“[Independent RIA’s] are the future… the brokerage environment is a dinosaur and it's not going to exist in the future.”
Ric Edelman is the founder of the nation’s largest independent RIA, with 350 advisors in 170 offices nationwide, managing $230 billion for 1.2 million individuals and households. The firm is also the nation’s largest independent provider of advice to 401(k) plans, serving thousands of companies, including 150 of the Fortune 500.
Independent RIA’s always appeared superior to the more traditional models like a wirehouse or big-box brokerage firm. These traditional models are beset with bad incentives where, in some cases, firms limit the products its brokers can sell in order to maximize the firm’s profit, at the client’s expense. Independent RIA’s release advisors from any pressures that might disincentivize the best financial decisions. “The autonomy allows you to serve your client's best interest, it allows the clients to do better, and oh, by the way, it's financially better for the advisor as well because you've cut out the middle-man.”
Advisors are obligated to look into the future for opportunities and challenges. This now includes the emergence of digital asset classes, including Bitcoin. Bitcoin has been the top performing asset class of the last 1-, 5- and 10-year period, but due to its newness, skepticism is understandable. RIA Digital Assets was set up to help advisors and consumers become more comfortable about this revolutionary technology. Ultimately, a 1% asset allocation of Bitcoin is recommended.
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SPEAKER
Ric Edelman
Founder
RIA Digital Assets Council
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone. Welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology, and public policy. SALT Talks are a digital interview series with leading investors, creators, and thinkers, and our goal with these SALT Talks is really to replicate the experience that we provide in our global conferences, the SALT Conference, which we hold twice a year, once in the United States and once internationally. At our conferences and on these SALT Talks, our goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.
John Darsie: (00:49)
We're very excited today to welcome Ric Edelman to SALT Talks. Ric is the founder of the nation's largest independent RIA, now Edelman Financial Engines with 350 advisors in 170 offices nationwide managing $230 billion for 1.2 million individuals and households. Ric was on this independent RIA trend before being an independent RIA was cool, so we congratulate him on being early on this megatrend. The firm is also the nation's largest independent provider of advice to 401(k) plans, serving thousands of companies, including 150 of the Fortune 500. Ric serves on its board and remains actively engaged in the firm's investment management and financial planning strategies. Ric also founded the Funding Our Future Coalition with the Bipartisan Policy Center, now the largest coalition ever formed that focuses on attaining financial security for all Americans. Ric was behind the creation of the first Exponential Technologies ETF and has been awarded two patents for inventing a product that allows newborns to save for retirement.
John Darsie: (01:57)
Ric is a leading financial educator and champion of improving financial literacy for all Americans. He's produced award-winning specials for public television and he's a number one New York Times bestselling author of 10 books on personal finance, including a best-selling children's book on money as well. Ric taught personal finance for nine years at Georgetown University and currently is a distinguished lecturer at his alma mater, Rowan University, which awarded Ric an honorary doctorate in 1999. Just a reminder, if you have any questions for Ric during today's SALT Talk, you can enter them in the Q&A box at the bottom of your video screen on Zoom. I'm going to be hosting at least the beginning of today's talk with Ric, so we'll get right into it.
John Darsie: (02:41)
As well, Ric, in addition to becoming the largest independent RIA in the country also recently founded an organization called the RIA Digital Asset Coalition, and so he's doing a lot of different things to educate people on traditional finance as well as a new wave in finance, if you will, with digital assets and cryptocurrencies. But before we get into the Digital Asset Council, Ric, could you talk about the independent RIA megatrend that I mentioned? You were an early pioneer in that space and we've seen an explosion in both individual advisors moving to an independent model as well as the aggregation of independent RIAs. Why are advisors and clients gravitating so heavily towards that independent model?
Ric Edelman: (03:23)
It's a better model. John, great to be with you. Thanks for having me. It's a better model. When I first started in the business back in 1986, when my wife and I decided that we were going to enter this business, it never occurred to us to go join a wirehouse, to go sign up with any of the big-box brokerage firms, because we didn't want to engage in the sales process, which is essentially what those folks do. Many of these firms have quotas that they impose on their brokers. They limit the product that they want you to sell. They tell you to sell the product that their management team feels that they want you to provide to clients often because the firm makes more money selling certain products than others and the story goes on and on and on.
