Cryptocurrencies: How investment advisers and distributors are getting future-ready

It’s not just the naïve retail investor who has been investing in cryptocurrencies. Among a growing tribe are those who track cryptos, hoping it would morph into something more significant in years to come – mutual fund distributors and registered investment advisors (RIA). Some of these financial advisors have been testing waters by investing their own money in a few coins. They are merely getting ready for the future, they say.

Own money today, client money tomorrow

Swapnil Pawar, Founder of ASQI Advisors (SEBI Registered), invests in four coins through WazirX, a crypto exchange. Pawar heads ASQI Advisors, which runs an absolute returns hedge fund, and also advises international schemes investing in Indian companies. But on the side, Pawar dabbles in cryptocurrencies. “I am fascinated by the blockchain technology on which cryptocurrency is based upon.

The technology can be harnessed to help us in many aspects of our daily life and the prospects are enticing,” he says. For instance, Pawar says that the blockchain technology can make the stock market settlement quicker and more automated. Or, it could be used by the banking system to, say, enforce collaterals faster, by automating the entire process if there is a default.

Elsewhere, in Bengaluru, Khaleelulla Baig, founder of Fintapp, a SEBI-registered RIA, too, invests in Cryptocurrencies. Fintapp doesn't recommend cryptocurrencies to its clients due to SEBI’s silence on this issue. “It’s still a grey area, so it’s best to not to recommend to clients. Besides, the banking support is also on the edge,” says Baig. But he believes that cryptocurrencies are a good training ground for distributors to get ready for the future. “It’s only when you start swimming do you really understand the depth of the water. Investing in cryptocurrencies, even if it is my own money, is a good training ground for me,” says Baig.

Testing waters

Still, anecdotally, a majority of the distributors and advisors have stayed away from cryptocurrencies. But the reality is that customers have started to ask questions. And that, industry officials say, has nudged distributors to start reading up, at the very least. Sadique Neelgund, founder of Network FP, a platform that helps financial planners build their businesses, says, “no matter how much we talk about mutual funds, direct equity and fixed income investing, advisors and distributors are also driven by their clients and needs. And investors have begun to ask questions on cryptocurrencies.” Neelgund is open-minded. He says that the general tendency of the distributor and advisor fraternity is to write off something that they don’t deal in. “That is not the logical way. At the same time, we should not be driven by fads. We don’t know yet if there is any substance in cryptocurrencies. But we should be open to learn; distributors and advisors are waiting and watching,” he says.

Last year, Mumbai-based mutual funds distributor, Bhuvanaa Shreeram, wanted to send a gift to her nephews and nieces in the US for the Vishu festival. Sending regular money would have meant applying for foreign exchange and finding someone to take it with them. Internet banking and United Payments Interface was out of question. What to do? She thought of buying Bitcoins and sending them across. “It was the whole rebellious nature behind why Bitcoin was created, that attracted me to it first,” she says with a glee. She didn’t send any Bitcoin internationally, but the idea appealed to her.

However, she understands volatility better than the ordinary investor, having advised her clients over the past 16 years about mutual funds and other investments. She says that in the 1990s, Life Insurance Corporation (LIC) agents used to say “Avoid stock market volatility, and stick to good-old LIC. But mutual funds have successfully grown over the past 25 years. The same thing is happening today; many MF distributors now say,avoid Bitcoin; stick to MFs. But this approach is regressive. Explore this (crypto). Don’t just rubbish it, without even about knowing it,” she says.

A mixed bag

Pune-based mutual funds distributor Ramkumar Agarwal didn’t have a good experience with cryptocurrencies. Agarwal prefers to test out investments with his own money first, before recommending to his clients. Last year, he bought Bitcoin worth Rs 10,000. He complains that the rate at which you get to buy cryptocurrencies may be vastly different from its international price. “In India, at the moment, you can buy only cryptos available with Indians. The global supply is not available here. Hence, on certain days, liquidity could be a problem with some coins and you end up paying as much as two percent higher,” says Agarwal. Apart from this, he says he has also faced problems when he wanted to transfer funds from his crypto exchange linked bank account to his normal-use bank account.

And finally, the after-sales service with some exchanges is a problem, he adds. “They do not have a phone number. We have to email them and then wait for their responses. If my money is stuck, then I get hassled,” he says.

A growing section in the advisor community is gearing up for what they call a tsunami. Uncertainty still looms around cryptocurrencies. India and many other countries around the world could render them illegal. Even if legalised, there’s a question on who’ll regulate. But some distributors and financial advisors want to be ready for the future.