Survey: New investors less likely to seek advice on crypto than stocks, bonds

Newcomers to the investment world often seek advice before dipping their toes in the water.

But who do they turn to for these recommendations? The answer tends to depend a lot on the asset class. With traditional stocks and bonds, they talk to financial advisors. For crypto, they often consult their friends or the internet.

That’s just one of many differences between new crypto buyers and more traditional investors highlighted in survey results released Monday by the Financial Industry Regulatory Authority and NORC, a research institution at the University of Chicago. The group’s 12-page report found that 29% of investors who opened their first taxable investment account in 2022 cited financial professionals as their primary source of investment information. But among people who invested in crypto for the first time last year, only 9% cited financial planners as their primary source of information.

New crypto investors were instead far more likely to put their money into digital assets after talking to friends, colleagues or family – the sources of information cited by 48% of the total. Also among the frequently consulted sources for new crypto investors were personal research, cited by 25% of the total, and social media, also cited by 25%.

New crypto investors were similarly far more likely to cite a friend’s suggestion as their main impetus for investing. Just over 30% of respondents in the 2022 FINRA and NORC study who invested in cryptocurrency said they acted on the advice of a friend. Only 9% of newcomers to stocks, bonds and other standard investments indicated the same source.

Newcomers to traditional investing were far more likely to cite a desire to save for retirement. About 12% of traditional inventors cited that reason as their main driving force, while only 6% of new crypto investors said the same. Equal percentages of both types of newcomers, meanwhile, said they started investing because they were able to start with small amounts (24% of respondents) or did not want to miss out on opportunities (10%).

Thomas Kopelman, a financial planner and the founder of AllStreet Wealth in Indianapolis, said new clients are just as likely to turn to him for advice on taxes and real estate purchases as they are for investment strategies.

He said he believes the wealth management industry’s declining reliance on commissions and other fees for individual trades in stocks and other securities has made people more comfortable turning to planners for investment advice.

“They now realize that financial planners are really here to help,” Kopelman said. “I don’t care about getting you into certain assets. I’m going to help you build your financial life.”

Nadine Burns, a certified financial planner and CEO of A New Path Financial in Ann Arbor, Michigan, said young and new investors generally get a “bad rap.” Many of the clients she works with are people fresh out of college who show no reluctance not only to follow her advice about saving but also buying long-term life insurance and paying off credit card debt, she said.

“Especially if they have kids, they’re doing these things at a higher rate than their parents probably did,” Burns said.

Burns said her clients rarely, if ever, ask about crypto. If they do, she said, she does her best to persuade them to consider less risky options.

FINRA, the broker-dealer industry’s self-regulator, and NORC conducted the survey by asking 465 people who had either opened their first taxable investment accounts or invested in cryptocurrency for the first time in 2022. The study ran from September 9 to September 29 of 2022.

The study also compared the latest results on new investors with a similar survey conducted nearly two years earlier. It looked at polls taken by 480 adults between October 26 and November 13, 2020.

The results suggested that the pace of new investors entering the market has not slowed since the peak seen during the COVID-19 pandemic. Fueled in part by the arrival of stimulus checks in their bank accounts, Americans poured money into the stock market after the initial breakout in March 2020.

JP Morgan Chase estimates 10 million brokerage accounts were opened in 2020, many of them through online services such as Robinhood Markets. Investors add more than 900 billion dollars for mutual funds in 2021, surpassing the total for the previous 19 years.

FINRA and NORC research suggested that 3.6% of American adults opened investment accounts for the first time in 2020. Two years later, the percentage had risen slightly to 4.2%.

“While stories of new account openings no longer flooded the media in 2022, the influx of new investors did not slow down,” according to the report.

Cryptocurrencies like Bitcoin have been on an even wilder ride in recent years. Investors held roughly $1.15 trillion in crypto on Tuesday, according to the online tracking service coinmarketcap.com. Of that, more than $532 billion was in Bitcoin.

Bitcoin started the year trading around $16,000 as the digital asset industry continued to reel from fraud revelations on crypto exchange FTX. Now, however, it has shot back to around $27,000 for a coin.

Newcomers making their first investments in cryptocurrency were even more common. The survey results suggested that 4.9% entered the market for the first time in 2022 with crypto purchases.

Their reasons for investing also differed from those of other newcomers. Only 25% of new crypto investors said they were saving for retirement, while 56% of traditional investors mentioned that goal. Differences also emerged in how many said they were mainly interested in learning about investing (39% for crypto investors and 29% for traditional investors) and speculating (29% among crypto investors and 24% for traditional investors.)

New crypto investors tended to show less willingness to hold onto their holdings for the long term. Nearly 28% said they would sell their holdings in less than a year, far more than the 2.5% of newcomers to traditional investing who said the same. More than 19% of traditional investors instead said they planned to hold their investments for more than 10 years. Only 8.4% of new crypto investors could say the same.

Crypto investors tended to be younger and less likely to have a college degree. They had an average age of 37, while traditional investors came in at 43 on average. And only 28.5% of crypto investors had four-year college degrees, well below the 46.3% of traditional investors who were degree holders.