Ric Edelman: (04:12)
That's not why we became financial advisors. We did this because we were wronged as consumers. We went to a financial advisor. We were looking for advice on how to buy a house and we needed advice on mortgages and this guy actually told us to lie on our mortgage application, told us to commit a felony, and we were aghast. That shock and anger was what propelled us to say, "We're going to learn how to do this ourselves and we're going to teach others how to do it, too, and show them what we've learned." We could only do that as an independent advisor where we didn't have a boss, we didn't have some corporate titan telling us what we would do, how we would do it, who we would do it for, and so on, so the independent route was all that there ever was for us. This was back in the 1980s. You're right, John. That was uncommon, unheard of, especially for someone brand new in the business who didn't have a book of business, didn't have a bunch of clients, wasn't managing any assets at the time.
Ric Edelman: (05:10)
How did I at age 28 persuade people to hire me when I had no track record personally? The early days were a bit of a challenge for us, but as we look back on it, 35 years later, we now see that you're right, what we were doing was the future, and pretty much now everybody gets it, and so the movement toward independence away from the brokerage firms and the big-box BDs, yeah, it's really where it's at. The autonomy allows you to serve your client's best interest, it allows the clients to do better, and oh, by the way, it's financially better for the advisor as well because you've cut out the middleman. It's just between you and your client. You're not sharing any of that revenue, so we could charge our clients less while still earning more. Ain't America great?
John Darsie: (06:01)
Right. It aligns everyone's incentives, for sure. As we were talking about in the open, I spent a year working at Hightower analyzing these trends. Where do you think the industry will look like in, say, 10 years? We're still maybe in the early days of this move into independence, but what do you think the financial advice industry looks like in a decade?
Ric Edelman: (06:20)
Oh, it is the future. I've been saying this for quite some time now, that the old traditional model, which is still dominant, the brokerage environment, is a dinosaur and it's not going to exist in the future. It's simply because there's a new better way and that is the independent model, a fee-based environment, as opposed to a commission-based sales process. The reason that we haven't seen even greater adoption of it yet is simply because the commission-based business is so profitable for the brokerage environment and because of inertia, because the average advisor in this country is over 60 years old. They've been doing this for over 30 years, so there's not a lot of motivation. Their clients aren't clamoring for it yet to a big enough degree. They're making a good amount of money. It's painless, it's easy, it's traditional, and why upset the cart when there's no need?
Ric Edelman: (07:14)
As those folks age out and they retire, their successors are not going to operate their business the way that they did. As their clients age out, meaning die, those clients' children and grandchildren are not going to manage the money the way that their parents and grandparents did, and so we'll continue to see this metamorphosis going from a commission model to a fee-based model, away from a corporate environment to an independence model, and it'll get to the point where the independence are going to be massive. We will see a trillion-dollar RIA before too long.
John Darsie: (07:51)
We might be looking at him right now, just saying. I know you guys are, I think, bigger than the next nine largest independent RIAs combined, if I have that correct.
Ric Edelman: (08:01)
We're a fifth of the way there already at Edelman Financial Engines.
John Darsie: (08:03)
There you go. You guys will be there before you know it. As you know very well, being a financial advisor is much more than just shooting out an allocation of ETFs or stocks into somebody's portfolio. You're also have an important psychological relationship with your clients. We'd like to talk about, we've talked to a lot of independent RIAs and financial advisors on SALT Talks since March, but what did you learn or what was reinforced to you about the importance of a good, rock-solid asset allocation, and as well as having really important conversations and a strong communication relationship with your clients during times of distress?
Ric Edelman: (08:41)
Yeah, you've said the two keywords, John, relationship and communication. It is not about the product sale. That's what a lot of Wall Street still doesn't get. They think that if they sell a nifty, whizzbang product, that that's the key to success and that's not true. Well, it may be in the short term and maybe for them, but it's not the key to the client. What really matters is to focus on what the client cares about and what the client cares about is attaining their personal financial goals.
