Tuesday, March 5, 2024



Interest in crypto continues to remain strong among financial advisors, with 73% currently investing in digital assets, according to a recent Fidelity Digital Assets survey of institutional investors. But when offering digital assets such as crypto and NFTs to their clients, advisors are faced with an important question: how will I manage those assets?

Generally, there are two approaches: do it yourself (DIY), or using a Separately Managed Account (SMA), where a third-party manager takes charge of those assets. There’s lots to consider when choosing between the two. Here’s a rundown of the risks and benefits that go along with using an SMA:

1. Expertise and Professional Management

One potential advantage of using an SMA is gaining access to the knowledge base and execution capabilities of a specialized asset manager. From market trends and technological advancements to identifying investment opportunities, these professionals understand the intricacies of digital assets. They also possess the means to act swiftly upon the market intelligence. SMAs also provide advisors with valuable time savings, letting them put a greater focus on client relationships and personalized advice.

Advisors conducting their own research, trading and administrative tasks for digital assets may find it challenging to balance those workstreams with their core duties.

2. Diversification and Risk Management

Market volatility is common for emerging assets like crypto. To offset the associated price swings and unpredictability, asset managers adopt diversified strategies by spreading assets across various currencies and sectors, deploying various investment approaches. This diversification may help curb risk and minimize the impact of market fluctuations, subsequently bolstering portfolio stability.

Advisors who manage their clients’ digital assets independently must consider developing their own risk management models and diversified portfolio strategies, tasks that can be difficult and time-consuming.

3. Access to Advanced Tools and Technology

Asset managers operating SMAs typically use cutting-edge tools, analytics platforms, and trading technologies to perform their daily job functions more efficiently and accurately. These resources, in turn, provide advisors with comprehensive market data, advanced risk management tools, and efficient execution capabilities. Leveraging such tools leads to better decision-making, improved portfolio performance, and enhanced risk management. Although effective, they can be expensive and require a significant allocation of resources for advisors to onboard and manage these systems by themselves.

4. Cost

One potential downside to utilizing an SMA is the added cost. With margins shrinking in an increasingly competitive environment, any additional fees can significantly impact an advisor’s bottom line and book. The value asset managers provide in terms of expertise, risk management and time savings needs to justify the fee. Working with a seasoned asset manager that can drive improved portfolio performance to offset these fees is highly valuable.

5. Control

Another factor to be mindful of when working with an asset manager is the type of control they will require over investment decisions and strategies. Advisors must carefully select asset managers aligned with client goals and investment philosophies. And clients should understand that the performance of their portfolio isn’t dependent on others’ strategies. Establishing strong partnerships and communication channels with asset managers is necessary to help address any concerns.

6. Regulatory and Compliance

The digital asset space is subject to evolving regulatory frameworks and compliance requirements. Using an SMA adds another layer of complexity to navigating these regulations, as advisors must ensure the asset manager operates within legal boundaries and meets all regulatory and compliance obligations. Staying informed and conducting thorough due diligence on the asset manager’s compliance procedures are essential to mitigating these challenges.

In Sum

Leveraging an SMA for managing clients’ assets in the digital asset space presents both advantages and disadvantages for financial advisors. Potential benefits include expertise, efficiency, diversification, and access to advanced tools. However, advisors must also consider the associated costs, investment control and regulatory challenges when evaluating the suitability of an SMA for their clients vs. a DIY approach. Ultimately, a well-informed decision based on the unique circumstances and requirements of each advisor and their clients is key to launching a successful digital asset offering.

Edited by Pete Pachal.



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