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Adviser Workshop: How to inform clients about Bitcoin

Serena van der Meulen and Martin Bamford discuss the explosion of cryptocurrency, and how they handle client enquires about investing in the speculative assets.

Adviser Workshop: How to inform clients about Bitcoin

Serena van der Meulen (pictured above) and Martin Bamford discuss the explosion of cryptocurrency.

Serena van der Meulen

Director, Van der Meulen Associates

I would not advise on Bitcoin or other cryptocurrencies at this stage because of recent high-risk warnings from the Financial Conduct Authority (FCA) and the European Securities and Markets Authority. If it became regulated I would require training, an explanation of the processes from compliance, and then a full research process before I would consider advising.

Reach out to researchers

I outsource compliance and research, which costs a lot. But any adviser thinking they can do their own research is playing a dangerous game. We are advisers, not researchers.

By being independent, you must consider everything. If the FCA said Bitcoin is now like venture capital trusts and you should be considering it, I would find a research house that provides information to be able to advise on it.

Brush up on the subject

If there was an exam on Bitcoin, I would take the qualification. I would not advise on something I am not qualified on.

I would talk the client through the process of checks so they know where I stand. But I would not want to express an opinion until I had spoken to compliance to get the FCA’s stance on it.

So far, none of my clients have asked about Bitcoin. It could say something about its nature as an investment. Some clients, who are advisers themselves, have not mentioned it as an option.

Top tip: Only give a view after thorough compliance checks.

Martin Bamford

Managing director, Informed Choice

Enquiries about Bitcoin have picked up over the past few months. You know something has hit the mainstream when you start getting new client enquiries saying, ‘Can you help me?’

Inform and explain

First, we explain what it is. People see the name but may not understand the mechanics, its origins or what is driving that price increase.

Then we would give our opinion on it: it is not a currency, commodity or investment.

What differentiates it from an investment is speculations of price increases. That speculation, along with supply and demand, is what is driving the price up.

Its original purpose was as a currency. But it has become ineffective because of high trading costs and price fluctuations.

Proceed with caution

My biggest bugbear is its origins and use on the dark web. A study said 55% of transactions using Bitcoin are in respect of illegal activities such as drugs and arms.

We had a client say his daughter had invested in Bitcoin and he wanted to do the same. If it means they are taking a proportion of their portfolio and risking that on Bitcoin or other cryptos, then it is almost irresponsible of us to not give an opinion and strong warning. We make the distinction that it is not advice covered by regulation. But clients expect us to have opinions on many things that affect their financial lives.

Top tip: Be ready with an opinion even if you cannot advise on cryptocurrencies.

What Twitter thinks

Alan Smith

Chief executive, Capital Asset Management

Despite the impact of underlying block chain technology, guessing which cryptocurrencies will succeed is not worthwhile.

Steve Buttercase

Principal, Verve Investment Planning

Just avoid. Essentially this is really just an emerging technological development in banking and so little more than gambling... for now.

Paul Resnik

Director, FinaMetrica

It is unlikely to be an informed decision. There’s no consensus on valuation other than it being a function of confidence of supply and uncertain demand.

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