Ric Edelman: (09:14)
Most investors in this country are what I would refer to as "reluctant investors." They're not buying stocks and bonds because they want to, they're not buying mutual funds or ETFs or non-traded REITs or annuities, or you pick the fund or investment you want, they're not buying this stuff out of joy. They're buying it out of desperation. They're buying it because they don't have a choice. They realize that they've got to save for their future and that it's really up to them. They can't rely on the government. They can't rely on their employer and they certainly can't rely on rich grandparents, so it's really up to them for their financial security, and so we become, grudgingly, participants in the financial services sector, and so we need someone who will do two things for us. One is to explain all this. The world of personal finance has gotten extraordinarily complicated, 15,000 mutual funds alone from which to pick from, and that's just mutual funds. Forget about ETFs and forget about all the other stuff that's out there. 7,000 stocks, hundreds of thousands of bonds, of all flavors, sorts, issuers, maturities, on and-
John Darsie: (10:22)
There's more ETFs than there are stocks now, it almost feels like.
Ric Edelman: (10:25)
... Absolutely right, and that's just the US. What about the foreign markets and so on? Then there's the technological elements that have changed dramatically. The regulatory ones, the competitive ones, and of course, the treacherous nature of scams and frauds from Bernie Madoff on down, so it's a dicey environment. Explain this, communicate effectively to me, help me understand. These clients, these investors, they're smart, intelligent, educated people. They just need to understand because we don't get education on money in America, K through 12, not a single class on money. Most college grads never took a class on money. Employers don't do much and parents generally do nothing, so we're financially illiterate. That's not the same as dumb. It's not the same as stupid. It just means we're not educated, so communicate. Explain to me how this stuff works. That's number one.
Ric Edelman: (11:17)
Number two: The relationship. Don't do this one and done. I want to be in this for the long-term. I'm dealing with this from now through the rest of my life and I want you to be with me for the rest of my life. It's the relationship we want with our physicians and our attorneys and our accountants, heck, with our barbers and hairstylists. We want a long-term relationship, not a simple transaction. The firms that get that, that recognize that the advice I'm giving you today, I am going to be accountable for I'm going to have to answer for it in the future and I'm going to have to help you deal with the changes in life, changes in the economy, changes in the law, changes in the marketplace. We will get there together. It's not about today's product sale, which is all too often what still happens in the insurance industry and the brokerage industry and the credit card industry and the banking industry. They still treat it like a one-and-done product sale and that's not what consumers want. That's not how you maintain long-term lifetime value of a client.
John Darsie: (12:22)
Speaking of education, you recently started the RIA Digital Assets Council. You're one of the more forward-thinking independent wealth advisors, financial advisors, whatever you want to call it, both in terms of your move to independence and now also in the digital asset space. It's an area that viewers on SALT Talks know that we've become very interested in this space from both a SALT and a SkyBridge perspective, but before we get into asset allocation and things like that, why did you start the RIA Digital Assets Council? What is it and what has your journey been like in terms of understanding digital assets?
Ric Edelman: (12:57)
Well, my view is that as a financial advisor, my obligation to my clients is to constantly look ahead. We are planners, after all, so where is the world going? What are the investment opportunities? What are the pitfalls and challenges that we might encounter so that we can protect and guide our clients in that journey? I've always been looking forward: What's coming next? Back in 2012, I had the opportunity to meet Ray Kurzweil, who many people consider the Thomas Edison of our age, one of the smartest men on the planet.
John Darsie: (13:30)
Yep. He's brilliant.
Ric Edelman: (13:30)
He's the director of engineering at Google, is on the Harvard faculty, and holder of hundreds and hundreds of patents. Co-founder at Singularity University. I interviewed Ray on my TV show on public television and Ray encouraged me to attend Singularity University's executive program, and with his encouragement, I did so in 2012. That's where I was introduced to exponential technologies broadly and Bitcoin specifically. I'm talking about big data, robotics, AI, nanotech, biotech, bioinformatics, 3D printing, all these incredible technologies.
