Opportunities and Challenges to Adding Digital Assets to Your Practice

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Wondering about the opportunities and challenges around digital asset adoption for investment advisory firms? Get our insights here.

MeetAmi Innovations, Canada's leading wealth management platform providing access to digital asset investing and learning, recently announced a content partnership with Joot, a builder of automated compliance tools and service provider for SEC-registered investment advisors. Not only does this partnership strengthen MeetAmi's commitment to providing wealth managers with the most direct access to digital assets for their clients, but it is designed to support Joot’s mission to help encourage full compliance with existing regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) via regular updates, fireside chats, webinars, and more. This is the first installment of that partnership, delivering purpose-built content which helps advisors gain knowledge about different digital asset investment models and trends from funds to direct holdings and compliance.

Why Investors Should Consider Digital Asset Adoption

Digital asset adoption represents one of the fastest adoptions of technology in human history. While retail investors have already taken matters into their own hands, advisors have been slow to adapt due to the perceived gray areas and unanswered questions around regulation and compliance. Are these digital assets securities, commodities, or derivatives? Who's responsible for overseeing these assets? The SEC? The Commodities Futures Trading Commission (CFTC)? As we write this, the SEC and CFTC are battling a turf war over who regulates the growing crypto marketplace. With so many questions, most tenured advisors continue to hesitate to engage. Thankfully, the landscape is much more clearly defined than is generally understood.

What’s In It for Investment Advisory Firms?

These digital assets present unique opportunities for advisors. Clients are bringing questions and requests around digital assets to their financial advisors and planners. At the date of publication, cryptocurrencies alone are worth around USD $1.25T. There’s simply too much opportunity for investors not to take notice. As massive investments are made in both research and development of digital assets and their underlying technologies like blockchain, this growth trend is not expected to change. As a result, advisory firms need to understand this evolving asset class and the opportunities it may present for their clients.

Why Firms Should Act Now—and Remain Cautious

These assets are not without their challenges. Inherently, digital assets are complex, relying on cryptography to establish and secure the blockchains on which they’re built. This complexity extends into regulation and compliance. At the highest level, asset classification has been difficult to establish as digital assets evolve. Tokenization will undoubtedly contribute to this confusion. More complex problems arise when integration increases within existing and new systems. As blockchain technology evolves, so too does the world of digital assets.

Despite the muddy waters of asset classification, the crypto markets will see increased government regulation in the years to come, and many participants welcome greater crypto clarity. After all, a key ingredient to boosting investor participation in these markets is growing investor trust around digital assets and stabilizing what can be a volatile marketplace. Registered investment advisors (RIAs) are particularly important players in the regulatory ecosystem as they implement risk management strategies and help their clients develop crypto literacy.

In this rapidly evolving landscape, continuous education and attention to detail become more paramount than ever. But finding relevant resources is often a challenge unto itself. The current lack of high-quality content geared toward investment advisors and wealth managers is one of the main reasons driving our content partnership. Stay tuned for more helpful content in a range of formats to help you navigate this tough—and exciting—terrain.

As Challenges Continue to Surface, So Do Opportunities

Primarily, advisors are seeing more clients interested in digital asset access. Even if there’s not a strong demand (yet) for direct market engagement, clients are asking questions. With continuous education and recognized credentials, advisors must establish themselves as trusted partners in navigating the digital asset ecosystem. As informed guides, advisors can engage with more clients. And as trust grows in digital asset markets, more investors will participate.

Tokenization provides some of the most exciting opportunities on the horizon. Traditional assets are being tokenized at an increasing rate. Most notably is the recent adoption of tokenization and smart contracts within the real estate industry. As more assets become tokenized—currently ranging from fine wine and designer handbags to utilities and cloud computing—more investors will choose to engage.

Integration between traditional finance (TradFi) and decentralized finance (DeFi) continues to blossom, and portfolios are becoming more diverse. Early adoption of this trend bodes well for organizations that recognize the changing landscape and take steps to adapt. With retail exchanges more available than ever, institutional investors are requiring more regulated avenues of access. This has led to the creation of traditional investment products, such as private funds, mutual funds, and exchange-traded funds, that invest either directly in digital assets or through derivatives such as futures. Further, some innovative asset managers are launching products that include risk mitigation in the product’s strategy, making these products more attractive to institutional or cautious investors.

It’s Already Happening

The shift to digital assets is undeniable. With record-breaking market caps, unprecedented access, and groundbreaking technology, financial services are becoming an increasingly digital space. Advancements in blockchain systems, movement into the metaverse, and proliferating cryptocurrency adoption all point to an ever-developing regulation and compliance network that cannot be ignored. Thankfully, increased experience and knowledge are supporting a network of appropriate oversight that continues to expand, making the world of digital assets not just manageable, but marketable.

Today, these conversations are happening at events ranging from Bitcoin 2022 to the numerous traditional wealth investor conferences and beyond. It’s true: everyone is talking about digital assets. But wealth needs a plan…

Stay tuned for more relevant content in our digital asset series. In the meantime, reach out to MeetAmi and Joot with any questions or feedback. We’d love to hear from you.

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