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CFP Board issues new crypto guidelines for financial planners

As the conversation around cryptocurrency grows increasingly complicated, the CFP board is rolling out a new set of guidelines related to the controversial asset class.

On Monday morning, the organization with more than 93,000 CFPs under its purview issued a 14-page notice to professionals regarding financial advice and crypto-related assets. The notice was issued to answer questions about how the CFP Board’s existing code of ethics and standards apply to digital assets.

The answer? Exactly like you expect it to, just with an extra dash of caution for flavor.

“The code and standards (apply) to cryptocurrency related assets in the same way that it applies to all financial assets. However, as regulators and consumer advocates have noted, cryptocurrency-related assets have particular attributes and present significant risks and uncertainties that warrant careful analysis,” said the CFP Board notice. “This includes whether a particular cryptocurrency-related asset is now or in the future may be regulated as a security or a commodity or another type of asset.”

The swing at clarification comes as the implosion of Sam Bankman-Fried’s FTX continues to send shockwaves throughout the industry, causing crypto CEOs to brace for more difficulty ahead. Bloomberg reports that exchanges are at the epicenter of the crisis because trading volumes have fallen sharply as a $2 trillion drop in cryptoassets’ market value drove retail traders away.

Questions about whether or not FTX misused customer funds to prop up Bankman-Fried’s trading house Alameda Research have also led to a loss of faith in centralized marketplaces.

The notice issued by the CFP Board covers topics like satisfying the duty of competence; the fiduciary duty; the duty to provide information to a client; the duty to comply with the law; and duties when selecting, recommending and using technology.

It also addresses considerations that arise under the financial planning practice standards and discusses how they apply to cryptocurrency-related assets.

“CFP professionals continually seek a better understanding of what they should consider when providing financial advice to a client. As part of their CFP certification, they make a commitment to CFP Board to act as a fiduciary when providing financial advice,” CFP Board CEO Kevin R. Keller said in a statement. “Developed with our Standards Resource Commission, this guide on cryptocurrency-related assets is a much-needed addition to our compliance resource library, which is designed to benefit and protect the public by educating CFP professionals on how to put their clients’ best interests first.”

In the fresh guidance, the CFP Board warns that crypto-related assets can be speculative and volatile investments; are difficult to analyze and present challenges to planners looking to make informed investment decisions; may present unique custodial risks that expose investors to heightened risk of theft or loss; and raise valuation issues because they may not be subject to commonly accepted valuation methodologies.

The guidance also states that a CFP professional is not required to provide, nor are they prohibited from providing, financial advice about cryptocurrency-related assets.

After making that clear, what follows should come as no surprise to planners new and old. The notice advises that CFPs must provide financial advice about cryptocurrency with relevant knowledge of those assets and with the skill needed to apply that knowledge to a client’s circumstances.

And in guidance that seems to support the idea of advisors taking the effort to learn more about digital assets, the CFP Board states that crypto comes with certain attributes and features that require “specialized knowledge or expertise to deliver financial advice about investing in them.”

“Given the variety of cryptocurrency-related assets available, the competence required under the duty of competence may depend upon the financial assets that the financial advice concerns and how the financial assets meet the client’s goals and objectives,” said the CFP Board notice. “However, developing competence in this area to fulfill the duty of competence is no small undertaking.”

The CFP Board also points out that the lack of information about cryptocurrency-related assets also presents concerns. The fear is that information that a CFP professional needs to do their job well may be out of reach.

“Furthermore, the information that is available may be limited. In some circumstances, a CFP professional’s inability to obtain material information will prevent the CFP professional from providing the financial advice,” the notice says. In that case, the planner may need to inform the

client of that lack of information prior to providing advice.

The notice also stresses the importance of determining an appropriate exposure limit for a client’s investment in crypto. The CFP Board again warns of speculation and extreme volatility with “significant upward or downward fluctuations in value over short periods of time.”

“A CFP professional may seek to make assumptions about future volatility, but, because cryptocurrency-related assets lack a historical ‘track record,’ this may be difficult,” the notice states.

The custody of cryptocurrency also presents significant concerns, according to the CFP Board. The notice explains that evidence of cryptocurrency ownership may be held with a private key, which is a secure code that takes the form of a long alphanumeric string. If held with a private key, the cryptocurrency owner must store the private key securely, because if the private key

is lost or stolen, then the owner will not be able to access the cryptocurrency.

In addition, a transfer of a cryptocurrency is typically irreversible, including in circumstances where the asset was transferred to the wrong address, the notice says.

The notice ends with a call to action. That being, advisors confronting some potentially difficult conversations head-on in an effort to learn as much as possible about their client’s interest in digital assets if they haven’t already done so.

“A CFP professional should know about and consider a client’s investments in cryptocurrency-related assets that are held away from the CFP professional, as they also may have a significant effect on the financial planning recommendations,” the notice states. “A CFP professional also must consider how cryptocurrency-related assets may require special considerations with respect to estate planning, such as a plan for the transfer of a private key if the client passes away.

“These are only some of the ways that an investment in cryptocurrency-related assets may affect the financial planning recommendations.”

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