Talking with your client about crypto

Bitcoin crossed the US$100,000 mark earlier this month. While nothing has fundamentally changed in the cryptocurrency world, that big round number got a lot of people’s attention. With the increased visibility may come interest from some of your clients who want on the bandwagon. 

This can create a challenge for advisors. No matter your personal view of this emerging asset class, crypto is going to continue to demand attention. Its unorthodox nature (which is to say that it is neither backed by a government or central bank, nor based on a physical commodity), demands that you challenge your client in ways you may not when it comes to more traditional assets. 

Slow your client down. Crypto trading sites tend not to provide all the information required to make a sound decision. Anything you can do to stall a decision, while providing them good information about what they may be getting into, will probably benefit them in the long run.

Start by asking your client to explain the coin or token they have discovered to you. This is partly for your benefit (you’ll probably learn something), but mostly it’s a productive exercise in gauging your client’s understanding. 

Listen for cues that signal your client has bought into a marketing pitch. Terms like “decentralized currency” and “abnormal return” are pretty solid indicators.

Treat the call as a teachable moment. It is an opportunity to help them understand crypto, and at the same time reinforce their understanding of what they currently own and the value of diversification. If they really are looking to add risk to their portfolio, that can be a productive conversation.

Real conversations are two-way streets. You’re listening as much as speaking, and learning as much as teaching.

Four talking points:

1. Outline the risk of using offshore platforms to trade or hold crypto. Your client may not know that their account is probably located offshore and offers few of the protections that a Canadian account has, including the safekeeping of assets. You can find this information by searching the website your client intends to use (or has used) to buy crypto. Ask if they are comfortable with this. 
2. What is their timeframe for the investment? Is it a quick in and out? Is it a buy-and-hold? Make sure this is on the agenda for future meetings. 
3. Crypto is volatile — more so than almost any traditional investment. If your client understands this, and persists, perhaps it’s time for a fresh risk profile assessment.
4. What if they lose everything? It can happen, again because there’s nothing underlying the currency. Make reference to their existing portfolio and point out that they probably have never had an investment go to zero. 

Ask your client the questions that they should be asking themselves. And then build that knowledge into your recommendations — now and in the future. Cryptocurrencies aren’t going away. With your guidance, neither will their money.

Jim Helik

Jim Helik teaches financial literacy and other courses in the School of Business, Yorkville University, in Toronto.

He was a contributing editor of Benefits and Pensions Monitor for 25 years and was the editor of Infocus, a blog for financial advisors, for CSI Global.