As Bitcoin becomes an increasingly popular investment option, financial advisors have a responsibility to educate themselves about this digital asset and consider its potential as a viable investment option for their clients.
The paragraphs in italics above were written by OpenAI’s ChatGPT. I’m using it to bounce ideas off of in an attempt to beef up my writing. This invented technology may very well eat my lunch in a few years, but at the moment it is a tool to make me better at what I do. If I can embrace new technology, then so can you.
Education is the key. Not liking Bitcoin is fine; I don’t really care what your opinion is. What’s not okay, though, is not understanding bitcoin.
How much learning have you actually done to arrive at that conclusion? Fifteen minutes reading mainstream media op-eds does not count. If you’re being honest with yourself, you will soon realize that it’s a dereliction of fiduciary duty. Your clients are going to want it. It’s inevitable. You can either guide them or lose them. I don’t see any in between.
Stop patronizing your clients with reluctant and minuscule allocations to shut them up. It’s their money, not yours. With the recent bank failures in the U.S., it’s becoming more important than ever to have at least a part of your wealth stored in a self sovereign way, outside the system. Pull your head out of the sand and learn, because if you don’t, bitcoin is going to eat your lunch — and it will be your fault.