Ric Edelman: (14:04)
As a result of all of this, I began to get an awareness and understanding of what is coming next and I asked all these scientists, technologists, physicists, physicians, astronauts, "What is it that all of this means for personal finance?" While they could tell me what it meant from a tech perspective, they couldn't tell me what it meant for the average investor or the average American homeowner and that set me on my path for due diligence and I spent a lot of time researching it. It culminated in my book over my shoulder, The Truth About Your Future, The New York Times bestseller that explains what all these technologies mean for every aspect of our lives.
Ric Edelman: (14:42)
I began to look closely at Bitcoin, so I began investing in Bitcoin in 2014, and I be quickly began to realize two things. Number one: Bitcoin is revolutionary. The underlying technology of blockchain and digital ledger technology and DeFi, decentralized finance, are the most revolutionary technological innovation since the Internet itself and they are going to revolutionize commerce on a global scale in incredible ways. That's the first thing I realized.
Ric Edelman: (15:15)
Number two: The second thing I realized is that most financial advisors don't know this. They don't understand it. They don't get it. If you look at Bitcoin superficially, it looks like tulip bulbs or Beanie Babies. It looks like if it's not a fad, it's a fraud, and it seems to violate all the stuff we're taught from an investment management perspective, and in fact, the more education, the more background, the more college degrees you have in this field, the more that Bitcoin makes no sense because it violates everything we've all been taught, everything we've all experienced over the last 40 years.
Ric Edelman: (15:54)
I created the Digital Assets Council to create a bridge from the crypto community that's developing all this nifty whizzbang cool stuff and the RIA community, which needs to understand it so that they can effectively give their clients the advice the clients need, and so we provide a certification program for financial advisors where you can get a certificate in blockchain and digital assets, so that we teach you how this all works, how to explain it to clients, how to figure out whether or not you should recommend it. If so, how much you should be putting clients into. How do you build a portfolio using Bitcoin and digital assets? How do you deal with the taxes and regulatory environment? How do you communicate to clients about it and so on? There's no organization like it because we're not selling anything. We're not manufacturing products, we're not selling services. We're just an educational resource to help financial advisors understand this brand new asset class.
John Darsie: (16:51)
Why should financial advisors specifically be taking a look at making an allocation of Bitcoin or other digital assets as part of their asset allocation mix? How do you arrive at the correct waiting for such a nascent early technology that a lot of people don't understand?
Ric Edelman: (17:09)
Due to the nature of its newness, it's now over 10 years old, but still incredibly new in the scheme of things, the upside potential remains very, very big for Bitcoin. It is the outsized potential of returns. The stock market makes 10% in a year. Bitcoin routinely moves up or down 10% in a day, and so it is the potential for outsized returns. It is the number one performing asset class in the last one, three, five, and 10-year periods and since inception and many people believe it's still in its infancy, so there's a tremendous opportunity for that.
Ric Edelman: (17:44)
The more important issue, though, and the number one reason that advisors say they are interested in this is the fact that Bitcoin is uncorrelated. It's price movements have nothing to do with anything else, not the stock market, the bond market, interest rates, inflation rates, economic policy, fed action, nothing, and if you truly believe in diversification, you want uncorrelated and even better non-correlated assets in your portfolio. You can help reduce client volatility overall while improving returns by adding digital assets to the portfolio.
Ric Edelman: (18:19)
The big question, as you said, John, becomes, "Well, how much do I do?" My personal view, I'm the guy who introduced the concept a few years ago of a 1% asset allocation. That's it. That is because a lot of advisors are scared to put five or 10 or 20% of a client's assets into Bitcoin and I don't blame them. This is so new, it's so uncertain. Anything can happen. This could be a Betamax and go blow up. It could be Lotus 1-2-3, wiped out by Excel. It could be regulated away by governments fearful that their fiat currencies are at risk. I mean, who knows what's going to happen? A 1% allocation won't hurt you if you're wrong. It'll be annoying, but not devastating. But if you're right, that 1% allocation can have a material impact on the improvement of your client's returns, so it is something very much worthwhile learning about to determine if what I've just said is valid. That's all I'm asking. I'm not saying you have to like it. I'm saying as an advisor, you have an obligation to learn about it.
