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CFP Board Warns of Crypto’s ‘Heightened Risks’

Practice Management

The Certified Financial Planner Board of Standards (CFP Board) has released a new guide about cryptocurrency-related assets to help CFP professionals uphold the Code of Ethics and Standards of Conduct (Code and Standards) in their practices.

While the same standards apply to cryptocurrency-related assets that apply to all financial assets, cryptocurrency-related assets have particular attributes and present “heightened risks,” warns the 14-page guide, released in the form of a notice. 

To that end, the guide explains that the CFP Board’s Code and Standards do not require a CFP professional to provide—and does not prohibit a CFP professional from providing—financial advice about cryptocurrency-related assets. It adds, however, that when providing financial advice about cryptocurrency, a CFP professional should “do so with caution.”

Accordingly, to comply with the Code and Standards—including the fiduciary duty and the duty of competence—a CFP professional “must be competent” to provide financial advice about cryptocurrency-related assets and consider particular attributes and risks highlighted in the guide when providing that financial advice.

Release of the guide comes in response to questions from professionals about the application of the organization's Code and Standards to financial advice about cryptocurrencies and other financial assets whose value is tied to cryptocurrencies.

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

It covers topics such as satisfying the duty of competence, the fiduciary duty, the duty to provide information to a client, the duty to comply with the law, and duties when selecting, recommending and using technology. It also addresses considerations that arise under the Financial Planning Practice Standards and discusses how they apply to cryptocurrency-related assets.

For instance, in assessing a client’s goals, risk tolerance, objectives, and financial and personal circumstances, a CFP professional must assess a client’s tolerance and capacity for significant or total losses on cryptocurrency-related assets and still achieve the client’s goals, the guide explains.

It also notes, for example, that the lack of information about cryptocurrency-related assets presents concerns and that the information a CFP professional needs to provide financial advice may not be available.

“In some circumstances, a CFP professional’s inability to obtain material information will prevent the CFP professional from providing the Financial Advice,” the guide states. It adds that, “Where a CFP professional is able to provide Financial Advice about a cryptocurrency-related asset notwithstanding the existence of limited information, the CFP professional may need to inform the Client, prior to providing the Financial Advice that important facts that may affect the asset’s performance are not readily available or may change over time.”

Evolving Reg Requirements

Additionally, the guide further warns of evolving regulatory requirements, pointing specifically to the various regulatory agencies that have or may issue further guidance, including the Department of Labor (DOL),  Securities and Exchange Commission, the Commodities Futures Trading Commission and the Internal Revenue Service.

A leading example, it notes, is the DOL’s March 2022 Compliance Assistance Release, emphasizing that the department “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,” and cautioned plan fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option.

“A CFP professional also must advise the client that the regulatory landscape is evolving and uncertain and that subsequent regulatory or legal developments may affect the client’s investment in cryptocurrency-related assets (for example, by limiting a client’s ability to use or trade the asset or affecting the taxes a client must pay),” the guide further states.

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