Ask Ric – Thank You2022-05-05T15:28:22-04:00

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Do I run into regulatory compliance issues (SEC or State) running a newspaper ad; if bitcoin is specifically listed along with stocks, bonds, etc. as an investable asset available?
Jim Krebec, CFP®, President, CIC Investment Consultants | Ric Responded December 30, 2021
2021-12-30T16:07:15-05:00

If you’re simply listing asset classes such as stocks and bonds, I see no issue with also mentioning digital assets (I wouldn’t mention bitcoin specifically) – just as I’d see no issue with mentioning other asset classes, such as real estate or gold. I’d have my compliance department approve any ad before using it, to make sure the proper disclosures are present; you want to be clear if you’re offering an asset or a security investing in that asset (a REIT vs real estate, or gold ETF vs gold, or GBTC vs bitcoin). And be sure you’re not violating your firm’s “selling away” rules.

Do you have an opinion on the impact of future approvals of Bitcoin ETF’s impact on GBTC, BITW, OBTC , etc.?
Lars Larsen, ChFC®, President, Heritage Financial North | Ric responded December 30, 2021
2021-12-30T11:17:25-05:00

OTC products will likely be of little interest to investors after ETFs become available. That’s why all the OTC sponsors have committed to converting their OTC securities to ETFs. Makes sense. And that offers investors an arbitrage play: GBTC, for example, is trading at a discount. If it converts to an ETF, theoretically that discount would vanish – giving GBTC owners a nice little bump! Of course, this depends on the conversion occurring.

I have several clients that would like to gift BTC to their donor advised fund. Fidelity Charitable is where most client DAF’s are held. Fidelity is fine accepting BTC but requires a third party appraisal that costs around $600. This is crazy to me for asset that is liquid 24/7. I know it’s treated as property. Do you know away around this or do you have a recommendation for an organization that can do the appraisal for a reasonable fee?
Trey Barnes, Sr. Wealth Advisor, Mariner Wealth Advisors | Ric Responded December 16, 2021
2021-12-16T20:02:15-05:00

The appraisal is required by the IRS, not Fidelity. This is true for any charitable donation of non-cash, non-securities of $5,000 or more. Fidelity gives you a confirmation showing the date they receive your crypto and the selling price, but the IRS won’t accept that as a legal appraisal. You have to hire an appraiser, and Fidelity can refer you to such folks (and look at our Yellow Pages for a list of appraisers – we’re adding to this list often.) Yes, an annoying aspect of making donations of crypto. I think you can get it done for less than $600.

I’ve had a hard time adding a beneficiary to my digital assets account at Coinbase. Their customer service messaging app is not easy to navigate, and I can’t get anyone in customer service to answer the phone. I know I can move the assets to a different platform. Who offers the best customer service? I’m also considering a cold wallet. Any suggestions?
Timothy Reid Bolinger, Financial Advisor, Fisher Wealth Management | Ric Responded November 18, 2021
2021-11-18T13:45:10-05:00

I’m not aware that you can name a beneficiary to accounts at Coinbase. This is not uncommon, as many institutions don’t allow you to name beneficiaries on taxable accounts. Traditionally, beneficiary designations are set for retirement accounts, wills & trusts, and annuities. So, if your financial institution doesn’t allow you to name a beneficiary on the account, you’ll have to do so in your will or trust (and make sure the relevant document references or applies to the account).

Many digital asset exchanges do not permit trust registrations, or even joint registrations with spouses; they often permit only registrations featuring the name of a sole individual. This is archaic, reflecting the fact that they are not aware of, or don’t care about, the estate planning and tax planning aspects of asset ownership. This will improve over time as they mature – and as they continue to engage with the financial services industry. For now, it remains cumbersome at many exchanges. No one in the field is winning any awards for customer service yet. Soon, though, as competition grows, pricing and service will improve. The analogy: when Model T cars first got produced, there weren’t any paved roads. Just dirt trails created by horses pulling buggies. Over time, those trails were paved, and later, highways built. Service, performance and reliability all improved exponentially. In crypto, we’re still in the horse-and-buggy days. It’s a hassle, but you’re being rewarded by having profit potential that future participants might not enjoy.

Your notion of using a cold wallet won’t help you, by the way. There’s no registration at all with such a device, let alone opportunity to name a beneficiary. If you put your digital assets onto a flash drive, make sure your heir knows where you store it and how to access it.

What would you do to get in front of this seismic shift of DeFi/Blockchain?
Alex Smith, Managing Director, Individual IRA | Ric responded November 17, 2021
2021-11-18T13:53:03-05:00

For sure, our Certificate in Blockchain and Digital Assets program is a great way to start. Beyond that, read as much as you can and attend as many events as you can. We list great news services at the DACFP Yellow Pages. And when you become fully immersed and are ready to devote full-time effort to this career-wise, the crypto community will welcome you!