Ric Edelman: (19:28)
Look, I'll give you an illustration, John. Everybody knows how I feel about annuities. I'm not a fan. In several of my books, I talk about why annuities are really bad for consumers. In fact, the title of one of my books is called The Lies About Money and annuities play a big role there, so I'm not a fan of annuities. But you know what? I'm an expert in annuities. I know all about them and I can tell you in great detail why I don't like them, so that's my challenge to you as a financial advisor: If you don't like Bitcoin, explain to me why. Don't just dismiss it as a fad or a fraud, don't just dismiss it as too volatile, because that means you don't know what you're talking about. Now, I challenge you to learn about Bitcoin and then conclude whether or not you like it or not and you'll be right either way for the benefit of your clients.
John Darsie: (20:16)
Do you consider Bitcoin from an asset class perspective the digital gold? That's a lot of the, you know, marketing and the talking points that are provided by Bitcoin fanatics who have been early advocates for the digital asset community. Do you think that it serves the same purpose in your portfolio in terms of just having a potential inflation hedge and a hedge against things going wrong in the world?
Ric Edelman: (20:39)
No, I don't. I think it's a misguided argument and it's creating a lot of noise that is interfering in the effort for advisors to understand Bitcoin. I don't know where this argument of Bitcoin is the new digital gold came from, but it's silly. Let me tell you why. Yes, we all know that digital... Strike that. We all know that gold is a hedge against inflation, except that that's not true. If you look at the long-term history of gold, it doesn't always go up with interest rates and inflation rates, it sometimes goes down, so even if that was true, it's irrelevant.
Ric Edelman: (21:12)
This isn't an argument of whether Bitcoin is better than gold. That's a wrong argument. If you believe in diversification, you should have gold in your portfolio and you should have Bitcoin in your portfolio. It's not a question of which one. You should have both. The two are uncorrelated. One has nothing to do with the other, so yes, you should have Bitcoin because of its potential for increase in value because of its lack of correlation, because it is a new and different asset that aids in the portfolio construction and you could say very many of the same things about gold.
John Darsie: (21:51)
We were talking a little bit in the open about this story is really one about supply and demand and what you see now is you've seen a lot of big names in the investment world come out in support of Bitcoin, Paul Tudor Jones, Stan Druckenmiller, Bill Miller, who's a classic value investor. You had Mass Mutual last week come out and invested a hundred million dollars into Bitcoin. You see other large investment institutions from JP Morgan to Morgan Stanley writing favorably about Bitcoin in the financial media or investment letters that they're sending out. Do you think the career risk in the last, say, three years, we saw Bitcoin surge to almost $20,000, about three years ago, and then it fell all the way down into the three thousands, but now the rally feels a little bit different and I'm going to editorialize a little bit and say that the career risk of investing in Bitcoin and the stigma around Bitcoin seems to have gone away a little bit. Do you agree with that? How do you think that'll affect price and volatility moving forward?
Ric Edelman: (22:50)
Yes, I do agree with it and I think we're going to see much more to come. The conversation is shifting from you're conspicuous if you own it to your conspicuous if you don't and I think that that trend is going to continue even further. Now that you can buy Bitcoin at PayPal and you have MicroStrategy, for example, investing almost over half a billion, and they've just announced they're going to double it over the next several months.
John Darsie: (23:14)
It's now a Bitcoin ETF, yeah.
Ric Edelman: (23:18)
We are clearly in an environment where Bitcoin is now mainstream and this legitimizes the asset, and there's going to be a continued snowball effect of this where people will begin to realize it's routine, just as a gold ETF made gold a routine asset for a portfolio diversification. The first two weeks of that ETF, it raised a billion dollars, so yes, I do believe we will continue to see broad diversification and greater mainstreaming by institutions, endowments, pension funds, insurance companies, and so on.
Ric Edelman: (23:52)
Here's the thing: We know that there are only 21 million Bitcoins that will ever be produced. That's a technological fact and that 18 million have already been produced with some, maybe four million lost forever, we're not totally sure, so it's a mere question of supply and demand. As the demand grows, the supply is going to have to respond by virtue of increased prices. You also have a technological element known as "the halving," which has occurred four times so far. It occurs roughly every four years, which effectively cuts the price of Bitcoin in half, meaning you've got to work twice as hard to mine a single Bitcoin. Every time the halving comes about, it causes a doubling in the value of Bitcoin because you only get half as many for each one you mine.
