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AdvisorPeak launched a virtual means for RIAs to trade, rebalance and custody cryptocurrencies with Prime Trust; Fidelity will soon add Ethereum

Brooke's Note: It's worth a reminder; RIAs don't sell products. They sell a process. That process happens to often include buying and selling products or other assets. So if you are going to introduce a new asset to RIAs -- especially a novel and volatile one like cryptocurrency-- you'd better do it in a way that allows the RIA to manage it as a first-class citizen in the fiduciary process. That high bar helps explains why custodians have been slow to give RIAs decent crypto access. It also may underscore why Damon Deru (AdvisorPeak) is bringing crypto trades to the market as abundle. That said, in reporting this article -- in the midst of Coinbase IPO bedlam -- insiders and experts were quick to tell us that Deru's first mover advantage mayalready be endangered. The biggies are all coming -- just a matter of when and whether they'll have the depth and breadth of AdvisorPeak. Fidelity used the occasion of our query to firm up when Ethereumwill beadded to Bitcoin on its platform -- in the next eight and a half months, probably sooner.

AdvisorPeak is ready to giveRIAs with assets custodied at Schwab -- and elsewhere -- a means to buy, sell, trade and hold 100 cryptocurrencies.

The Salt Lake City, Utah rebalancing vendor announced its new partnership with crypto-custodian Prime Trust, Apr. 14. It gives RIAs at most major custodians* a means to trade digital currencies alongside more bread-and-butter stocks and bonds.

AdvisorPeak will charge no fee for its part in the bundle but expects to sell more software licenses.

"This isnt just a third-party integration with a retail digital asset vendor such as Coinbase - thatd be a fairly easy to pull off," saysDamon Deru, AdvisorPeak's founder and CEO, via email.

"This is an imbedded custodial integration that allows advisors to open digital asset accounts between Prime Trust and AdvisorPeak. The whole experience is very much a custodial relationship that advisors are used to operating in."

Founded in 2016in Summerlin, Nevada, Prime Trust is one of a number of startup crypto-custody vendors with an eye on RIA marketshare. Others include Gemini Trust Company, Coinbaseand Kingdom Trust. See: Fidelity bags $13 billion AUM digital assets win to its custody, as federal regulators attempt to move Bitcoin custody from 'weirdo websites' to mainstream banks.

Prime Trust also serves as custodian for two of the larger digital asset exchanges in the US: Binance USand Bittrex.

Though AdvisorPeak is afirst mover, a source says the companymay have waited too long to make the move.Orion, Tamarac and other market powers will beready to wield influence soon enough.

"Envestnet, Orion and several others will be rolling out solutions, [so] I don't think we'll remember this [AdvisorPeak] release, or care much about it in a few months," the source states.

"There are other, bigger, more important players ... so I give [AdvisorPeak] a very low probability of having success," the source adds.

Deru recognizes that rivals can -- and likely will -- catch up.

"Theres nothing stopping others from doing this tomorrow, but as things stand no one else has. We did," he says.

"[Yet] the reality is those who do attempt to build a solution like this will likely be with retail digital asset vendors, which at the end of the day really wont solve the problem for advisors," he adds.

Nor will AdvisorPeak charge for the add-on service that it hopes will attract new RIAs to its software.

Indeed, Edelman acknowledges that its a case of "when," not "if" the largest RIA vendors enter the fray.

"Digital assets are here to stay, and the question now is how rather than whether," he says.

The news comes during a week when Coinbase's IPO made crypto investors of virtually everyone.

With its market cap hovering near$100 billion, it is assured of being held by most broad-market index funds, andactively managed ones may like it even more, according to Bloomberg.

The AdvisorPeak innovation is consequential because it allows RIAs to invest in these digital currencies using the same process as the other assets in their portfolios, says Ric Edelman, founder of Edelman Financial Engines, and the RIA Digital Assets Council, via email.

"By giving advisors the ability to rebalance, AdvisorPeak removes a big obstacle toward advisor adoption of these investments," he explains.

