Bitcoin: 6 Steps to Having “The Next Big Thing” Conversation with Clients

8 min read
January 08, 2018

There’s always something.  The next thing.  The BIG thing!  The one that’s going to be so over-the-top TRUMPIAN YOUUUUUUUGE it seems to “bubble up” in every conversation.  

OIL!  Wait.  GOLD!  No...OIL!  Flipping houses?  Flipping houses designed by 3D printers!  Flipping BRIC houses designed by 3D printers AND integrating the latest smart home AI, AR, VR, and MR.  What do you think?  Can we pay for it with bitcoin?

Your client wants to know what you think about bitcoin.  So what do you say when clients ask?

We have all had these conversations either with clients, friends, family and anyone else who figures out “you work with investments, right?”  Whether you relish in the opportunity or simply want to grab their shoulders and shake some sense into them, you need to have a good response.  Here’s our checklist for when “the next big thing” comes up as well as a sample communication to clients about the Big Thing du jour, bitcoin.

#1: Hear them out by asking good questions

Don’t be the advisor who simply shoves everything to the side.  They’re asking because it’s on their mind and it’s important to them.  They may be asking for permission or they may simply be asking so you talk them off the ledge.  Our clients want collaboration.  Give it to them.  Ask them “why this, why now?”  “How does it fit in with the rest of your plan?”  “What if you’re wrong?”  “When will you know if you’re right?”

#2: Stay in your lane & acknowledge you’re not an expert

Advisors sometimes think they need to be experts in everything financial.  Don’t be this advisor.  It’s very rare for someone to understand the intricacies of client behavior, the new tax law ramifications, when to use a CRUT vs a CRAT and have extensive knowledge in how a master limited partnership actually works.  Our clients expect us to have knowledge and an ability to help them make a sound decision.  They don’t expect us to have every answer immediately.  Acknowledge that and then go to work finding a good answer. The XYPN Radio VIP group on Facebook is a great place to start.

#3: Dismiss the fad & address the theme

This is one of the best things you can do to move the conversation forward.  Almost every “hot to trot” investment is part of a broader theme. How does this broader theme play into future investment opportunities and our current portfolio? Chances are, some of these themes may even be addressed already in your portfolio. Take time to address the broader picture. The response to “I want to buy bitcoin” then becomes, “here is how our managers are addressing integrating cryptocurrencies and blockchain technology into our overall portfolio.”

#4: Reference respected opinions on both sides of the conversation

“Don’t just take my word for is what THEY said.”  Get both sides of the story. Look at what the bulls are saying but don’t neglect the bears. Is this a new school thought or an old school of thought?  What makes this person an expert and why should I listen to them? It’s also important to understand the context of the opinions. Who is their “client”?  Institutions invest differently than individuals. Hedge fund managers have a different mandate than mutual fund managers. Are they discussing this in the context for themselves, their fund, their company...what’s on the line for them?  The more informed opinions (your twitter stream may or may not count), the better you can address the theme and how it fits into their personal situation.    


#5: Take the high road, but leave room for fun

You know your clients better than anyone and hopefully they know you. You always need to have a solid answer, but it’s ok to have some fun with it too. If you think an investment is absolutely bonkers, let them know.  But again, be sure you know your audience and have the backing of facts before you send a picture of Katy Perry chatting cryptocurrencies with Warren Buffet.

#6: Show them the trade-off

If client’s still want to go for it, help them understand it and segregate it appropriately. There’s nothing wrong with clients having a “flyer” portfolio. In fact, in many cases this helps them understand the investment process more intimately and makes them a more sound investor. Our job is to help them understand the impact of such a portfolio on their overall picture.  Take out a percentage, say 5% - 10%, and show how their plan is affected at various return levels (or lack thereof). If it’s still a go, help them set-up a self-directed account and form an agreement that this is not your recommendation or part of your management.


So that’s it!  The next time your client hits you up with “What do you think about…” just follow these steps and both you and your client will be happier than the sock puppet.  Oh sorry, bad example?