Would you please enumerate what would be the likely investment options for a typical RIA client brokerage account?
James Pazderak, President, Covenant Wealth Advisors | Ric responded, November 18, 2021
2021-11-18T13:42:11-05:00

That’s a big question. We cover it in detail in our DACFP Certificate in Blockchain and Digital Assets program – and we’re creating a new 1-hour presentation to address this specifically. Visit our Events page to register for our upcoming webinars and to watch replays of our past events. Also, you can find all the offerings at the DACFP Yellow Pages – it’s a great place to start your due diligence efforts

How can I find a digital asset savvy estate planning attorney for my clients who own and want to pass on their digital assets?
Cody Murray, Financial Planner, Bivin & Associates | Ric responded, November 9, 2021
2021-11-09T13:03:04-05:00

We offer a list of estate planning attorneys with expertise in digital assets in our Yellow Pages directory.

Are you finding that RIA’s that offer digital assets to their clients are investing directly in Coins (Bitcoin/Ethereum etc.) using institutional accounts with Gemini/Coinbase, etc., through assets like Grayscale Bitcoin Trust hedge funds or some other way?
Michael Eastham, President, Fellowship Financial Group | Ric responded, October 19, 2021
2021-11-01T17:54:39-04:00

It’s all over the map. RIAs are a diverse group of professionals – and as a result, their approaches to digital assets vary greatly. Thus, every company offering access to the marketplace is gaining assets.

Don’t worry about what others are doing. Explore each option that’s available. Then, using your knowledge about your clients and your practice, you’ll be able to choose the approach that’s best for you and each client.

What about using a self-directed Roth IRA?
H. William Wolfson, Wolfson Financial Advisors| Ric responded, October 19, 2021
2021-11-01T17:53:21-04:00

Great idea! If gains occur as many project, placing those gains into a tax-free account is a great idea. Several firms, including Choice by Kingdom Trust, allow you to buy digital assets in IRAs and Roth IRAs.

Is there an ability to place good-til-cancelled, stop or stop-limit orders?
Zachary Hoyer, CIO, Financial Services | Ric responded, October 19, 2021
2021-11-01T17:52:32-04:00

With many exchanges, yes.

Is direct asset investing available for non-qualified advisor managed accounts?
Daniel Hart, RIA, APS Management Group, Inc | Ric responded, October 19, 2021
2021-11-01T17:51:50-04:00

Yes. Several firms facilitate this.

How do SEPs and Solo Ks work?
Ted Krammer, Principal, Krammer Financial | Ric responded, October 19, 2021
2021-11-01T17:51:01-04:00

Same as IRAs. The paperwork is mildly different but no big deal.

Would a U.S. based CBDC be built on a public blockchain?
Karen Flynn, Retired, RIA | Ric responded, October 19, 2021
2021-11-18T15:28:53-05:00

I have certainly felt that this is a given. However, Sunayna Tuteja, Chief Innovation Officer at the Federal Reserve, said at October’s DACFP VISION conference that use of a blockchain to create and operation a US CBDC is not a given. Other technology, she speculated, could be used, although she did not elaborate. My bet is still on DLT.

Can you create Roth IRAs for minors? Seems a tremendous long term growth opportunity.
Ryan Peterson, President, Copperleaf Capital| Ric responded, October 19, 2021
2021-11-01T17:49:00-04:00

Sure, provided they have an earned income. I often joke with clients that they should have their babies become models, appearing in ads for baby food and kids’ clothing. Let them earn an income so they can place it into a Roth IRA! Teenagers mowing lawns and babysitting can also open Roth IRAs. Mom and Dad can hire the kids to do chores. Allowances are not eligible for IRA contributions, but income is!

Do crypto custodians hold digital assets in Omnibus accounts?
Leon Osborne, Due Diligence Consultant, MML Investor Services, | Ric responded, October 19, 2021
2021-11-01T17:48:21-04:00

Those serving financial advisors do.

Does it make a difference whether the custody remains online or hardware (offline)?
Michael Eastham Advisor | Ric responded, October 19, 2021
2021-11-01T17:42:12-04:00

Yes. Offline is safer (you can’t hack a filing cabinet) but doesn’t allow for instant trading. Online is convenient but exposes you to hacker risk.

Can a central bank digital currency and a private digital currency coexist in the U.S. political system?
Richard Turgeon, CIO, Wellspring Financial Advisors | Ric responded, October 19, 2021
2021-11-01T17:40:50-04:00

Sure. And many think that’s exactly what will happen.

