Ric Edelman, co-founder and executive chairman of one of the largest independent RIA firms, Edelman Financial Services (now Edelman Financial Engines), is a legend in the financial advisory industry. He has been inducted into the Financial Advisor Hall of Fame, been named the No. 1 Independent Financial Advisor in the U.S. by Barron’s in 2019, 2010, 2012 and 2018, and has written dozens of books on personal finance and financial management that have helped investors and advisors alike.
Lately, Edelman has been delving into bitcoin and other digital assets from an advisor’s viewpoint. He recently started the RIA Digital Asset Council to raise financial awareness of blockchain and digital assets for advisors. Edelman will be chairing and providing a keynote at the 2nd Annual Digital Asset Strategy Summit (DASS), Oct. 20-21 in Dallas. ETF.com recently spoke with him to talk about digital assets.
ETF.com: How would you recommend an advisor approach digital assets, bitcoin, etc.?
Ric Edelman: We have a situation where most advisors have simply dismissed digital assets as a passing fad—or worse, an outright fraud. They have dismissed the conversation anytime a client’s asked. But things are changing.
It’s clear digital assets are here to stay. They're growing in prominence and stature, in legitimacy, and by extension, clients are asking more and more about blockchain and digital assets.
Advisors have a responsibility to do the job for their clients they do in every other aspect of personal finance: provide advice that’s in the client’s best interest. It’s no longer sufficient to dismiss the notion that bitcoin is real. Advisors are now being asked by clients to explain bitcoin, to help them understand what digital assets are, what blockchain is and how it works. And advisors therefore need to get the education that many currently lack.
ETF.com: Where would they start?
Edelman: That’s why I created the RIA Digital Assets Council, to provide a platform that offers advisors the education they need in this space.
What are digital assets? What are currencies? What are tokens? How do they work? Should I recommend them to my clients? And if so, how do you invest in this emerging asset class? There's still so much fraud. There's virtually no federal regulation. It’s a Wild West environment.
We need to protect our clients, first and foremost, and then determine if it’s appropriate to provide them with exposure to this asset class; and if not, to help them understand why not.
ETF.com: What was your epiphany when you said, “You know what? I really need to get my head wrapped around this”?
Edelman: I was introduced to bitcoin in 2012. I spent the bulk of 2013 studying and learning about it. I made my first investment in bitcoin in 2014, and have continued my education and my exploration of the subject over the past five years. I’ve spent a lot of time with the developers in this space who are creating platforms—everything from trading to custody to investment opportunities in this new technology—partly to understand it, and partly to learn how best to proceed.
It’s convinced me, over this period, that there’s virtually no participation by the investment advisory community. That’s creating a gap between what advisors need to be doing, compared to what they are doing. My goal is to help close the gap. We’re accomplishing that simply through education.
ETF.com: How do digital assets fit into a traditional portfolio? Are you substituting something?
Edelman: In our firm’s practice, we’re not yet actively recommending that our clients own digital assets. We’re waiting for the SEC to approve a bitcoin ETF. That’ll give a regulatory framework that currently doesn’t exist. It’ll make it much easier for ordinary investors to engage at lower loads of risk, lower investment amounts, greater liquidity and greater accountability than what exists in the marketplace today. Our message to our clients is to begin with education and understanding. Digital assets don’t perform like any other asset class, and they need to understand this.
Our message is simple. First, get education. Second, wait for a bitcoin ETF. Third, if you want to proceed right now, minimize your exposure—1% of your portfolio is plenty. If you're going to do that, be prepared for massive volatility. Presume you're going to lose it all. And plan on holding it for decades to see how this innovation plays out. Because there's still a great deal of uncertainty. It’s very much an emerging asset class.
No one’s yet certain how it’ll proceed and if in fact bitcoin is going to be the surviving currency or asset. It’s the market leader at present. It was the first. But there are 2,000 digital assets that now exist. A diversified portfolio is always best. And it makes sense to consider whether or not it should be a small part of a diversified portfolio.