Michael Klimes examines the sceptical attitude advisers take towards crypto-currencies
Unregulated investments can take diverse forms in the UK, from burial plots near Birmingham to storage pods in Blackburn.
In more exotic locations such as the Caribbean, property is popular, while so-called “ethical crops” have lured investors to Africa.
While these have been on advisers’ radars for many years, the FCA is only beginning to express concerns about crypto-currencies.
During the FCA’s annual public meeting on 11 September, chief executive Andrew Bailey said there was a balance to be struck between good and bad innovation across the investment world.
He says: “A good example of this is crypto-assets. We are keen to see the potential of their underlying technology and do not rule out roles for crypto-assets themselves. But the risks are evident too: not least in the question of whether the consumers who use them understand the asset and price volatility they involve.
“We are working closely with the Treasury and Bank of England to assess these issues and come up with appropriate responses.”
But how have advisers dealt with questions from clients who are still keen to go down the crypto route?
Money Marketing spoke to three financial planners about how they have managed to get their concerns across to potential investors.
What advisers say
Appleton Gerrard financial planner Kusal Ariyawansa says a client surprised him during their annual review last year when he admitted he invested £15,000 in Bitcoin against the wishes of his family.
The investment in Bitcoin emerged in the context of £30,000 of tax-free cash the client took from his workplace pension scheme to pay for a wedding. Ariyawansa recommended the client take the tax-free cash as he was in drawdown and would have suffered a large tax penalty if money was taken from taxable assets.
Although the Bitcoin investment represented less than 1 per cent of the client’s assets, Ariyawansa is still shocked by the investment.
He says: “The £15,000 [investment in Bitcoin] did go up to £31,000 but then dived to £9,000. Even though the client admitted he was ashamed of what he did, my understanding is he is still invested.
“To me this is a classic case where the moment you invest for greed it goes wrong, and I am not interested in anything if it falls outside what you might term ‘normal’ investments.”
Ariyawansa likens the intense obsession with Bitcoin and other crypto-currencies to the tech bubble at the turn of the millennium.
He says: “These tech companies had a high share price but low earnings and with Bitcoin it is worse as you are in uncharted territory.
“If people want to achieve a goal then invest in normal things which there should be compensation for. Why should anyone be compensated for making a bet?
“Fortunately, none of my other clients have bothered with these gambles and the FCA should ban these investments.”
So what can advisers do to dissuade their clients from investing in crypto-currencies?
Strategic Solutions managing director Kevin Forbes has had half a dozen clients express interest in crypto-currency but has used the digital banking application Revolut to show them how volatile the asset is. He installed Revolut on his phone in February and put £10 into three different crypto-currencies – Ether, Litecoin and Bitcoin – to see how they would perform.
Forbes says: “I use Revolut to warn clients about crypto-currencies and when I checked their performance recently one had a level of £6.82, another of £2.12 and another was £2.29.
“All this shows crypto-currency is a volatile investment and consequently we do not like crypto-currency at our firm and offer plain vanilla investments.”
Larger firms like Sipp provider Curtis Banks and fund shop Hargreaves Lansdown also take a sceptical view of crypto-currencies.
Hargreaves Lansdown introduced a tracker fund in June last year, allowing retail investors to invest in Bitcoin through an exchange-traded note.
The fund offered by Swedish company XBT Provider is listed on the stock exchange, meaning it can be bought and sold like a share.
However, Hargreaves Lansdown head of communications Danny Cox warns people who want to speculate on crypto-currencies to be careful.
He says they should understand the considerable risks and not commit anything other than what they can afford to lose.
Curtis Banks pension technical manager Jessica List adds: “The Curtis Banks Group is aware that crypto-currencies themselves are unregulated and that the FCA has previously warned about the high risks of crypto-currency related investments. As such, we do not currently view them as a suitable pension investment.”