8 tips for advisors to avoid legal and compliance issues with digital assets
What would you like to know
- If an advisor was non-compliant and made a mistake in recommending digital assets to clients who caused harm, you can expect them to be reported to SEC Enforcement.
- Advisors should ensure that they follow their firm’s policies and procedures, as well as legal compliance requirements.
- Custody is particularly tricky when it comes to digital assets, as a lot of ambiguities remain about the rules.
When it comes to digital assets, advisers need to ensure they are following their company’s policies and procedures, as well as legal compliance requirements, to avoid legal issues. And that’s just the start, according to Max Schatzow, an investment management and regulatory lawyer who is a partner at law firm Stark & Stark.
“I am a digital asset realist. … Some might call me a skeptic, ”he said in the“ The Compliance Landscape: What Can I Tell My Customers About Bitcoin ”session on Wednesday? at the Bitcoin for Advisors virtual event.
If the SEC finds out that you were non-compliant and made a mistake in recommending digital assets to clients, resulting in investment damage and loss, “you can almost guarantee that you will be referred to” SEC Enforcement, he warned.
Schatzow provided several tips for advisers to consider before jumping on the crypto bandwagon.
Here are the eight remarkable tips he provided:
1. Counselors should follow their firm’s policies and procedures.
If you have your own RIA business, “there really is very little that stops you from talking about Bitcoin and recommending Bitcoin to your customers,” Schatzow said. But if you work for someone else’s company, you are “bound” by that company’s rules on crypto, he noted.
These policies and procedures include recommendations regarding the assets retained and the assets on the platform; whether you have discretion over the client’s assets; custody, including client wallet, key or password; and personal trading and reporting rules, Schatzow said.
2. Advisors must consider all risks to their clients.
“If you’re going to recommend an asset to a client, you need to make sure you’ve done due diligence on the asset,” he warned. “You need to understand the asset you are recommending to clients” and all the risks involved, including risks that are not unique to digital assets, he said, noting that there is “a lot of volatility” with Bitcoin.
3. Pay special attention to ensure that you meet your fiduciary duties as an advisor.
“You have to know your customer,” he said. “You have to know their purpose and, legally speaking, you have to provide advice that is in their best interest” as a trustee.
Advisors should also have a strong note-taking system so that if a client insists that you make a risky investment for them that ends up costing them a lot of money, you can prove that the client understood the risk and wanted it. anyway, he explained.
The price at which you execute a digital asset transaction is also important, along with any other costs, he said.