Digital Asset Investing:

Financial Advisors Strive to Meet Client Needs

Q4 2022
Prepared for Talos by Coalition Greenwich
Copyright 2022
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92% of FAs have received a client inquiry on digital assets in the last 12 months
01.
Executive Summary
One can only describe the recent market volatility and business failures in digital assets as troubling. Despite the volatility happening in the midst of our research fielding process, however, Coalition Greenwich sees sustained or increasing interest in this asset class among investors served by financial advisors (FAs) in the United States.
55% of FAs see either increasing or sustained client interest in investing in digital assets.
In an effort to identify the perspectives and preferences for digital assets among FAs, we conducted an independent study on behalf of Talos, gathering responses from 537 FAs in the U.S. serving high-net-worth (HNW) and mass affluent (MA) clients. Our study reflects the insights from an array of FAs, comprising independent, bank/wirehouse, retail, institutional, and insurance firms.
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Even with the market corrections in August, interest in digital assets remained robust and sustained. Ninety-two percent of FAs have received a client inquiry on digital assets in the last 12 months, with 55% of FAs also seeing either increasing or sustained client interest in investing in digital assets versus last year. Interestingly, end clients appear to see this asset class meeting a need in their portfolios, whether for diversification, outsized returns, or even just experimentation offering exposure to next-generation technologies.

In response, FAs have been mastering investment approaches and identifying products to meet this demand. Thirty percent have recommended or will recommend a specific investment product to clients for exposure to digital assets in the next three months.
At the same time, some FAs simply don't believe they have their own firm’s backing to develop investment strategies for digital assets. Compliance, even beyond risk, is the biggest blocker of digital asset investment strategies to date. However, other knowledge and technology platform gaps persist, which will need to be overcome even if compliance gives the green light to FAs in the future.

While exchange-traded funds (ETFs) and trust products are popular approaches (and FAs will clearly want more registered and compliant products), FAs also want to be able to access the original form of digital assets— cryptocurrencies — in client portfolios as well. Moreover, they would prefer to manage these assets alongside other assets in the same systems. Because the crypto market is unique in terms of data and portfolio systems to date, this will be a difficult challenge. However, it is logical for advisors to seek the same systems to support clients without introducing additional complexity, so that digital assets can be truly ingrained into the FA-client experience.
02.
Methodology
Coalition Greenwich gathered responses from 537 financial advisors in the United States during August 2022. Of those, 42% serve high-net worth (HNW) clients, 27% serve mass affluent (MA) clients, and 31% employ a hybrid client approach. Ensuring a balanced response, the study reached FAs at various types of firms, including independent, bank/wirehouse, retail, institutional, and insurance firms.
Q1: What is your primary client focus?
Financial Advisor
(FA) Client Focus
(537)
42%
31%
27%
Q2: What segment of Financial Advising do you work in?
Financial Advisor
(FA) Segment
(537)
20%
21%
17%
16%
26%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Mass Affluent
High-Net-Worth
Hybrid
Independent
Bank/Wirehouse
Retail
Institutional
Insurance
03.
Introduction
With digital assets here to stay, financial advisors are experiencing pressure to have a solution for this asset class in client portfolios. While for some FAs simply having a product to recommend or basic investment advice may be sufficient, others are seeking true investment strategies and seamless ways to implement and advise clients (and collect fees) on these strategies.
Firms like Fidelity are working on making digital assets available in retirement accounts, and there are solutions for exposure to digital assets in individual retirement accounts (IRAs). But for many advisors, there is no solution to meet ongoing and persistent demand among U.S. clients. Reluctant to recommend products away from the advisor or with competing asset management firms, FAs are seeking digital assets products and platforms that meet their needs in a compliant fashion.
In an effort to identify the perspectives and preferences for digital assets  among FAs in the U.S., including investment strategies, products, platforms, and technologies directed to them as well as their end clients, Coalition Greenwich conducted an independent study on behalf of Talos.
04.
Digital Asset Investment Strategies for Clients
FA consideration of digital assets is on the rise and being driven by inbound client interest in investment opportunities in this asset class, despite persistent volatility.
92% of FAs have received a client inquiry on digital assets in the last 12 months.
Have Received a Client Inquiry on Digital Assets in the Last 12 Months
(By Client Segment Served)
Total
(535)
90%
10%
Mass Affluent
(145)
90%
10%
High-Net-Worth
(224)
92%
8%
Hybrid
(116)
93%
7%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Yes
No
While some U.S. investors shun this asset class, others see potential but are less sure about being self-directed, particularly with some of the high-profile collapses, hacks, and issues with this sector. This is a feature of the entire FA community, with no FA immune to this demand, whether they focus on HNW, mass affluent, or hybrid clients.
Moreover, that interest is strong and steady. Despite our research being conducted around some volatile market conditions, 35% of FAs say client interest in digital asset investing is increasing, and 55% see either sustained or increasing interest, which is once again consistent across client segments.
Change in Client Interest in Digital Assets Compared to Last Year
Total
(526)
9%
26%
20%
28%
18%
Mass Affluent
(142)
9%
20%
23%
27%
20%
High-Net-Worth
(221)
7%
26%
18%
29%
20%
Hybrid
(163)
10%
31%
19%
28%
12%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
5: Increased a lot
4: Increased somewhat
3: Stayed the same
2: Decreased somewhat
1 : Decreased a lot
The HNW segment, which naturally has the most assets and is likely seeking greater diversification strategies amid high inflation conditions, is the most targeted segment and the most likely to see the greatest increase in focused recommendations.
It should be noted that some FAs may be providing help without formal guidance, due to limitations by their own firms as well as potential compliance considerations. Thus, we see many FAs seeking to thread the needle of client demand, while lacking formal guidance and solutions from their firms.
Despite limitation in products and platforms, 30% of FAs have recommended a digital asset investment product for clients in the last 12 months or will do so in the next three months.
Have Recommended a Specific Digital Asset Investment Product
(By Client Segment Served)
Total
(535)
70%
8%
22%
8%
Mass Affluent
(145)
5%
18%
77%
10%
High-Net-Worth
(224)
66%
10%
24%
8%
Hybrid
(166)
8%
23%
69%
7%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Yes
No, but I will in the next 1-3 months
No
In terms of products, FAs naturally seek exposure for clients in better understood products and without exposing clients to unnecessary risks. They are also likely to prefer products with data sources and reporting that can be combined with existing data and tools supporting the advisor. Not surprisingly, ETFs are by far the most likely product to be understood and recommended (and regulated)..
These can include products such as Charles Schwab’s crypto-thematic ETF or VanEck’s Bitcoin futures ETF, for example.