With the advent of a futures ETF, it would seem a spot ETF is not too far out. What would be a reasonable timeframe on expected ETF?
Peter Sullivan, Associate Wealth Manager, Thompson Wealth Management | Ric responded, October 19, 2021
2021-11-01T17:39:57-04:00

I expect the SEC to approve a bitcoin ETF within 18 months. And I’ve been saying that for 7 years.

Please comment on stablecoins and their theoretical value. Their actual holdings seem to be very murky at best. The lack of Liquidity would likely to be an issue in another global economic event.
Thomas Yorke, Managing Director, Oceanic Capital Management | Ric responded, November 1, 2021
2021-11-01T17:36:41-04:00

I have no idea what their theoretical value is. I only know their real prices.

Does rebalancing within digital assets change much if wash sale rule becomes applicable due to potential new law/rule?
Phyllis Chapman, Portfolio Manager | Ric responded, November 1, 2021
2021-11-18T15:30:52-05:00

The wash sale rule applies to securities. Bitcoin is not a security; therefore, the wash sale rule does not apply to it. But other coins are considered to be securities, so the wash sale rule does apply to them. Also, OTC trusts, such as GBTC, BITW and OBTC, are securities and thus fall under the rule.

But all this is likely to be moot. The new tax bill has a provision that applies the wash sale rule to everything, whether they are securities or not.

What is the best way to educate the masses on bitcoin and digital assets?
Marcel Lewinson, Financial Professional | Ric responded, November 1, 2021
2021-11-01T17:34:50-04:00

Give them a copy of new book, The Truth About Crypto, which is being released in May. You can preorder now, and if you’d like to order bulk copies at a discount, give us a shout.

What correlation do you find between the overall equity markets and the price of BTC?
Mindy Laprel, CFP | Ric responded, November 1, 2021
2021-11-01T17:33:15-04:00

Zero. That’s a beauty of buying bitcoin – it helps with portfolio diversification, ala Markowitz and the Efficient Frontier.

Do “wash sale” regulations apply to digital assets?
Patricia Whitley, Advisor | Ric responded, September 22, 2021
2021-09-22T14:24:55-04:00

The wash sale rule applies to securities. Bitcoin is not a security; therefore, the wash sale rule does not apply to it. But other coins are considered to be securities, so the wash sale rule does apply to them. Also, OTC trusts, such as GBTC, BITW and OBTC, are securities and thus fall under the rule.

But all this is likely to be moot. The new tax bill has a provision that applies the wash sale rule to everything, whether they are securities or not.

Is there any path to becoming a Crypto Advisor, without being an Investment Advisor?
Brendan Murray, President, Health & Wealth Inc. | Ric responded September 16, 2021
2021-09-16T16:02:51-04:00

Anyone can advise anyone on anything, subject to federal and state regulation. For example, you need licenses for real estate, insurance, securities and investment management. You don’t need licenses for rare coins, wine or comic books.

Bitcoin and Ethereum are not securities. But many other digital assets are, as are the mutual funds and ETFs in this space. So, you would need licenses.

If all you’re doing is education, and not managing money for a fee, then I don’t think licenses would be needed. States often have lots of license requirements – for everyone from hairdressers to masseuses – so check on all this with a local attorney.

Are there any E&O carriers that have a policy that will cover digital assets?
Dustin Terry, Founder, Clear Harbor Wealth Management | Ric responded, September 7, 2021
2021-09-07T19:15:57-04:00

Most standard E&O policies cover digital assets – when you obtain them via securities such as mutual funds and ETFs. And there’s plenty of opportunity to do that, with funds offered by Bitwise, Osprey and Grayscale, as well as Simplify, ProFunds and others. Lots of accredited funds are available, too, from Skybridge Capital, Pantera, Galaxy and more. There are also SMAs, such as Arbor Digital and Eaglebrook Advisors.

Buying bitcoin or other coins or tokens from exchanges like Coinbase or Gemini might not be covered by your E&O policy. But since you can’t manage assets for your clients in that way, I’m not sure why you’d want to.

In the certificate training it notes that the last coins will be mined in 2140, how will the integrity of Bitcoin be maintained if there is no further compensation to verify the block chain?
Rick Dwyer, Chief Development Officer, Strategy Marketplace | Ric responded, Aug 13, 2021
2021-08-16T01:48:50-04:00

In addition to block rewards, which is how miners receive bitcoins in exchange for solving the computational equations, users pay gas fees. These are costs to have your transaction verified ahead of other transactions. With the full 21 million coins in place, there will be lots of users, and lots of demand for transaction verification, and hence, lots of gas fees (both in number and price). Theoretically, the gas fees will be sufficient compensation to keep the miners motivated.