It also "opens the door" to exponential growth in crypto trading, adds Lex Sokolin, global fintech co-head and chief economist for ConsenSys, via email.

"Think about the ETF growth curve. For financial advisors, the performance reporting and trading [and] rebalancing tooling is very important. The asset class is getting normalized."

AdvisorPeak is far from the first mover in providing access to RIA crypto-custody, although it is the first among its software peers to do so.

Eaglebrook Advisors, for instance, has already brought in $100 million in RIA crypto assets, and the crypto SMA vendor has partnered with a number of major RIAs, including Marty Bicknell's $35 billion AUM Mariner Wealth Advisors, and RIA outsourcer Dynasty Financial Partners.

The Washington, D.C. firm also has a sizable list of notable backers.

Vendors like Grayscale provide advisors another means to take a stake in the booming crypto-currency market through 15 investment funds.

Today, the 2013-founded fund shop manages $49.1 billion in digital assets, according its website.

Indeed, AdvisorPeak faces the problem that although it is the first among its software peers to embrace crypto-currencies, it is miniscule in comparison to its larger and better funded competition.

Approximately 1,000 advisors use AdvisorPeak's software, but the Utah rebalancing vendor, which employs 15 staff, declined to break out specifically how many RIAs and IBDs use its services.

In contrast, Orion's portfolio management softwareadministers $1.4 trillion on behalf of 2,100 RIAs, its TAMP manages $48 billion, and among several other business lines, the private-equity backed company sells financial planning and data analytics software.

But the AdvisorPeak-Prime Trust tie up hands RIAs a third-party work-around.

Itobviates the need for advisors to trade directly through crypto-custodians like Coinbase, use SMAs from vendors like EagleBrook, or avail of the budding number of crypto funds like the Grayscale Bitcoin Trust.

Increased support from traditional software firms and custodians is overdue, adds Edelman.

"Advisors need to be able to integrate client holdings of digital assets with the rest of their portfolio," he says.

The AdvisorPeak-Prime Trust partnership significantly expands the number of tradable cryptocurrencies to 100for advisors using its software.

It also hands the 10,000 RIAs custodied with major firms like Schwab Advisor Services a means to trade stocks, bondsand crypto-currencies in one place, including through IRAs and Roth IRAs.

Indeed, Deru's decision to press ahead with crypto-rebalancing could help tip the RIA crypto needle, says Edelman.

"A large number of advisors have delayed investing in digital assets because of their inability to manage the assets within their current practice protocols," he explains.

Fidelity Investments has been the most enthusiastic of the major custodians when it comes to crypto-currency, facilitating Bitcoin trading and custody.

Yet when asked about being theoretically leapfrogged, Fidelity says it is close to taking its own next leap by "supporting" Ethereum.It currently concentrates all its efforts in Bitcoin. See: Fidelity Investments applies its proven Peter Jubber to its unproven bitcoin unit and its launch of Fidelity Digital Funds signals it's all in on blockchain currency

The Bostongiant is taking the step as a way to move Fidelity Digital Assets from Bitcoin holder to -- move over Coinbase -- blockchain ecosystem.

"We have plans to support Ethereum later this year ... our belief in blockchain and digital assets is firm-wide and we've been working for years to develop a blockchain ecosystem and become a holistic solutions provider for digital assets," she adds.

Alongside its latest Ethereum announcement, Fidelity recently filed to launch a Bitcoin ETF. See: Brooke's Bits: Why Fidelity's bitcoin ETF application might have a shot.

The difference between the two currencies is that one is valued for what it is (Bitcoin) and the other for what it does (Ethereum), adds Sokolin.

"Bitcoin is functioning as a store of wealth ... Ethereum is a computing platform, which is rebuilding financial markets and economic activity through shared networks. decentralized Finance, NFTs, and most blockchain based software started and is run on Ethereum ... but it's like comparing gold and cloud computing."

Yet Schwab has proven reluctant to follow Fidelity's lead.