OTC trust products, such as the Grayscale Trust products, and other investment funds (e.g., NYDIG’s private funds, Fidelity’s Bitcoin and Ethereum funds, or Bitwise’s crypto index funds) are also popular approaches.
Top Recommended Digital Asset Investment Products
75%
64%
71%
62%
Exchange Traded Fund
38%
29%
38%
OTC Trust
28%
29%
28%
Investment Fund
17%
6%
16%
Direct Investment by Client
12%
21%
8%
Other Exchange-Traded Products
12%
9%
13%
Separately Managed Account
7%
3%
8%
Private Fund
7%
6%
8%
Crypto Options
6%
3%
7%
Future Products
5%
3%
4%
Other Pooled Investment
4%
3%
5%
Other Bespoke Products
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Total (448)
Mass Affluent (136)
High-Net-Worth (202)
Creating investment strategies can be more of a challenge for FAs than simply recommending products, as most FAs do not have the capabilities or firm support to do so.
To create a strategy is a much heavier lift and only done by 8% of FAs currently. This is expected to more than double in the next 12 months, however, with growth in HNW and hybrid segments.
Have Created an Investment Strategy Involving Digital Assets for a Client
Total
(535)
81%
11%
8%
8%
Mass Affluent
(145)
8%
6%
86%
10%
High-Net-Worth
(224)
79%
12%
9%
8%
Hybrid
(166)
12%
8%
80%
7%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Yes
No, but I will in the next 1-3 months
No
FAs simply don’t have firm backing to develop investment strategies for digital assets.

Compliance, even beyond risk, is the biggest blocker of digital asset investment strategies.
However, some knowledge and platform gaps are also present in the market that will need to be overcome even if compliance gives the green light. Firms may begin to offer in-house products and platforms at a later date, but for the most part, advisors are swimming upstream against compliance.
Reasons for Not Yet Creating an Investment Strategy Involving Digital Assets
64%
63%
66%
70%
Compliance restrictions make it really hard / impossible
42%
44%
44%
I think digital assets are just too risky
36%
38%
37%
I am not knowledgeable enough about digital assets to recommend them
23%
16%
27%
I don't have access to the digital asset platform I need
18%
18%
21%
I don't have access to the digital asset platform I want
8%
8%
6%
Client has their needs met elsewhere
6%
7%
5%
Others
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Total (448)
Mass Affluent (136)
High-Net-Worth (202)
05.
Digital Assets - Platforms for Advisors
To serve clients in digital assets and offer true investment strategies and portfolio management, a platform is required. A platform in crypto would offer FAs the ability to serve their client’s portfolio needs in digital assets through compliant investment products, trading, and risk management in an overall secure environment.

