He built the biggest independent advisory firm in the nation, selling wealth management advice through fiduciary planners and making deals to oversee the most retirement plans in the country. Now Ric Edelman, who calls himself “the most highly acclaimed financial advisor” in America, wants to be the face of cryptocurrencies for Main Street and affluent investors.
Since stepping aside from his $270 billion namesake firm last month, Edelman has plunged headfirst into the white-hot fray of bitcoin advocates. His big idea for life after Edelman Financial Engines: positioning himself as the link between the Wild West of crypto and the more staid world of fiduciary advisors, who act in their clients’ best interest.
“My leadership in the financial services field, coupled with my deep knowledge of the digital assets sector, allows me to serve as a bridge,” he declares. ”There’s a lot of opportunity there.”
But will advisors buy it?
Three years ago, only 1.4% of advisors owned or recommended cryptocurrency to their clients, according to the Financial Planning Association (FPA), which started tracking the issue in 2018. The share dropped to below 1% in 2019 and 2020. While the percentage shot up to 14% this year, as Bitcoin spiked to a record high of more than $63,000 in April, that still means six out of seven advisors aren’t cryptocurrency fans.
The ‘Coke’ and ‘Pepsi’ of crypto
Notoriously volatile in price and associated with criminal entities like Silk Road and the hackers who recently interrupted a big gas pipeline on the East Coast, Bitcoin languished for nearly a decade before spiking in 2018, then crashing back down. It now trades at around $40,000. In 2010, an early adopter known as the “Bitcoin Pizza Guy” used 10,000 coins to pay for two Papa John’s pizzas in Florida, a then-$40 transaction that at the currency’s April height means he paid $3.8 billion for the pies. The IRS taxes digital currencies like a stock.
Like online advisor Betterment, Edelman thinks most ordinary investors should put 1% of their investment portfolio into Bitcoin or Ethereum, which he recently dubbed the Coca-Cola and Pepsi of crypto.
Some industry players wonder if he’s drunk the crypto Kool-Aid.
“If you only have enough conviction behind digital assets to make them 1% of your portfolio, why bother?” asks Matthew Crow, a CFA and the president of Mercer Capital, a valuation and advisory firm focused on financial companies including registered independent advisors (RIAs).
Wall Street slowly gets on board
Cryptocurrencies were originally intended to be a substitute for the U.S. dollar and other hard currencies. Many institutional investors, including hedge funds, family offices, giant asset manager BlackRock and BNY Mellon, have dipped their toes in. Fidelity says 63% of institutional investors will own or place digital assets in client portfolios by 2026. Companies including Tesla have billions of dollars of bitcoin on their balance sheets, which means that anyone who owns an S&P 500 index fund is already invested in the digital currency. The bitcoin market is worth $1.5 trillion, according to one estimate.
The retail side has been more cautious. But Edelman’s crypto passion has emerged amid signs of a thaw.
Wall Street banks and brokerages have danced around the idea of digital assets not as money but as an investment for ordinary investors. In 2017, JPMorgan Chase Chairman Jamie Dimon called bitcoin a “fraud” that’s “worse than tulip bulbs.” But earlier this month, his bank said it would give its wealth management clients access to five bitcoin and ethereum investment funds. In May, Goldman Sachs said that while bitcoin has sometimes delivered spectacular returns, its “short and volatile history makes it too soon to conclude how much value it adds to a balanced portfolio.”
The Securities and Exchange Commission (SEC)’s primary mission is to protect investors of all stripes. Sitting on a dozen or so applications from institutions including Fidelity and Goldman Sachs, the regulator has yet to approve a bitcoin ETF, the holy grail of investments for ordinary investors who want to get in on the action.
“The irony of this is that in the SEC’s refusal to say OK to a bitcoin ETF, it has forced advisors to tell clients, ‘we can’t help you,’ which sends clients to random places,” Edelman says. Cryptocurrencies trade on a profusion of largely-unregulated exchanges around the globe.
