Pay attention and learn about crypto now even before the asset rules are set

Nicole Casperson [00:00:04] Hey, everyone, Nicole Casperson, fintech reporter with InvestmentNews and welcome to Three Questions. Today, I’m sitting down with Caitlin Cook, Head of Community at Onramp Invest and VP of Operations at Onramp Academy. Not only is Caitlin a hashtag Finta influencer, she’s also leading Onramp Academy, an educational resource for advisors to better understand crypto assets through written content, videos, podcasts and other tools. I’m going to ask Caitlin roughly three questions around crypto assets that are typically asked by advisors. I’ve been fan girling over her for some time now on Twitter. So thank you so much, Caitlin, for joining us. 

Caitlin Cook [00:00:42] Yeah, thank you for having me. 

Nicole Casperson [00:00:43] So what is the biggest misconception financial advisors have around crypto assets? 

Caitlin Cook [00:00:49] Well, there are a few, but I would say the biggest is around regulatory clarity and more specifically, that there has been no regulatory clarity given. And from a bird’s eye view, it’s very simple to see why the SEC does in official statements. The SEC does not consider it to be a security. The IRS considers crypto assets to be property and the CFTC considers it to be a commodity. But that is very confusing. But if you look a little bit more into it and do your own research, you’ll see that the SEC did put out a risk alert in February around crypto assets, specifically saying that although they don’t consider them to be a security at this time, they present unique risks to investors. And they gave five areas of focus for advisors to kind of zoom in on within their practice before they implement crypto assets or even consider doing so. Those are portfolio management books and records, custody disclosures in pricing. So, yeah, although the IRS, CFTC and SEC have to come together and come to a consensus to provide clarity for the future roadmap of what’s to come from a regulatory standpoint, there’s more than enough that’s been given by the SEC for advisors to get started. So would highly recommend that advisors look into that risk a bit more and see what they can do to get their practice ready before implementing crypto assets. 

Nicole Casperson [00:02:07] Kind of perfectly leading into my next question, which is what is important for advisors to know about crypto assets before discussing them with clients and providing advice on them, maybe even outside of just the regulatory aspects out there that are readily available to them? 

Caitlin Cook [00:02:24] Well, regulatory is very important from a compliance standpoint. Advisors need to know that they’re investing in a compliant manner for their clients. But before that, every advisor has different standards around the due diligence that they do before bringing investment ideas to clients. But like any other investment, they need to know the characteristics of the asset class, its underlying drivers. The risks associated with crypto is especially important, considering that it’s a pretty volatile asset class. What are the drivers around that volatility and what are what can you do to kind of mitigate those risks? Do your clients have a tolerance for that? Does it fit in within their financial plan, the tax implications, where they fit within a broader portfolio allocation and how you value them? These are all really important things that although there are some different factors unique to crypto assets, this is something that advisors should be doing with any asset that they’re considering investing in on behalf of clients. Now, if we look specific to crypto assets, there are some differentiating factors between traditional markets and kind of decentralized finance world. Even crypto brokers, custodians and exchanges operate differently on the crypto side of things. And since advisors could be putting in trades on behalf of clients or even just giving guidance on the space, that’s something that they need to have a pretty intimate knowledge of as well. So I would say that a lot of that is really important generally, but none of that matters unless a client has a financial plan in place. I just want to kind of emphasize that if a client doesn’t have a financial plan, they don’t know how crypto assets would fit into that. They need to be planning for the future first before they invest in something like crypto. So make sure that you have the financial plan down first for your client, see where it fits within that and have the baseline knowledge of the asset class down as well. 

Nicole Casperson [00:04:08] I mean, it all ties into client experience, which is the probably the hottest trend of all things, even hotter than Bitcoin or crypto assets. So my last question for you. What would you say to encourage RIAs, FA’s who have dismissed crypto assets as too volatile or just not worth an investors time at all? To what would you say to encourage them to research the asset class or do something like search Onramp Academy or other educational outlets? 

Caitlin Cook [00:04:38] The first thing that I would say is that advisors never have to invest a dollar of their own money into crypto assets or their clients money, for that matter, to learn about it. They have a fiduciary responsibility to their clients to give best in class service and be knowledgeable on what’s going on in the industry. There is no denying that the asset class has been surging. There has been continuous flows into it and it’s something that they should be paying attention. If those trends continue to to go on and this is a retail driven trend, which I think is something that’s also really important to know, as they will have clients coming to them with questions, they will have clients that are invested in crypto assets that they never knew about until they asked. And they need to know something about the asset class. No advisor wants a client to come into their office asking them about crypto assets and have the client know more than they do. So from a business continuity standpoint, in addition to that, the younger generations are really accepting of this new technology. They’re interested in crypto, they’re interested in NFTs. They want to learn they’re probably invested. And with a generational wealth transfer, those are going to be the clients of the future for them. And they need to be more open and interested in learning about these things ahead of time before they get left behind. So from a general standpoint, you don’t want to be left short sighted if you talk to a client and you don’t know what to say. And then also this is kind of where the puck is going. And the advisors who want to prepare their practice for the future need to get on board now and at least begin educating themselves. 

Nicole Casperson [00:06:08] Absolutely. Crypto assets tie into all of the major trends we’re seeing in the industry, from retail investing boom to Gen-Z and Millennials being more interested in the financial advice space. So thank you so much, Caitlin. There you have it, folks. Thanks again to Caitlin for joining us and to our listeners for tuning in. We’ll see you next time.