The Fascination of Wealth Managers with Crypto Accounts

The Rise of Separately Managed Accounts in Traditional Finance and the Benefits in Crypto

As a crypto reader, you may have questions about investing in digital assets and how you can gain exposure to this asset class. Many financial advisers are unaware of the available investment vehicles for their clients in the crypto space and the pros and cons associated with them.

A recent survey reveals that 90% of financial advisers have received client inquiries about crypto in the past year. This highlights the growing interest in digital assets among investors. However, advisers must carefully consider various factors, including security and compliance, when allocating to this asset class.

Currently, financial advisers have several options, including instructing clients to self-direct their investments on retail crypto exchanges like Coinbase, using over-the-counter trusts such as the Grayscale Bitcoin Trust, investing in private funds, or choosing a crypto separately managed account (SMA).

The Advantages of Crypto Separately Managed Accounts

Separately managed accounts have experienced significant growth over the past decade, with assets under management reaching $1.7 trillion in 2021. Wealth managers prefer SMAs due to their tax optimization, direct ownership, professional management, and customization benefits. Consequently, the wealth management market is increasingly adopting crypto SMAs as the preferred investment vehicle for this emerging asset class. Here are some of the advantages:

Tax Optimization: Crypto SMAs offer attractive tax optimization opportunities due to the volatile nature of the crypto market. Investors can own digital assets directly through an account opened in their name at a digital asset qualified custodian. This structure allows for tax optimization strategies that can reduce capital gain tax liability, similar to traditional SMAs.

Direct Ownership: Direct ownership eliminates tracking errors commonly found in other investment products. Crypto SMAs provide 24/7 liquidity, enabling investors and advisers to buy or sell digital assets at any time.

Reporting Integration: Crypto SMA providers integrate seamlessly with wealth managers’ reporting platforms. This integration allows advisers to model, report, and bill their clients’ digital asset holdings without complications.

Professional Management: In the complex and ever-changing crypto market, professional management is crucial. Crypto SMAs offer the expertise of specialists with in-depth knowledge of the digital asset market, making allocation decisions more effective.

Institutional Custody: By using a crypto SMA, advisers can take advantage of institutional-grade custodians. These custodians provide enhanced security measures, including institutional cold storage, trading capabilities, and regulatory oversight.

Hot Take: The Rise of Crypto Separately Managed Accounts

The growing interest in crypto investments has prompted the rise of separately managed accounts as a preferred vehicle for wealth managers. With advantages such as tax optimization, direct ownership, reporting integration, professional management, and institutional custody, crypto SMAs offer a compelling solution for investors seeking exposure to digital assets. As the crypto market continues to evolve, it is crucial for financial advisers to stay informed about the available investment options to best serve their clients’ needs.