It was a crypto heist for the ages.

The Bybit breach last week became the largest crypto hack in history and reportedly netted a record $1.5 billion worth of ether for a cyberterrorist group in North Korea. Safe to say that rattled markets with the price of Bitcoin, which topped $105,000 at the end of January, cratering to just $85,000 a coin on Wednesday afternoon. It also dredged up familiar questions about suitability, just as financial advisors were warming to the idea of sinking client assets into crypto.

“Although Bybit has already replenished reserves, it brought negative attention to an asset class that is already viewed by many as risky,” said Roxanna Islam, VettaFi’s head of sector and industry research.

Bye-Bye, Bybit

The most pressing concern for advisors is often legal liability. Some are concerned that by recommending crypto to clients, they may be leaving themselves open to potential lawsuits should the worst (say, a billion-plus-dollar heist) become a reality. “Crypto is a nascent asset class that is not only highly speculative, but also has a vague regulatory framework and has been commonly associated with fraud,” Islam told The Advisor Upside.

Advisors are also struggling to gain access to those investments on behalf of their clients. While some brokerages opened up options last year, only about 35% of advisors said they are able to purchase crypto in client accounts in 2024, according to a January Bitwise survey. Researchers also found:

• About half of advisors cited regulatory uncertainty as the top obstacle to crypto investing last year.
• Just 1 in 5 advisors say they now use crypto in client accounts, up from 11% in 2023.
• Still, a staggering 96% of advisors said they received questions about crypto from clients in 2024.

Can I Regulate You? The good news is that a more favorable regime at the Securities and Exchange Commission — one that works to help build legal and regulatory frameworks — is on the horizon. You can’t blame advisors for not viewing crypto as a legitimate investment if both industry brokerages and government agencies have deemed them “unsafe,” Islam said.

For advisors that are allocating into crypto, explaining the asset class to clients thoroughly is necessary so they’re well aware of what they’re buying. “Make sure that clients understand the unique risks associated with Bitcoin,” Islam said. “While I don’t believe the Bybit hack will have long-term effects on crypto adoption, it doesn’t help advisors, or investors, who are already on the fence.”

Brokerages aren’t shying away from big upfront payments to wealth managers who join their ranks.

LPL Financial is leading the charge, reporting $2.3 billion in net advisor loans in 2024, a whopping 53% increase from 2023, according to its latest 10-K filed in February. The loans are a commonplace way for major independent firms to help advisors transition to their platforms, and are typically repaid or forgiven over the next five to 10 years. With the industry facing a looming workforce shortage, major brokerages may need to pony up to secure top-producing advisors.

“The best way to grow AUM is to acquire a large book of business,” said Frank LaRosa, CEO of Elite Consulting Partners.

Hey, Big Spender

LPL, which boasts 28,000 advisors, is a particularly aggressive force in recruiting thanks to its lavish loan strategy and strong M&A activity. The leading IBD completed its acquisition of Atria in October, a wealth management firm with roughly 2,400 advisors overseeing $100 billion in assets. LPL said it aims to retain 80% of these advisors and finish onboarding them by mid-year.

But it’s not only LPL playing the big blind, with the likes of Raymond James also upping the ante on advisor loans. The regional BD, which has close to 9,000 advisors, reported $1.33 billion in net advisor loans last year.

Default Judgement. There could be a significant drawback to heavy lending, LaRosa said. He cited the predicaments wirehouses found themselves in during the Great Recession. “They were really aggressive with recruiting bonuses, but then ‘08 came and advisor practices imploded, and those deals took a lot longer to pay off,” he said.

With a recession of that scale seemingly unlikely, LaRosa said brokerages simply aren’t worried about over extending. “No one sees that coming right now … that’s why they’re making hay while they can,” he said.

One of the first independent robo-advisors built for women is selling its automated accounts.

Ellevest, a women-focused wealth manager with more than $2 billion in assets under management, said it will sell its automated investing service to Betterment, one of the world’s largest robo-advisors with more than 900,000 customers. The New York-based automated investment platform now plans to focus on its private wealth management and financial planning businesses.

“The mission of Ellevest is now and will always be to put more money in the hands of women,” a spokesperson said. “That is not changing. Just how we do that is evolving.”

The More The Better-er

It’s just the latest deal for Betterment, which has been on a tear in recent years. The digital advisor has gobbled up digital investing businesses big and small:

• Last year, Goldman Sachs sold its Marcus Invest accounts to Betterment after it once again failed to make waves in the retail sector. 
• And in 2021, Betterment acquired Wealthsimple’s US accounts in a deal that included roughly $190 million in assets and some 17,000 clients.

Betterment is looking to use its Ellevest purchase to cross-sell products and services to new clients, said Vijay Raghavan, former senior analyst at Forrester. “These customers are already digitally savvy and delegating their investments to an investing algorithm,” he told The Advisor Upside. “As they grow older and their lives become more complex, they will seek more customized advice, which Betterment offers.”

What Women Want. Ellevest was founded in 2014 as a way to fill an industry void and better serve women investors. Co-founder Sallie Krawcheck stepped down from her CEO position in December due to health concerns, but the firm expects to continue focusing on its mission of serving the needs of women investors. Betterment will only acquire automated investing accounts and assets from Ellevest, not its technology or employees, according to the release. Clients will have the option to opt out of the move.

“Ellevest’s digital clients, and women/everyone, are well-served by an industry leader like Betterment, especially with a CEO like Sarah Kirshbaum Levy,” the Ellevest spokesperson told Advisor Upside.