Ric Edelman: (24:42)
Technological jargon I just threw at you, but the bottom line is these two technological facts conspire to increase the price of Bitcoin, so this is one reason why you see so much bullishness from very serious Wall Streeters who are now paying attention for the first time. Now that they realize Bitcoin is not likely to go away, they're now beginning to recognize that it does have significant potential as an investment opportunity. Now, having said that, there still remain massive risks, technological risks, regulatory risks. Governments could get very upset with all of this. We don't know where it's going to go, so we want to keep our heads about us, not overinvest, not subject ourselves to portfolio risks that would harm our personal finances, but having said all the above, you do need to recognize that, yeah, there's a there there. You're right, John, that it will become more and more conspicuous that you are not investing as opposed to the fact that you are.
John Darsie: (25:39)
Ric, I'll say we've had so many people on SALT Talks who were such enthusiastic supporters of Bitcoin. It's great to have someone like you on who thinks about things from a risk management perspective. You're eager to talk about the risk before you even talk about the potential upside, which I think is important for people to get comfortable about it. We have people now like yourself that are talking about this that are not just fringe people in the technology industry. We have people that are really thinking about it from an asset allocation and a risk perspective. When you talk about volatility, this goes back to my earlier question about the importance of communication and a relationship with advisors, communicating through volatility. We've seen heavy volatility over the last 15 years at multiple instances in the equities industry. We've seen the stock market fluctuate and we obviously see high volatility in the digital asset space. How do you get both underlying clients and advisors comfortable with the fact that you're going to have to pay for some volatility with Bitcoin, but the ultimate upside is worth that volatility?
Ric Edelman: (26:43)
Yeah. Well, again, we have to apply a totally different lens to Bitcoin. We cannot use our typical approach of investment management with diversification and so on because Bitcoin is just a different beast. We are talking about Bitcoin here, but that's an easy shortcut for all of the digital assets. There's many other coins that are worth talking about, such as Ethereum, but the bottom line is that the volatility, I believe, works to your advantage. If you're the kind of an advisor who provides diversification and rebalancing, you love volatility because volatility is your friend when you rebalance a portfolio. If you're the kind of person who encourages clients to dollar cost average, you got to love Bitcoin because the volatility works to your advantage. Instead of fearing it, you ought to embrace it from those notions.
Ric Edelman: (27:34)
We need to recognize that volatility is simply an inherent nature of this asset, and oh, by the way, if you look at the early years of Microsoft, of Amazon, of any tech stock, you'll see similar levels of volatility. You'll see similar, massive increases followed by huge crashes. This is nothing new. In fact, in 2020, 145 of the S&P 500 were more volatile than Bitcoin this year, so don't talk to me about volatility as a reason not to invest in Bitcoin. It's just an inherent part of what it is.
Ric Edelman: (28:10)
What we tell our clients at Edelman Financial Engines, because we're not advising that they buy Bitcoin, because in our firm, we like to use ETFs and mutual funds, so that's what we're waiting for. We tell them, "If you're going to invest, 1% of assets. Expect massive volatility and don't be surprised if you lose the whole thing." It's all about risk management. People don't want to get rich quick. They're not trying to win the lottery. They're trying to secure their financial future, so let's talk about it in that way. While I can appreciate that there are some pundits who are thoroughly immersed and they love this and they think it's going to go to $500,000 in value, let's keep our heads about us, because I think that can scare people as equally as it can entice them.
John Darsie: (28:51)
Yeah, I totally agree. Again, going back to my prior point, it's made me a lot more comfortable with it to have sober people like yourself who think about things in terms of risk management talking about it in language that makes sense to me. In terms of asset allocation, now I want to talk about on a macro level, the 60/40 portfolio, I think, seems to be challenged right now with where interest rates are in traditional fixed income. You have emerging asset classes like digital assets. Let's take a hypothetical client, say, somebody who's worth $50 million who's looking to create a diversified portfolio made up of stocks, traditional fixed income, alternative investments, whether that be hedge fund, real estate, private equity, and then some allocation to hedges like gold and Bitcoin. What do you think in broad terms that type of portfolio should look like today for a client, obviously keeping in mind that every individual client's situation is different?