“With each passing day, the rationale that we have used in the past for not approving seems to grow weaker,” former SEC Chairman Hester Peirce told CNBC on July 2. But her successor, Gary Gensler, told Congressional lawmakers earlier this month that he’s worried about fraud.
Edelman says he thinks approval of an ETF could come as soon as the first three months of 2022. If so, says Skip Schweiss, a CFP and the president of the FPA, “I wouldn’t be at all surprised to see retail investors piling in willy-nilly, because of all the hype.”
A plan to win advisors’ hearts and minds
Edelman’s Trojan horse plan to get famously averse independent advisors on board the crypto train centers on cultivating ties with credentialing and trade groups, including the CFP Board, Investment Adviser Association and NAPFA, and with networks of planners who cater to Generation X and younger clients, like XY Planning Network. With Edelman Financial Engines ranked Barron’s top advisor for the last three years, he’s betting on his clout.
He also plans to push his council to develop relationships with the regulators and legislators, which could push him into K Street lobbying territory. The top goal: to nudge a skeptical SEC to approve for retail investors the first exchange-traded fund (ETF) dedicated to crypto.
“I implore the SEC to act,” he says. “It would go to great lengths to increase consumer protection.”
His strategy also includes a flood of webinars, virtual conferences and video interviews with digital currency asset managers, like Grayscale Investments (the world’s largest bitcoin fund manager had $46 billion in crypto holdings last April) and SkyBridge Capital, one of around a dozen firms (including Fidelity Investments and Goldman Sachs), that have applied to the SEC to launch a Bitcoin ETF. In May, his organization began offering a new credential for advisors, an online Certificate in Blockchain and Digital Assets.
CFPs “need to educate themselves on this asset class first so they can educate their clients about the opportunities and risks,” says John Pappas, a spokesman for the CFP Board.
The Digital Assets Council of Financial Professionals, a marketing, educational and events firm Edelman co-founded three years ago, says it’s providing “educational content” to the Board’s nearly 90,000 CFPs.
With digital assets, “investors are asking questions” and advisors “are in a posture of learning,” says Karen Barr, the president and CEO of the Investment Adviser Association, a trade group and lobby. She says around 250 advisors signed up for a recent council-produced crypto webinar that her association held.
Edelman says he began investing in bitcoin in 2014, though he won’t disclose his holdings. His new venture could earn him a hefty income stream.
But his shift from selling fiduciary advice, in which planners act in the best interests of their clients and avoid excessive risk taking, to embracing bitcoin and ethereum as mainstream investments, strikes some industry players as odd.
“It seems peculiar for a figure known in the mass-affluent investing market like Ric Edelman to be putting energy into digital assets,” says Crow.
Earlier this month, Bank of America (the parent of Merrill Lynch, the largest brokerage), said it had set up a new to team to research cryptocurrencies. (In 2018, the bank banned its wealth managers from offering digital currencies to clients.)
“We have gotten many inquiries from Merrill representatives about digital assets and our certification program,” Edelman asserts. “There is clearly growing desire among Merrill advisors for education about this new asset class.”
A Merrill Lynch spokeswoman says, “nothing to share at this time.”
‘Why do something different’?
Edelman says most advisors have been reluctant to embrace bitcoin because they’re older and resistant to change.
“They’ve been in the field for 10 to 30 years,” he says. “They have a solid practice with lots of clients with hundreds of million and billions of dollars, so why do something different?”
CFP Board data shows that nearly one in two advisors, or 48%, are over age 50.
Andrew Hambleton, an associate advisor at Telemus Capital, a $3 billion RIA in Chicago for high net worth investors, argues that “legacy advisors don’t understand or don’t like the product. They say ‘it’s too volatile.’ But the bigger reason is they’re not educated in how it works.”
Which means that for advisors, cryptocurrencies may be the new digital divide.
“Some clients were very enthusiastic” about bitcoin when it spiked earlier this year, says Raul Elizalde, the founder and chief investment officer of fee-only Path Financial, in Sarasota, Florida. “They are very glad that I discouraged them from buying at $50,000.” He adds that while “things might change” in the next few years, “so far the investment argument is as weak as the economic argument.”