Financial Planning With Crypto Assets

As the number of clients holding cryptocurrency assets grows, the need for financial planners to become familiar with these new investments has never been greater. But in an industry where advisors often struggle to find the time for client meetings, the challenge of addressing crypto-related questions can be daunting.

Financial Planning with Crypto Assets can have a significant impact on retirement planning, estate planning and risk management. And with new tax regulations requiring reporting for cryptocurrency holdings, the need to understand these assets has become even more pressing.

How to Incorporate Crypto into Your Financial Planning

Yet many advisers may still feel ill-equipped to discuss crypto investments with their clients, as demonstrated by the fact that only 59 percent of financial planners provide advice on these assets (JFP 2023). This reluctance to engage in this conversation may stem from unfamiliarity with crypto assets themselves, fears about a lack of legal clarity, a desire to avoid the potential for regulatory enforcement actions and concerns about the level of expertise needed for advising clients on these complex assets.

One way to ease into the discussion of cryptocurrencies is for planners to help educate their clients. This can involve explaining the differences between cryptocurrencies and traditional investments. It also involves breaking down technical terms like blockchain into simpler analogies, such as “a digital ledger of transactions, similar to records of bank transactions.” Another useful exercise is a behavioral self-assessment to identify biases that may hinder the ability to appropriately advise on crypto investments. These include loss aversion, anchoring and herd mentality, all of which can lead to impulsive selling during market downturns.