Ric Edelman: (29:46)
For sure. You can certainly argue that that individual with 50 million in assets should have all of their money in 30-day T-bills, call it a day. I mean, why take any investment risk at all, right? If you've got the lifestyle you want and you're able to secure your family intergenerational financial planning and estate planning in place, why do anything other than a 30-day T-bill? Even if it doesn't grow in value and it's eroded by inflation, so what? You'll be dead before you're broke.
Ric Edelman: (30:09)
But assuming that you do want to grow the portfolio and you want to continue to earn market-based returns, for that kind of an individual, I would, again, say, "A 1% allocation is plenty." Due to your net worth, in your case, at 50 million, you can afford to go to 5% of a diversified digital assets and blockchain portfolio, a combination of coins, a combination of VC, hedge funds, and private investment opportunities that you can diversify the investing strategies, long/short funds, timing funds, trading funds, as well as passive index funds, like the Bitwise top 10 crypto index, the BITW, et cetera, so you can do a variety of things at 50 million that you wouldn't be able to do at 5 million, let alone 500,000. Any or all the above would be perfectly fine in my view.
John Darsie: (31:01)
You talked about how at Edelman Financial Engines, you like to invest through ETFs and mutual funds because of the diversification and security it offers both from an asset perspective and from a structure perspective. When do you expect in your view regulation to catch up to all the progress we're seeing in the digital asset space and for us to see some type of ETF-type product that the average mainstream investor can feel comfortable from a security, custody, and structure perspective?
Ric Edelman: (31:28)
Well, I believe, John, that we're going to see a Bitcoin ETF within the next 18 months and I've been saying that for five years, so I have no idea. We do know that the SEC has at this point two major objections to a Bitcoin ETF: custody and volatility mixed with price transparency and validity. The custody issue, I think, is a done deal. We have solved the custody problem in the crypto industry. There are now very major players dealing with custody the exact way I believe the SEC would want to see it, so I'm not sure that's really an issue anymore. As for price volatility, well, the SEC can't control the price of gold or the price of oil. If they're willing to allow a 3x inverse ETF, I don't know why they won't allow a Bitcoin ETF, but that's just me. We'll eventually see one.
Ric Edelman: (32:17)
But I'll take it a step further: At this point, I'm not so sure it really matters so much. You've got Grayscale with their Bitcoin and Ethereum products, the Grayscale Bitcoin Trust and the Ethereum Trust, and now you have the Bitwise Top 10 Crypto Trust, BITW. Between GBTH and ETHE and BITW, I'm not so sure that it really matters all that much that we don't have any ETF. It'd be better because it'd be a lot cheaper than those products and you wouldn't have the premiums that those products have, so it would be in the client's best interest, the consumer's best interest, and having the SEC as a regulator of oversight would provide a much better level of safety, security, and confidence in the marketplace, helping to reduce the risk of scam and fraud and abuse. All of that is why we should have one. But in terms of investor ability to participate anymore, I'm not so sure it's as big a deal as it was three years ago.
John Darsie: (33:17)
We have a question from a member of our audience. Sharon asks, "You mentioned that you think custody has been solved and those questions have been answered from a regulatory perspective." We've done a lot of work on this, and I agree with you, but could you share with her and the rest of our audience the progress that has been made on custody and why you think those issues have been solved?
Ric Edelman: (33:37)
Well, you've got major players engaged here. Fidelity, first and foremost, Fidelity Digital Assets, they're providing these services for the institutional marketplace. They will eventually roll it out for the retail marketplace. You've got companies like Kingdom Trust, which manages $19 billion in assets that's a qualified custodian. You can actually use them to buy Bitcoin in your IRA, so you have a number of players that are providing custody services, including major firms like Coinbase, which has five times as many accounts as Schwab, Gemini, founded by the Winklevoss twins, and a variety of other firms, significant companies, massive funding and financials underlying their businesses, serious people running serious companies, not the fly-by-night folks that you had eight and 10 years ago, so I think that the technological environment and the competitive landscape are getting real serious players on Wall Street to pay attention. If Fidelity is getting involved, you know that the rest of them are not going to be able to stay away for long, if only due to market competition.