If such a platform were available, 25% of advisors would implement a strategy for their clients, with FAs serving HNW investors being the most likely to do so.
Would Implement a Digital Asset Investment Strategy if Given Access to a Crypto Trading Platform
Total
(535)
51%
24%
25%
8%
Mass Affluent
(137)
31%
16%
53%
10%
High-Net-Worth
(208)
49%
27%
24%
8%
Hybrid
(160)
14%
34%
52%
7%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
No
Yes
Maybe
In terms of the platform features that are needed to serve clients, FAs have a number of demands. Topping the list is the need for compliance—in terms of the platform itself, as well as any investment products offered, including any available SEC-registered products (of which there are very few at present).
Not surprisingly, trading, security, and risk management - all basic features of any platform for equities - are also valued features.
Most Important Features of a Digital Assets Platform
69%
68%
67%
73%
75%
Compliance approval of the investment products
62%
61%
63%
62%
Compliance approval of the platform itself
58%
56%
56%
62%
Availability of SEC-registered digital asset investment products
55%
47%
55%
61%
Availability of digital asset trading
48%
43%
48%
54%
Cybersecurity of the platform
46%
38%
48%
51%
Risk management attributes
41%
36%
43%
43%
Availability of digital asset investment products
36%
30%
36%
39%
Liquidity providers supporting trading on the platform
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Total (500)
Mass Affluent (132)
High-Net-Worth (211)
Hybrid (157)
Things get interesting when looking at asset types. While FAs clearly want registered and compliant digital asset products like ETFs, they also want access to the original form of digital assets—cryptocurrencies.
These are the assets that have grabbed the attention of investors across the globe and represent the biggest proportion of the available market capitalization of the digital asset class. Other assets are far less important by comparison.
Specific Asset Types Desired on a Digital Asset Platform
85%
86%
84%
87%
90%
Crypto-currencies
75%
77%
73%
76%
Bitcoin ETFs
41%
44%
41%
40%
Other digital asset ETFs
29%
29%
31%
27%
Stablecoins
26%
25%
23%
30%
Alternative coins or 'ALT' coins
19%
12%
21%
23%
Crypto options
17%
12%
16%
21%
Digital asset securities
13%
4%
13%
19%
Crypto futures
2%
3%
2%
1%
Other
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
Total (458)
Mass Affluent (117)
High-Net-Worth (195)
Hybrid (146)
06.
Digital Assets - Portfolios and Systems
A major consideration for financial advisors as they offer digital asset solutions is how they manage those assets along with the other assets they manage on behalf of clients. A very strong majority of FAs say that they would prefer to manage these assets alongside other assets in the same systems.

Because the crypto market is really standalone in terms of data and portfolio systems, this will be a difficult challenge. However, it is logical for advisors to seek the same systems to support clients without introducing additional complexity, so that digital assets are truly ingrained into the advisor-client experience.
Importance of Managing Digital Assets in the Same Systems as Other Client Assets
Total
(515)
40%
28%
21%
6%
6%
Mass Affluent
(139)
45%
22%
21%
4%
9%
High-Net-Worth
(217)
41%
25%
19%
8%
6%
Hybrid
(160)
33%
37%
23%
4%
4%
Note: Numbers in parentheses represent number of respondents
Source: Coalition Greenwich 2022 Financial Advisor Digital Assets Study
Key:
5: Very Important
4: Important
3: Neutral
2: Less Important
1: Not Very Important
07.
Conclusion
Overall, despite market volatility, interest in digital assets from end clients is strong and sustained. Financial advisors, naturally, are seeking to offer their clients solutions to meet this demand for portfolio diversification from a range of possible options – and at the risk of clients simply handling those investments on their own (which they often do), away from the FA and their firm.

The array of available products to do so is limited, although some FAs do have access to products from a mix of well-known firms and lesser-known ones. However, compliance around offering these products or simply offering advice is major issue for FAs, who face challenges as they seek to meet client demand.
FAs and their firms will need to confront the challenge of compliance and will also need to observe how digital asset regulation evolves in 2023 and beyond. There are firms lining up to offer spot ETFs, registered exchanges/Alternative Trading Systems (ATSs), data and analytics, and trading solutions for FAs. But legal and compliance departments, along with senior executives, need to be on board with this journey too.

Moreover, the tools to do research, select investments, manage those investments in client portfolios, and handle reporting are not yet available to FAs. It may also be hard to integrate these tools into existing systems without careful planning and participation from other third-party vendors and the FAs own technology and operations departments.
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