Two Advisor Credentialing Organizations Have Their Say on Crypto

Advisors are warned by the Certified Financial Planner Board of Standards (CFP Board) and the Chartered Financial Analyst Institute (CFA Institute) to look before they leap.

AccessTimeIconJan 12, 2023 at 1:45 p.m. UTC
Updated May 9, 2023 at 4:05 a.m. UTC

After federal regulators including the Securities and Exchange Commission and the Department of Labor as well as Finra, the largest independent industry regulator, perhaps no one speaks louder on advisor best practices and compliance than the Certified Financial Planner Board of Standards (CFP Board) and the Chartered Financial Analyst Institute (CFA Institute).

Each has recently made major announcements regarding cryptocurrency investing and advice.

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    The CFP Board issued guidelines in November in a “Notice to CFP Professionals Regarding Financial Advice About Cryptocurrency-Related Assets,” which will govern how holders of the CFP certification should handle working with clients on digital asset investing and planning.

    In the CFA Institute’s case, it comes in the form of “Cryptoassets: Beyond the Hype,” a report oriented towards investment professionals and financial analysts, which was released this week.

    CFP Board

    In its report, the CFP Board chose to neither mandate nor forbid its designation holders from recommending cryptocurrencies and cryptocurrency-related assets or providing financial advice about those investments.

    The Board will apply the same standards to cryptocurrencies and cryptocurrency-related assets that it applies to all assets; however, it also recognizes that these assets may present heightened risks to clients and have some unique attributes.

    “CFP Board’s guidance for a CFP professional to act with caution when providing Financial Advice about cryptocurrency-related assets rests upon the guidance that regulators have issued concerning these assets,” the organization wrote. “Various federal and state regulators, self-regulatory organizations like the Financial Industry Regulatory Authority, Inc. (“FINRA”), and consumer protection organizations representing or advocating for investors, workers, and retirees have cautioned that investments in cryptocurrency-related assets present significant risks that warrant careful evaluation.”

    Thus, according to the CFP Board, fiduciaries should exercise “extreme care” before including a crypto option to a workplace retirement plan such as a 401(k).

    In any advice setting, including financial planning, CFPs are required to comply with the duty of care, duty of competence, duty to comply with the law and the duty to provide clients information about costs, as well as duties when selecting, recommending and using technology.

    Essentially, the guidelines mean that for a CFP to provide advice on digital assets they need to be educated on those assets, their risks and how they might fit into a client’s broader financial picture. Furthermore, the CFP must be able to monitor those investments and recommend technology and custody options with an understanding of those commensurate risks as well.

    Furthermore, CFPs are required to at least have knowledge of held-away digital assets and the impact those assets may have on a client’s overall financial picture. CFPs should understand how those assets may impact the client’s “goals, liquidity, cash-flow, taxes and estate plans.”

    “A CFP professional also must consider how cryptocurrency-related assets may require special considerations with respect to estate planning, such as a plan for the transfer of a private key if the Client passes away,” wrote the Board. “These are only some of the ways that an investment in cryptocurrency-related assets may affect the Financial Planning recommendations.”

    CFA Institute

    According to the CFA Institute, three issues need to be resolved before crypto assets can be fully embraced by mainstream investors: valuation, fiduciary duty and the custody of assets.

    “To puncture the hype, investors must think through what is actual, what is potential and what is merely aspirational,” said Stephen Deane, senior director, capital markets policy at the CFA Institute, in a statement. “They should also distinguish between the underlying distributed ledger technology, which could well prove disruptive, and the business prospects for the thousands of individual crypto assets on the market today and more to come. We at CFA Institute firmly believe that there are no shortcuts to sound investing.”

    The Institute’s researchers then give six loose guidelines for fiduciaries and institutional investors:

    1. Proper analysis remains necessary for fiduciaries to comply with their duties of prudence, loyalty and care.
    2. With the inclusion of crypto, principles of portfolio construction still apply and investors should continue to take a holistic and strategic view towards portfolio construction.
    3. Fiduciaries are expected to analyze the value, volatility, correlation effects, momentum and/or technical features of any proposed investment.
    4. Intrinsic value of digital assets should be related to an in-depth, rational analysis of specific use cases.
    5. Investing in digital assets and related businesses requires a careful analysis of business model and client acquisition model.
    6. Fiduciaries need to ascertain the custody chain and safekeeping of client assets.

    “The debacle at [crypto exchange] FTX shows the harm that can come to investors and platform participants when client assets are not kept safe,” said Olivier Fines, head of EMEA advocacy at the CFA Institute in a statement. “The example of FTX further underlines the importance of custody issues and the responsibility of investors to base their decisions on the investment case and not on hype and speculation.”


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    Christopher Robbins

    Christopher Robbins is a nationally recognized journalist who has been featured as a speaker and panelist on topics including investing, personal finance and wealth management. He is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.