Financial advisors: Ignore cryptocurrencies at your client’s peril

*This content is brought to you by Jaltech

By Jonty Sacks*

Cryptocurrencies are possibly the most avoided asset class by financial advisors in the market. This is mostly due to the unregulated nature of the investment and because financial advisors would rather avoid a difficult discussion with a client should the investment underperform significantly.

Although the above is an easy way out of avoiding the topic with a client, advisors would be well advised that ignorance of this asset class will have a material impact on the future growth of his/her practice. I say this because, young South Africans and high net worth individuals are researching and investing significant volumes into cryptocurrencies and by not having a firm understanding of what cryptocurrency solutions current and future clients will need will certainly result in assets going elsewhere.

For information on Jaltech’s Cryptocurrency Basket, click here.

To put things into perspective, local cryptocurrency exchanges are reporting triple-digit growth, billions of Rands in transactions per year and close to half of the users are under the age of 30. So why is this so significant to financial advisors? Well HNWI and young investors who have accumulated cryptocurrency assets will need an advisor who can provide advice on (amongst other things):

  1. What cryptocurrency storage solutions are in the market;
  2. What investment options are there;
  3. What is the tax implication when realising a cryptocurrency investment;
  4. What cryptocurrency yield options are in the market;
  5. Etc, etc

Another issue with financial advisors not assisting clients with cryptocurrency-related investments is that clients are left with no other option but to open their own exchange account and invest in an asset class that they know very little about. The consequence is that clients invariably select a cryptocurrency investment based on a discussion around the braai, and ultimately make the wrong investment decision.

What compounds the problem is that clients have a tendency of monitoring their investment ten times a day and in such a volatile market they end up making a decision based on an emotion which typically results in clients exiting their position at a significant loss.

Financial advisors will soon not be able to rely on the copout “cryptocurrencies are not regulated so I can advise on the investment” because it’s inevitable that cryptocurrencies will be regulated in South Africa, as is the trend in other countries. So what should financial advisors be doing? They should upskill themselves by attending cryptocurrency webinars, researching investment options and at the very least having some cryptocurrency exposure.

  • Jonty Sacks – Partner at Jaltech

For information on Jaltech’s Cryptocurrency Basket, click here.

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