Nearly all advice firms are shunning crypto-currency, amid concerns that the asset is too risky, according to our recent Para-meters survey.
Crypto-currencies have soared in popularity in recent years against a backdrop of high inflation, interest rates and economic uncertainty. In March, Bitcoin reached a new record high of over $73,000, surpassing its previous high in 2021, before falling back towards the $60,000 mark at the end of June.
Yet, 98% of paraplanners said their firm does not advise clients on investing in crypto-currency, as a result of the volatility and risk involved, the findings of Professional Paraplanner’s parameters survey have shown.
As one paraplanner explained: “We wouldn’t touch that, it’s much too volatile.”
A lack of regulatory oversight also acts as a deterrent, with the asset remaining largely unregulated in the UK, meaning investors are not protected by the Financial Services Compensation Scheme if they incur any losses.
One paraplanner whose firm does not advise on crypto-currency, told Professional Paraplanner: “It’s deemed too high risk for all advisers and firms I work with. It’s non regulated and has no FSCS protection.”
Another commented: “Given the problems with regulating crypto, I don’t believe that it should be touched by advisers. It is extremely high risk and clients need to understand that level of risk.”
Nearly three quarters (74%) of paraplanners said they would call crypto-currency ‘a high risk asset to be avoided by advice firms’, while nearly half (47%) described it as ‘akin to gambling.’ A much smaller proportion (13%) said they consider it a ‘high risk asset that will always require advice.’
One commented “My knowledge is limited, however it seems better suited to day-trading rather than a mainstream investment. It is far too volatile for advice firms to get involved.”
A fellow paraplanner dubbed it worse than gambling, asking “how can you invest in something that has no intrinsic value?”
However, there were a number of respondents (9%) who acknowledged that its growing popularity among speculative investors may see the sector eventually enter the mainstream if the hurdle of regulation can be overcome.
One paraplanner noted: “The Block Chain Technology offers some potential advantages but I’m unsure if crypto is still more speculation than anything of substance. The returns are attractive so it keeps being brought into discussions.”
A second respondent said: “It may well become a mainstream investment in the future but I think the process and accessibility needs to become clearer and secure. It also needs to have some governance or regulations.”
The sentiment was mirrored by a fellow paraplanner, who said they can see the potential in the longer term as an alternative to fiat currencies, but pointed out that it seems “a long way from stable enough to encourage investment into at the moment, other than a minority punt for those with a tech proclivity.”
Despite firms’ reticence to venture into advising on crypto, 40% said they had clients who had chosen to invest outside of advice, higher than the 28% who disagreed. A third (32%) said they were unsure.
Among the two fifths who do have clients who invest, the number which do so continues to be small.
“Out of thousands of clients, there may be the odd one or two but not significant,” one commented.
Another said: “Some have asked about the merits and drawbacks of cryptocurrency and proceeded to tell us later that they had ‘dipped a toe into it’ and witnessed the volatility first hand.”
Paraplanners said that for clients who choose to invest, they often view it as their “play money”; a tiny proportion of their overall wealth that they’re happy to take risks with.
The survey also found that 15% of paraplanners have invested in cryptocurrency themselves, but 83% have chosen not to.
