For having a name that means leading actions, movements and the development of new ideas, Vanguard has been curiously behind the industry in giving its clients access to crypto ETFs.

That was the case until yesterday, when the low-cost, investor-focused financial giant made a big change, allowing some of the more mainstream (meaning not memecoin) digital-asset exchange-traded funds onto its brokerage system. That followed a decision by Morgan Stanley in October to expand crypto access to all clients, rather than limiting it to those with high risk tolerance and at least $1.5 million, as it previously had. And Vanguard’s change coincides with a move by Bank of America to recommend allocations of 1% to 4% of wealth management clients’ assets to Bitcoin ETFs.

“Vanguard is the latest TradFi firm to do an about-face on crypto,” said Ric Edelman, founder of the Digital Assets Council of Financial Professionals, crediting CEO Salim Ramji, who has been at the helm since mid-2024, with the development. “It’s impossible to view this as anything other than highly bullish for Bitcoin and other major digital assets.”

Turning from a Stern Position

Vanguard acknowledged the already high and growing demand for Bitcoin ETFs and other crypto assets, in a note to investors. The company didn’t publicize the change in the ways it would for a fund launch, new model portfolios or retirement data report. But it stated clearly on its site that its more than 50 million investor clients should approach crypto with caution. “These products have been tested through periods of market volatility, performing as designed while maintaining liquidity; the administrative processes to service these types of funds have matured; and investor preferences continue to evolve,” the company stated. The funds are available in brokerage accounts, meaning that defined-contribution plan participants don’t have access outside of brokerage windows, a spokesperson told ETF Upside.

There’s plenty for people to be excited (or worried) about:

• Crypto is notoriously volatile. Bitcoin prices fell from a high of over $124,000 in October to just over $84,000 in November, since rebounding to about $92,000.
• Even as the biggest fund, the iShares Bitcoin Trust ETF (IBIT) fell from nearly $100 billion in assets under management to $66 billion, the product is reportedly the biggest revenue driver for BlackRock.
• Famed investor Michael Burry this week said crypto is essentially worthless, comparing Bitcoin’s rise to the Dutch tulip bubble in the 1600s.

Righting the Ship? Edelman cast Vanguard’s until-now ban on crypto as a mistake. But in fixing the alleged mistake, the company is doing so at an opportune time, he said. “By making Bitcoin, Ethereum, Solana and other crypto ETFs available to its 50 million customers, Vanguard is letting them buy while crypto prices are 30% below their all-time highs,” he said. “Vanguard customers who take advantage of the sudden availability will find themselves sitting on nice profits in the future.”
Still, it’s not necessarily right for everyone. “Crypto access is all well and good. But access is not an investment plan,” Jeff DeMaso, editor of the Independent Vanguard Adviser, said in a note to investors. “For most investors, owning little, or none, is perfectly acceptable.”

Advisors need to be unbiased, but what about the model portfolios they choose?

Not surprisingly, when issuers create a model portfolio, they’re incentivized to include their own ETFs. But more and more funds with meager assets are suddenly spiking to reach hundreds of millions of dollars in AUM in just a few days, all because they were added to a major issuer’s model. The consequences could be significant for advisors who are increasingly relying on model portfolios, and who want to provide unbiased fiduciary advice to their clients, but don’t know where to start.

“We see this trend, and it’s a little disturbing,” said Joe Mallen, CEO of Modelist, which builds customized portfolios for fiduciaries. “I don’t blame anyone for doing that. We just think that the relationship of who’s designing the model for the advisor should be one that suits the advisor, not the asset manager.”

Follow the Leader

Earlier this month, the iShares Systematic Bond ETF (SYSB) grew to more than $600 million from just $67 million in a matter of days after it was added to one of BlackRock’s portfolios. The reason for BlackRock’s decision came down to expense ratios, Mallen said. However, BlackRock stated in a client communication shared with VettaFi that the firm is reducing “overweight to growth by adding to value, and pivoting from quality to momentum.” SYSB charges 25 basis points, while a comparable iShares bond product, IUSB, has a fee of just 6 basis points. That spread could generate more than $1 million in annual revenue based on the funds’ assets, according to Mallen.

A recent VettaFi report pointed out spikes and falls in other funds due to model adjustments:

• The iShares S&P 500 Value ETF (IVE) added $3.2 billion in one day.
• The iShares MSCI USA Momentum Factor ETF (MTUM) pulled in $1.3 billion that same day, its highest in over a year
• The iShares MSCI Quality Factor ETF (QUAL) was likely used to fund these shifts, losing $4.2 billion in one day.

A New Model. As more advisors rely on model portfolios to free up time with their clients, they’re spending less time doing due diligence, said Aniket Ullal, head of ETF Research & Analytics at CFRA Research. What might help in the future are tools that not only compare ETFs, but model portfolios, as well. “Should [advisors] be more aware? I think the answer is yes,” he added. “They need to know who’s the provider, what kinds of funds they tend to select, and then also choose the right model provider. You may want a model provider who’s agnostic to which funds are included.”

If product distribution is like a party, RIAs are the body-guarded celebrities in the corner. Getting through might be tricky.

Combine that with record numbers of ETFs hitting the market, including nearly 100 new strategies in October alone, and distribution and marketing are more important than ever for issuers trying to stand out. Targeting methods that rely mostly on firm size just don’t cut it anymore, according to AdvizorPro’s latest report, which focuses on how issuers can grow AUM. Innovative new methods — from artificial intelligence to scouring regulatory filings — may be required to find firms worth reaching out to in the future.

“Any other company, whether it’s software, whether you’re selling trinkets, you need to advertise,” said AdvizorPro’s Hesom Parhizkar, who contributed to the report. “The biggest deal now [for issuers] is, you need to advertise to the right people.”

Scraping the (Internet) Barrel

One way issuers can identify the RIAs most likely to be receptive to their pitches is by first identifying whether they invest in products similar to an issuer’s existing lineup. Some platforms use AI to find firms with “competitor” funds — products with a similar strategy to the searcher’s — as well as gauge the amount of assets dedicated to particular ETF categories, from high-yield bonds to covered calls. But identifying these firms is only step one, Parhizkar said. “You can’t just make a phone call and say, ‘I have an awesome ETF.’ ‘Beautiful. Here’s a million dollars.’ It doesn’t work that way,” he added. “It’s phone calls, it’s emails, it’s marketing, it’s in-person meetings. There’s a multi-pronged approach after you find out who is literally at play here.”

Other ways issuers can find relevant RIAs, according to the report, include:

• Targeting multi-advisor teams that function as a single buying unit;
• Mapping RIAs by metro area, ZIP code or region;
• And incorporating advisors’ personal interests into outreach emails.

Prime Target. An issuer with a new defense tech, for example, might use AI tools to search for RIAs investing in that sector and then craft a sales pitch around how the fund could be incorporated into a firm’s existing models. Quarterly data can also help: If it shows rising advisor interest in a given area or thematic, issuers should tailor their outreach accordingly, Parhizkar added.

“If you go onto an RIA’s website, there’s probably an investment strategy, and they might mention long, short, they might mention tax-efficient,” Parhizkar said. “What you don’t want to do is try to market to everyone in America.”