John Darsie: (34:44)
Right. We have another comment from another viewer who mentions that the SEC is actually taking up in the first quarter questions about the custody model for crypto, so certainly, based on public comments and rulings that are on the horizon, it feels like they're getting more comfortable with the idea of digital assets and we're moving in the right direction. You talked about the Bitwise Trust. Grayscale, as you mentioned, has an Ethereum Trust, they have, excuse me, a Bitcoin Trust, and Bitwise, they take an approach. They have a product that's features the top 10, I believe, digital assets in a trust format. Do you think that diversification across digital assets is the best approach, or if an investor is dipping their toe in the space, they should focus on Bitcoin?
Ric Edelman: (35:31)
Well, I'm a big fan of diversification. That's what we build our practice on at Edelman Financial Engines, so yeah. Especially given the uncertainties of this space, yeah, I think it does make sense. Let's remember that there's a reason that these different coins exist. We're not talking about Coke versus Pepsi. What we're talking about here are fundamental technological differences. We're talking about the fact that you have lots of different pairs of shoes in your closet. You have shoes for going to the opera and shoes for going to the gym. Different vehicles for different purposes. That's the difference between Bitcoin and Ethereum, for example. This is why Litecoin exists and others.
Ric Edelman: (36:12)
We do have to recognize that there are different purposes behind the technology that solve different needs in the marketplace. Currencies, assets, trends, middle functions, fiat functions, and so on, and they are all designed to accomplish different things, so yeah, I believe if you're just starting out, you might as well start with Bitcoin. It's the simplest and easiest, best-known route. It's about 75% of the total digital asset marketplace. You can do it as easily as you want on PayPal, for goodness sakes, let alone at any of the major exchanges.
Ric Edelman: (36:48)
If you want to then go further through your education and experimentation, you certainly can do that. If you like the idea of diversification, the Bitwise Top 10 Crypto Index is the only real play that there is. It's as you mentioned, the top 10 coins on a cap-weighted basis, so instead of owning just Bitcoin, about 75% is in Bitcoin. Ethereum is number two and so on. They rebalance it monthly. It's passively managed, so that is an excellent way to go. Disclosure: I'm not only someone who owns that fund, my wife and I invest in it, we're also investors in Bitwise itself, so we are in the equity play because we're really big fans of Hunter Horsley and Matt Hogan at Bitwise.
John Darsie: (37:32)
Right. Before we let you go, the RIA Digital Assets Council, how can people engage with that organization? Do you have any events coming up? How can they further their education on this space? I know every time we do a digital assets SALT Talk, my parents watch these SALT Talks and they FaceTime me, shaking their heads, saying they still don't understand what's going on. How can they engage with the RIA Digital Assets Council to understand it? Do you have any events coming up that you would recommend?
Ric Edelman: (37:58)
We do. You can go to R-I-A-D-A-C, riadac.com, and get all of our info there. You can sign up for our certification program, which is a 10-module online course. Take it at your own pace so that you can get the knowledge you need, not only about Bitcoin, but also how to incorporate it into your practice management as an advisor. We have a variety of webinars coming up. There's one on Tuesday, December 15, an hour-long webinar talking about the very basics of Bitcoin, what it is, how it works, how to incorporate it into your practice, and so on. We have other events coming up in January and February and a major summit coming up March 4th. You can get all the details about these events and register online at riadac.com.
John Darsie: (38:47)
Well, there you have it, riadac.com, R-I-A-D-A-C dot com. Thank you so much, Ric, for creating this movement and spearheading this movement into the independent RIA model, as well as educating people about asset allocation, about risk management, diversification, and true diversification now in the age of digital assets. It's been a pleasure to have you on.
Ric Edelman: (39:08)
Thank you so much, John. It's been a treat for me.