Give us the bear case. How would this fall apart?
Jason Cooke, Advisor, Hermann & Cooke | Ric responded, March 4, 2021
2021-07-20T10:47:35-04:00

The captain of the Titanic was certain he had smooth sailing too. On that basis, that’s why you diversify.
Does that mean you should put all of your money into bitcoin? I think we can all agree that would be foolish. But to do none, out of extreme fear that something might go wrong, is equally foolish.

I think you need to look at it from a rational perspective of diversification and prudent money management. Just as you would with any asset class, especially an emerging one.

Ric responded, March 4, 2021

As RIAs, how do we handle compliance and regulation with bitcoin?
Bruce Lemley | Ric responded, February 1, 2021
2021-11-18T15:33:57-05:00

I created Digital Assets Council of Financial Professionals to answer questions just like this one. The DACFP Certificate in Blockchain and Digital Assets course provides allows advisors to demonstrate to their clients that they have attained the education and can provide advice that is in the client’s best interest.

This is an online class with 13 CE credits, taken at your own pace. The 11 modules are split into two camps. The first five modules are on blockchain and digital assets. This is the fundamental knowledge and education needed to understand digital assets and explain it to clients. The second five modules are centric to financial advisors. This half focuses on practice management elements so that advisors can actually put all of these methods to use. The certificate covers questions such as these:

  • How do you integrate this into asset allocation?
  • How do you diversify?
  • And what are the reasons for doing so?
  • How do you create the asset allocation models?
  • Where do you buy it?
  • What exchanges what?
  • What custodians do you use?
  • What are the funds that are available for purchase?
  • How do you store it and safeguard it?
  • Do you do that through hot or cold wallets?
  • How do you track it?
  • How do you provide the record keeping?
  • How do you rebalance it?
  • How do you do the tax reporting?
  • How to integrate it into rebalancing with the rest of your portfolio and as a financial advisor?
  • How do you provide or receive compensation along with the rest of your asset management services?
  • What are the tax reporting obligations?
  • The regulatory requirements?
  • What are all the issues associated to allow the advisor to do their job as an advisor while serving the client in their best interests?

Please visit our Certification in Blockchain and Digital Assets page for further details and to register.

Ric responded, February 1, 2021

>> Add Your Comment
Are we able to put Bitcoin into an IRA?
Beth Bebb, Regional Learning Specialist, Thrivent | Ric responded, February 10, 2021
2021-07-20T10:47:58-04:00

There are some platforms available where you can invest your IRA into Bitcoin. These are cumbersome. They are not primary players. It raises concern by the advisor who has reputational risk, as well as the investor who has confidence risk. And it reduces the degree to which there is engagement and involvement by both advisors and their clients. These do exist, but they’re more expensive than they alternatively would be. Some folks are saying, I don’t mind paying a 3 percent fee if I’m dealing with an asset that’s growing double digits every year.

Fidelity Digital Assets is providing these services for the institutional marketplace. They will eventually roll it out for the retail marketplace. You’ve got companies like Kingdom Trust, which manages 19 billion dollars in assets. That’s a qualified custodian you can actually use to buy Bitcoin in your IRA.

Ric responded, February 10, 2021

What is the likelihood that the SEC approves an ETF, and what is the estimated timeline?
Patrick McReynolds, Investment Analyst, Merrill | Ric responded, December 15, 2020
2021-07-20T13:53:59-04:00

The SEC will approve a bitcoin ETF within 18 months. I’ve been saying that for five years. Hey, at some point, I’ll be right! Until then, you should explore alternative ways to buy. There are many, and we cite lots of them at RIADAC.com.

Ric responded, December 15, 2021

What would be your advice for clients asking how much to invest in Bitcoin?
Christopher Rubio, Account Development Representative, MongoDB | Ric responded, December 15, 2020
2021-07-20T10:48:40-04:00

I’m the guy who pioneered the concept, a few years ago, of a one percent asset allocation model. In traditional asset management activities, if you’re not going to put three percent or five percent of assets into an asset class then why bother doing it? It’s not going to have a material impact on the portfolio. However, with Bitcoin, you don’t need five, 10 or 20 percent, which you would likely do with stocks or bonds. Bitcoin has a lot of unknowns technologically and regulatory.

My position is that you don’t need to do 10 or 20 to have a meaningful exposure. One percent allocation is plenty and the reason for that is Bitcoin’s incredible volatility.

A one percent allocation won’t hurt you. If you’re wrong, it’ll be annoying, but not devastating. And if you’re right, that one percent allocation can have a material impact on the improvement of your client’s returns.

Therefore, it is very much worthwhile to learn about Bitcoin. I’m not saying you have to like it. I’m saying as an advisor you have an obligation to learn about it.

Ric responded, December 15, 2020

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