The CFP Board is putting advisors on notice: Certified Financial Planners can advise clients on cryptocurrency-related assets, but they “should do so with caution.”
The board issued that guidance in a Dec. 1 notice, which lands amid turmoil in crypto markets. Prices for Bitcoin and other cryptocurrencies have plummeted over the past year. Last month, cryptocurrency exchange FTX filed for bankruptcy. Its collapse left stranded what are likely billions of dollars of customer funds and was a factor in this week’s bankruptcy of crypto lender BlockFi.
The CFP Board’s notice is important for the 93,000 professionals who hold the coveted CFP credential, which the organization administers.
Although the guidance comes after a major crypto crisis and serious losses for some investors, Leo Rydzewski, CFP general counsel, said the organization had planned the notice for “some time.”
The notice does not change rules for CFPs but clarifies how they can advise on cryptocurrencies while adhering to the board’s existing standards.
It states that while the board’s standards apply to crypto assets in the same way that they apply to other assets, cryptocurrencies “have particular attributes and present significant risks and uncertainties that warrant careful analysis.”
The CFP Board raised several points of concern for advisors, noting that cryptocurrency-related assets can be difficult to analyze, raise valuation issues, and present unique custodial risks that expose investors to heightened risk of theft or loss.
“A CFP professional who recommends cryptocurrency-related assets must advise
the client that the asset is difficult to value, if that is the case,” the notice states. “There is no commonly accepted valuation methodology for many cryptocurrency-related assets. Therefore, any value attributed to a client’s cryptocurrency-related asset holdings may not be reliable or accurate.”
The board also underscored “particular and significant concerns” with regard to custody of digital assets and said financial advisors must advise clients on security risks. A cryptocurrency exchange “may experience liquidity issues or become insolvent, which could lead to bankruptcy,” the CFP Board said.
Advisors must also adhere to the board’s fiduciary duty requirement, “which provides that a CFP professional must act as a fiduciary, and therefore, act in the best interests of the client, at all times when providing financial advice to a client,” the notice states.
In recent years, some wealth and asset managers have moved to make cryptocurrencies available to clients to invest in. But given this year’s turmoil and longstanding concerns about cryptocurrencies, some advisors may want to steer clear of digital assets altogether. Under the CFP Board’s rules, they are free to do so. “The CFP Board’s code and standards does not require a CFP professional to offer financial advice to a client on every financial asset that is available in the marketplace,” the notice states.
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