Certified Financial Planner Board Issues Crypto Guidelines

The Certified Financial Planner Board of Standards has released a guide to advising on cryptocurrency-related assets that covers topics such as fiduciary duty, satisfying the duty of competence, providing information to a client and complying with the law.

The nonprofit issued the guide in response to questions and concerns from financial planners about providing financial advice about cryptocurrencies and other digital assets while complying with the CFP’s Code of Ethics and Standards of Conduct. The guide also aims to address considerations that arise from the  Practice Standards Reference Guide and discusses how they apply to cryptocurrency-related assets.

“Developed with our Standards Resource Commission, this guide on cryptocurrency-related assets is a much-needed addition to our compliance resource library,” CFP Board CEO Kevin Keller said in a statement. “[It] is designed to benefit and protect the public by educating CFP professionals on how to put their clients’ best interests first.”

The CFP notes that various federal and state regulators, including the Financial Industry Regulatory Authority, and consumer protection organizations have warned that cryptocurrency-related investments “present significant risks that warrant careful evaluation.”

The organization cited a compliance assistance release issued by the Department of Labor’s Employee Benefits Security Administration earlier this year that said it “has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies or other products whose value is tied to cryptocurrencies.” It also cautioned plan fiduciaries to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”

A Challenging Investment

The CFP’s guide warned that crypto-related assets can be speculative and volatile and “have a particularly negative effect on investors,” adding that they are difficult to analyze and present challenges to making informed investment decisions.

Additionally, the CFP said crypto assets “may present unique custodial risks,” exposing investors to a greater risk of theft or loss, and raise valuation issues “because they may not be subject to commonly-accepted valuation methodologies and may not be subject to consistent accounting treatment or traditional reporting requirements.”

The CFP noted in its guide that its code and standards neither require nor prohibit a financial planner from offering financial advice regarding cryptocurrency-related assets. However, it said that if a CFP professional provides financial advice, they must comply with the duties outlined in the code and standards.

“The duty of competence requires a CFP professional to provide financial advice about cryptocurrency-related assets with the relevant knowledge of those assets and with the skill to apply that knowledge to a client’s circumstances,” the CFP guide said. “Cryptocurrency-related assets have particular attributes and features that require specialized knowledge or expertise to deliver financial advice about investing in them.”

The CFP guide also said a lack of information regarding crypto assets “presents concerns,” as the information a planner needs may not be available or may be limited. It said that in some cases, a planner’s inability to obtain material information will prevent them from being able to accurately provide the necessary financial advice.