Sample Message

At XY Investment Solutions (XYIS), we recently crafted a bitcoin memo for our advisor clients to reference for inspiration in their own communications with their clients:  

Our Perspective on Bitcoin

While we do not consider ourselves experts on cryptocurrency or blockchain technology, it is our responsibility as advisors to understand enough to keep clients out of trouble, so we offer this opinion on Bitcoin. There have been numerous articles, news stories, and documentaries on the topic, but as with everything else, it is sometimes difficult to determine if the source has an ulterior trying to launch a bitcoin-based ETF, for example. Our primary goal is to cut through the noise and provide some decision logic. We welcome any feedback, questions, or experience you might offer this discussion.

The most important consideration, in our opinion, is that Bitcoin as a currency is not backed by assets or even the full faith and credit of any government or widely-trusted agency the same way traditional currencies are, which gives us pause to consider it a currency at all. On the other hand, it is arguable that anything another party is willing to accept in exchange for goods and services can be considered to have “value.” There have been periods of time when tulip bulbs and Beanie Babies were fetching handsome sums, but clearly these turned out to be fads and/or bubbles.

Part of the allure to its users is that Bitcoin offers anonymity and freedom from regulation, mainly because it affords the opportunity to engage in illegal activity. This is a big wild card for us, and a primary reason we do not encourage direct investments in Bitcoin. If a law enforcement agency or government decides somewhere that Bitcoin is an integral facilitator of a certain activity, then who is to say that the whole system might not collapse or its chief participants cut-and-run, never to be heard from again?

There is also the topic of supply. It is presently understood that there is a finite number of Bitcoins to be circulated, but the lack of regulation means (to us) that there is nothing stopping that from changing. Any increase in supply can have devastating effects on the value of each Bitcoin, and even a whiff of this potential can be enough to scare market participants into a selloff.

All of that said, we find the topic of blockchain technology extremely interesting. The documentary “Banking on Bitcoin” offers a great explanation of how blockchain works, but if you don’t have Netflix or can’t access it, this short video from Bettina Warburg and WIRED offers explanations on a variety of levels too.  You can also check out her TED talk, “How the Blockchain Will Radically Transform the Economy.”  

We think there are promising uses for this technology in our primary financial and money markets, but we seem to be quite a ways from that, and it is unclear who the beneficiaries might be from an investment perspective. Just because Bitcoin has been the most well‐known use of blockchain to date, that does not mean it will endure or be the most successful. Like any other industry, innovation improves productivity for its adopters, weeding out the weak or slow; market prices (such as company stock prices) reflect investors’ collective opinion on who stands to gain, and it isn’t always the first-to- market. Therefore, it is nearly impossible to know how to capitalize on a given idea without specific insight bordering on inside information, which we do not claim to possess.

Because it is near impossible to model or even rationalize a potential outcome, we recommend steering clear of Bitcoin-related investments for assets that investors are unwilling or unable to lose. For clients who understand it (or at least emphatically claim to) and want “a piece of the action,” it may be acceptable to allocate a nominal amount that would not compromise their ability to attain their financial goals if (or when) they lose it, similar to our view of investing in most other direct, non‐diversified investments.

We recognize that this can turn out to be the naïve or cynical view, but we are willing to be wrong in this case. We believe in prudently allocating investment dollars into economically-viable enterprises whose expected profits are derived in understandable ways, and not based on prediction, speculation, or hype. We believe Bitcoin resembles the latter at this stage of the game.  

We look forward to your feedback and revising this position as new information becomes available.

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Written by Brandon Moss, Director of XY Investment Solutions

For those I haven’t met yet, “Hello, I’m Brandon”, and I’m the Director of XY Investment Solutions (XYIS), XY Planning Network’s digital hybrid investment platform. It’s a turnkey asset management platform (TAMP) designed and curated to the specific needs of XYPN members (sales pitch over, kind of). 

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