CFP Board releases guidelines on cryptocurrency

The Certified Financial Planner Board of Standards Inc. has new guidance for financial advisers on how the organization's code of ethics and standards of conduct apply to cryptocurrency.

Advisers holding the CFP designation aren't prevented from providing financial advice about digital assets, nor are they required to do so. However, the CFP Board urges advisers to approach the asset class, which has struggled in 2022, with caution.

The CFP Board’s codes and standards treat cryptocurrency like any other financial asset but one that presents heightened risks for financial advisers, Leo Rydzewski, the board’s general counsel told InvestmentNews. Advisers must comply with the duty of competence when providing advice on crypto, which may be difficult given the variety of available assets with unique attributes and features.

Information on the assets, such as facts that impact performance or associated costs and fees, may be limited or sometimes not even available to advisers. This would prevent advisers from providing advice on an asset, according to the codes and standards.  

“We made clear that developing competence in this area to fulfill the duty of competence is no small undertaking,” Rydzewski said.

The CFP Board also raised concerns around how advisers can determine if a cryptocurrency fits a client’s risk tolerance and how they can determine an asset’s value.

“There is no commonly accepted valuation methodology for many cryptocurrency-related assets,” the guide states. “Therefore, any value attributed to a client’s cryptocurrency-related asset holdings may not be reliable or accurate.”

There's also a limited ability to monitor the volatile assets, tax-related issues, actively evolving regulations on the assets, and concerns about the custody of cryptocurrency. There is greater risk that the assets will be lost, stolen or improperly transferred, and the assets are not protected by the Federal Deposit Insurance Corp., the National Credit Union Insurance Fund or the Securities Investor Protection Corp., the CFP’s guide states.

“There could be legal developments that may affect the client’s investment in cryptocurrency-related assets,” Rydzewski said.

The guide provides a list of actions advisers must take to satisfy the CFP Board’s duty of care when providing advice on digital assets and additional financial planning considerations they must make.

Though the guidance is better late than never, the board should have been providing guidance to caution advisers before this year’s meltdown in the cryptocurrency markets, according to Jorge Romero, a CFP holder and senior wealth adviser for Ruggie Wealth Management.

Leading assets bitcoin and Ethereum are down more than 70% from their November 2021 peaks, and several “coins” began folding in the spring. FTX, the world’s second-largest cryptocurrency exchange, collapsed in a matter of days in November.

“There is absolutely no way in which any part of crypto passes the Prudent Man Rule under fiduciary standards the CFP Board advocates,” Romero said in an email. “Furthermore, The Board has ample resources at their discretion to commission a report from actual computer science experts from which to derive its own policy views, but rather it seemed to straddle the gray line of ‘we’re not saying you shouldn’t recommend it, but we’re also not saying you can’t.’”