Can I get that without the volatility? 

Crypto, one of the most notoriously volatile asset classes, has lit up the investing world in recent months and that has clients rethinking their portfolios. For many financial advisors, however, the potential losses are still too steep to justify oversized gains. Now, new exchange-traded products are slated to tap options overlays and hedging strategies to help shield investors from market downturns.

Calamos Investments is set to launch “structured-protection” ETFs that track Bitcoin performance, while protecting investors against as much as 100% of the losses, according to an SEC filing. The Calamos Bitcoin products come with specific timeframes from six months to one year, as well as options of 80% protection and up to a full 100% strategy. Yep, that means it’s essentially risk-free to invest in Bitcoin (well, in theory).

“Investors have watched from the sidelines as digital assets evolved from an experiment to an institutional reality,” said Matt Kaufman, head of ETFs at Calamos. “It is either feast or famine.”

I Never Liked Risk Anyway

Defined outcome ETFs have promised the ability to soften losses for investors since the products were first launched in 2018. While risk-free investing sounds like someone has a bridge to sell, the funds can potentially provide just that, using options trades like puts and calls to guarantee investors only lose a percentage of their initial principal. Of course, there are caveats: Gains are also capped, meaning investors could also leave valuable returns on the table, and the funds carry higher fees than most.

With a subset of clients now demanding exposure to cryptos in their portfolios, financial advisors may be looking for solutions that fit within more traditional risk tolerances. “Investors need to pay for that [protection] with the very handsome price of foregone upside,” said Patrick Gruhn, founder of the crypto trading site Perpetuals.com.

Choose Your Own Adventure. Defined outcome ETFs, and similar fund strategies like buffered ETFs, have become one of the hottest corners of the index investing universe. BlackRock launched a fund last year and now has options that provide 5%, 20% and 100% protection on traditional indexes, like the S&P 500. Fidelity and JPMorgan also offer similar buffered products. There are now hundreds of funds available:

• There were 327 buffer ETFs holding more than $54.8 billion in assets as of August, according to a report based on Morningstar Direct data.
• That’s up from 73 funds that held roughly $4.6 billion in 2020.

“Investors sleep better at night knowing their money is free from loss,” Kaufman told The Daily Upside. 

What’s the De-Fi Password? Layering options on Bitcoin ETF investments is another major step forward for the asset class. But the bigger picture could be the financialization of Bitcoin, Gruhn said. While the new products help advisors reduce compliance concerns and ease clients’ minds about potential losses, they also take the currencies further away from their decentralized origins. If the creators of crypto were looking to cut out Wall Street with blockchain technology, asset managers are now cashing in.

“The real question becomes: Are we building financial products that will preserve Bitcoin’s unique value proposition or reshape it to fit into a legacy mold?” Gruhn told The Daily Upside.

Landing a new job in the advice industry has been arduous for financial advisor Paul Monax. 

The certified financial planner, who worked with Transamerica for six years before launching his own practice four years ago, said his search for a new job has been fraught with challenges. The most worrisome are job requirements that demand applicants bring as much as $30 million in client assets with them. He said a third of the listings he’s seen require book minimums of at least $20 million or more just to get in the door. 

The mandates have become commonplace in recent years and are quickly becoming a high hurdle for early-career advisors or for those who have primarily built themselves up in smaller markets. “Companies that are looking for transferable AUM are really looking to acquire someone else’s business without having to buy it,” Monax said.

Bookends

It could become a serious problem as the industry looks to bring in the next generation of financial advisors. An estimated 90% of firms have asset requirements for potential new hires, said Elite Consulting CEO Frank LaRosa. 

“It’s going to be a real challenge if the only parameter to hiring sub-35 year olds is that they have $30 million in AUM,” he told The Daily Upside. The benefit for employers is that a built-in book of business can offset onboarding costs. It also allows firms to start generating revenue right away. 

Making matters worse is that some RIA firms, with smaller budgets and overhead, are also forgoing training programs for new recruits altogether. Despite research that predicts the industry will need to add some 70,000 new employees over the next five years to keep up with demand, it seems some advisory practices won’t be interested in hiring them.

“The old joke about training is that the firm gives you a phone book and a landline and says ‘Go dial,’” said Jason Diamond, executive vice president of recruitment firm Diamond Consultants. “That’s sometimes the extent of some of the training programs we see today.”

Stop that Train. Smaller RIAs tend to have very disciplined bottom lines, and it can be challenging to budget for a substantial training program, Diamond added. Often they indirectly rely on bigger firms to make sure younger advisors gain experience. “The Morgan Stanleys and Merrill Lynches of the world can afford that,” he said. “The current model is you learn how to be an advisor on their dime and then move to the RIA space.”

The good news is that RIAs may be starting to take notice. David Demming Sr. of Demming Financial said his firm hires young planners with no expectation of assets or revenue generation in the near term. “We train and mentor them with our experienced planners to learn financial planning from the ground up,” he told The Daily Upside.

It’s all about the cross-sell. 

Merrill Lynch Wealth Management announced a brand new division this week intended to connect the firms’ wealthiest clients with other products in the Bank of America network, according to a press release. The UHNW Advisory Group will consist of more than 25 specialists who will help advisors create personalized portfolios and direct wealthy clients to in-house services, like custom lending, trust and estate planning, philanthropy, art financing, and family office services. That means gaining larger wallet share from some of the world’s richest clients.

“The goal of this new group is to work alongside advisors to understand the individual needs of each UHNW client,” Rob Romano, who will lead the team and is head of the firm’s Capital Markets Investor Solutions, said in an email. 

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