Financial Advisors: Look Before You Leap With Crypto Investments
• The Certified Financial Planner Board of Standards (CFP Board) and the Chartered Financial Analyst Institute (CFA Institute) have issued guidelines regarding cryptocurrency investing and advice.
• The CFP Board issued a “Notice to CFP Professionals Regarding Financial Advice About Cryptocurrency-Related Assets” in November 2020.
• Financial advisors are warned to look before they leap when it comes to crypto investing.
Cryptocurrency has been gaining traction in the financial world as of late, and financial advisors are taking note. However, regulators such as the Securities and Exchange Commission, Department of Labor, and the Financial Industry Regulatory Authority (FINRA) have all taken steps to make sure that advisors are providing their clients with the best possible advice when it comes to crypto investments. But perhaps the loudest voice of all when it comes to advisor best practices and compliance is the Certified Financial Planner Board of Standards (CFP Board) and the Chartered Financial Analyst Institute (CFA Institute).
The CFP Board recently issued guidelines in November 2020 in a “Notice to CFP Professionals Regarding Financial Advice About Cryptocurrency-Related Assets”. This document is intended to govern how holders of the CFP certifications should provide their clients with advice related to crypto investments. The notice outlines the various risks associated with cryptos, including the lack of liquidity, volatility, and the potential for fraud or manipulation. It also provides guidance on how advisors should approach the disclosure of these risks, as well as the due diligence necessary when recommending any type of crypto investment.
Meanwhile, the CFA Institute issued a statement in October 2020 encouraging members to remain mindful of the risks associated with crypto investments, as well as how they may affect the financial markets in general. The statement also notes that members should educate themselves on the specifics of cryptos and the associated risks before providing advice to their clients.
Given the potential risks associated with crypto investments and the lack of clarity surrounding the regulations of the industry, it is clear that financial advisors must look before they leap when it comes to making any crypto-related recommendations. By following the guidelines set forth by the CFP Board and the CFA Institute, advisors can ensure that their clients are making informed decisions when it comes to any type of crypto-related investments.