Asked whether Schwab's cautious crypto approach is the big factor encouraging him to risk pioneering an RIA service, Deru says he's hardly expecting the giant to keep sleeping.

"I wouldn't necessarily say Schwab not offering digital asset trading is the elephant in the room, but just the reality of the situation," he says.

"Schwab obviously has a lot on their plate right now with the TD Ameritrade acquisition, but we anticipate that they, and other custodians, will offer digital asset trading natively at some point."

Schwab declined to reveal whether it has plans to develop its own crypto custody and trading capabilities, despite reports in early March that it would use an outsourcer to launch a Schwab-branded solution -- reports it declined to confirm or deny.

"Wewillcontinue to listen to our clients feedback to make sure that our offering meets their needs," says Schwab spokeswoman Mayura Hooper, via email.

Watch this space, says a source, via email. "They are figuring out their big move. They will come soon."

Founded in 2018, AdvisorPeak has less than 1% market share, but that still gives it a top-six market presence, according to the 2021 T3 Technology Survey. See: Pete Giza and Damon Deru go for Holy Grail of portfolio rebalancing with software that shuffles stocks, bonds... and asset classes; Believe it?

It trails Schwab's iRebal (11.72%), Envestnet-owned Tamarac (9.46%), Orion Advisor Services' Eclipse (7.1%), SS&C-owned Black Diamond (2.32%)and Morningstar's TRX (2.02%), the survey states.

Yet establishing itself as the first mover among its peers provides a fillip to AdvisorPeak's bid to brand itself as more technologically nimble than its rivals, according to Deru.

"When we started AdvisorPeak our mantra was to drive innovation in trading and rebalancing for advisors.Including digital asset trading [on] our platform is an example of that," he says.

Three of the top five rebalancing vendors have yet to respond to a request for comment. Morningstar and Orion declined to comment. Rising portfolio accounting vendor Addepar noted that AdvisorPeak is a "valued partner".

Heady days

Today one Bitcoin trades at roughly $63,000, giving the currencya near $1.2 trillion market cap -- a surgein value of 810% in the past twelve months. In April 2020, one Bitcoin traded at approximately $6,877 -- a price that professionals even then considered high.

JP Morgan, Mastercard and UBS also notably just invested in New York City blockchain software company, ConsenSys, alongside several venture capital firms. ConsenSys announced its $65 million raise, Apr. 13. See: Vanguard Group seeks 'new business model,' it says, to explain blockchain pilot program.

"There is now sufficient custodian and brokerage support to justify investment," says Sokolin, who also restructured and led ConsenSys' marketing throughout 2020.

Goldman Sachs is another that has stepped up its involvement.

The Wall Street giant will launch a Bitcoin service for its wealthiest customers in the second quarter of this year, according to CNBC. But it will not add such capabilities to retail bank Marcus, CEO David Solomon told investors, during the firm's Apr. 14 earnings call.

Coinbase also just staged a blockbuster launch on the markets. The crypto-currency exchange floated on Nasdaq today at $381 per share. It swiftly surged to $429.26, but then fell to $328.28. See: Robinhood files for (give or take) $40-billion IPO before its 'zero' niche, its IPO window and its hipster appeal lose their buzz -- namely by March 31.

Yet many investment managers remain hugely skeptical of cryptocurrencies, according to a Bank of America survey released, Apr. 13. Some 74% of fund managers think Bitcoin is simply a market bubble, Barron's reports.

"Were studying it. We make money on it, but Im not here to tell you that were seeing broad-based interest by institutions worldwide," BlackRock CEO Larry Fink adds in commentsto CNBC, Apr. 14.

Yet advisor demand spurred AdvisorPeak's crypto launch, Deru asserts.

"[Its] been on our radar for years, but we weren't seeing adoption or much interest from advisors until this last year, which is what led us to finally move forward," he says.

* AdvisorPeak has integrated its software with Schwab, TD Ameritrade, Fidelity Investments, BNY Mellons Pershing, LPL Financial, National Financial, SSG, Interactive Brokers, and TradePMR, according to the firm.

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