Crypto wealth management: three problems before the allocation

Four routes exist, in order of how much the manager has to build.

A product wrapper is the shortest path: a crypto ETP or a fund sits in the existing securities account with no custody project at all, and the manager's usual custodian settles it. A structured note does the same with a defined payoff.

A regulated crypto custodian holds the coins directly, under a contract between the client or the manager and that custodian, which gives real crypto exposure and adds a counterparty, an onboarding and an operational process. A sub-advisory or platform arrangement puts a specialist between the manager and the market, which is the route most firms take first. And client self-custody, where the client keeps the keys and the manager advises on an asset it cannot move, is the arrangement that breaks reporting and discretionary mandates alike. sFOX notes the same point for advisers: the existing custodial relationships do not uniformly extend to digital assets, so the status of a crypto custodian has to be verified and not assumed.

Suitability means the recommendation fits the client's objectives, financial situation, knowledge and experience, and capacity to bear losses, and that the fit is documented so a supervisor can read it later. For crypto the standard questionnaire is not enough, because the risks are not only market risks.

The file needs crypto-specific questions. Does the client understand that the position can fall by seventy or eighty percent, as its own history shows. Does the client understand what custody means here, that a lost key is a final loss and that an exchange balance is a claim on that exchange. What is the client's experience with these assets, which is a knowledge question the profile has to capture, never assume. And the product governance step: the manager must identify a target market for the instrument and confirm the client is in it, which for a high-risk product with a top risk indicator is the part most often skipped.

A client wants one statement, and crypto arrives from somewhere the reporting system has never read. Positions sit at a crypto custodian, possibly on a chain, in an asset class the portfolio tool has no category for, priced from a venue the system does not subscribe to.

The failure mode is a crypto allocation that lives in a separate application, which leaves the manager without a full view and the client with two reports, and sFOX names the same visibility gap in its account. Fixing it means a data feed from the custodian into the portfolio system, an agreed pricing source so that the client's statement and the manager's own books show the same number, and a performance method that handles a position with a staking yield. The pricing policy behind that number is the subject of digital asset valuation.

This is the question a wealth manager is uniquely placed to raise and the one clients most often have not addressed. A securities account passes to heirs through a process the bank operates. A self-custodied coin passes to nobody unless somebody else can reach the key, and the asset is then permanently gone while remaining visible on the chain.

The planning work has three parts: an inventory of what exists and where, a documented access path that does not depend on one person's memory and does not expose the keys during the client's lifetime, and an executor or heir who knows the path exists. A regulated custodian solves most of this by being an institution with a succession process. Crypto inheritance sets out the German legal position, and bitcoin for family offices the view from a principal's side.

It depends on the instrument, and that is the trap. Advice on a crypto ETP, a fund or a structured note is investment advice on a financial instrument, covered by the permissions a wealth manager already holds under the German Securities Institutions Act, or under section 34f of the Trade Regulation Act for an independent adviser.

Advice on a crypto-asset that is not a financial instrument, such as bitcoin itself, falls under MiCA, where advice on crypto-assets and portfolio management of crypto-assets are services requiring authorization as a crypto-asset service provider. A firm can therefore be fully licensed for the ETP conversation and unlicensed for the conversation about the coin, which is why many German managers deliberately keep their advice inside wrapped products. The CASP license and crypto regulation in Germany set out the permissions, and BaFin publishes the guidance on the boundary.

For the mandate, on the same basis as the rest of it, and the honest version makes clear what the fee buys. Where the manager holds discretion and executes, the work is selection, sizing, rebalancing and the operational control of custody. Where the client holds the coins directly and the manager advises, the fee buys advice and reporting, and the manager cannot act, which has to be written into the mandate so that responsibility for a missed decision is clear.

Two cost items belong in the conversation, because they are new to the client. The custodian charges for crypto custody separately from the securities account, and a wrapped product carries its own ongoing charge on top of the management fee. A client comparing a direct holding with an ETP is comparing two different cost stacks, and the manager's job is to show both.

That is a business decision, and it turns on whether the firm can carry the operational side, not on a view about the asset. A manager who can document suitability, verify a custodian, get the positions into one statement and answer an inheritance question has a service. A manager who cannot do those four things is offering a conversation and should route the client to a specialist or to a wrapped product.

The demand side is settled: clients hold these assets already, often outside the mandate and without advice, and a manager who declines the subject does not remove the exposure from the client's balance sheet. That is the argument that has moved German private banks, described under private banking in Frankfurt.