MassMutual-owned fintech launches new service for RIAs to manage clients’ Bitcoin

Fintech startups like Onramp Invest have new competition in an accelerating race to provide financial advisors access to digital assets like Bitcoin.

Flourish, a fintech Mass Mutual Life Insurance Company acquired in 2020 to provide RIAs with cash management services and other financial products, has a new solution to allow independent advisors and their clients secure and compliant access to the Bitcoin market.

Eight in 10 RIAs receive questions from clients about investing in cryptocurrencies, according to cryptocurrency index fund provider Bitwise, and 61% of investors expect their digital asset holdings to increase over the next couple of years, according to Goldman Sachs. Instead of directing clients towards a retail trading app, private bank or wirehouse to access the growing asset class, Flourish Crypto clients can open an online account and start trading Bitcoin through their advisor. The accounts can be client-directed or advisors can take discretionary control.

The idea is to help keep those assets within the RIA’s orbit, said Ben Cruikshank, head of Flourish. Advisors get visibility into balances, statements and tax documents, and Flourish Crypto integrates with popular wealthtechs like eMoney Advisor, Orion Advisor Solutions and Envestnet Tamarac.

“What we’re doing comes back to helping advisors treat crypto just like any other asset class,” Cruikshank said. “They can bill on these assets if they choose, incorporate them into financial planning, and include in performance reporting.”

Flourish Crypto charges a 25 basis point transaction fee as well as a 65 bps annual custody fee. The fees are transparent, align with the RIA business model and are competitive with both retail trading apps and institutional products, Cruikshank said.

“We certainly think it's time for every single RIA to really engage with the asset class and, at a minimum, have someone dedicated to understanding it,” he added.

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Though Flourish is a wholly owned subsidiary of MassMutual, it operates as an independent company and does not interact with the firm’s insurance or wealth management business, Cruikshank said. However, it’s clear the insurer has a growing interest in digital assets. In August, MassMutual announced plans to offer a Bitcoin fund. 

In a blog posted to LinkedIn, MassMutual chief investment officer Tim Corbett said the firm’s investment in bitcoin will help fuel innovation at the company and capitalize on market trends.

“In line with MassMutual’s overall commitment to diversification and innovation, we have come to view bitcoin as a potential store of value over the long-term,” Corbett wrote. “Bitcoin’s unique characteristics — including digital scarcity, known supply growth, transfer characteristics, and hard cap on the total number of tokens — open the possibility that it may serve as a kind of digital gold, with the potential for significant price appreciation.”

Increasing competition
Flourish isn’t the only fintech trying to give advisors access to digital assets. Tyrone Ross made a splash earlier this year when he launched Onramp Invest, and in August the crypto-for-advisors startup closed a $6 million round of seed funding. Ross isn’t worried about new competition from large firms like MassMutual, and said the launch of Crypto Flourish is “fantastic” for giving RIAs tools and infrastructure to engage in the crypto market.

“We are armed for this,” Ross said in an email. “We have some announcements with some of the larger legacy institutions coming up. They’ve seen this coming and they’re preparing for it … And similar to when Schwab launches a robo and it does in three years what it took Wealthfront nine years to do, when they decide to do it en masse, that is what you’re going to get.”

While Flourish is hanging its hat on RIA discretion over RIA assets, the crypto space is evolving away from advisors, Ross said.

“Two words matter here: non-discretion and non-custodial,” he said. ”We’re building to where the space is going, not where it is.”

Compliance questions
Platforms like Flourish and Onramp can help from an operational and compliance perspective, giving fiduciary advisors the ability to supervise investments and confirm that they are consistent with a client’s risk tolerance and financial objectives, said Max Schatzow, an partner with Stark & Stark’s investment management and securities group. However, advisors should still perform due diligence before they invest client assets into cryptocurrencies, he said.

Custody and execution for Flourish is provided by Paxos Trust, which custodies more than $12 billion in assets and also services Interactive Brokers’ self-directed cryptocurrency trading. Flourish Crypto has also partnered with Compliance Solutions Strategies to give RIAs complimentary access to resources like sample ADV language and risk disclosures.

“I think the partnership with Compliance Solutions Strategies is a good step to help investment advisers maintain compliance, but I also worry that it is a bit superficial,” Schatzow said in an email. “They seem to be offering investment advisers help with their disclosure obligations, but it isn’t clear whether they will help them with their full obligations as fiduciaries.”

There are some other issues that could potentially be problematic, Schatzow said. For example, it’s unclear whether Paxos, a state chartered trust company, fits the SEC’s ambiguous definition of a “qualified custodian.” And if accounts opened on Flourish Crypto are limited to bitcoin, they may not be eligible for in-kind transfers to other custodians or cryptocurrency wallets if the account is closed.

In a blog post, Paxos general counsel and chief compliance officer Dan Burstein addressed some of the concerns. Paxos was the first company to receive a charter for digital assets from the New York State Department of Financial Services, which maintains such high standards that the agency’s blessing allows Paxos to operate in other regulatory environments, Burstein said. Firms like BNY Mellon, State Street and Fidelity are also NYDFS Trust companies, he added.

“We believe our approach to regulation demonstrates just how our operations meet the highest standards in our field — and why you and your clients can in turn trust Flourish’s Paxos-powered cryptocurrency solution,” Burstein said.

Corbett’s LinkedIn post acknowledges that the regulatory environment in which cryptocurrency will operate is still developing, and that MassMutual welcomes “thoughtful and prudent regulation.” This is why the company has also made an equity investment in NYDIG, a provider of institutional investment solutions for Bitcoin that is working with MassMutual on its forthcoming fund, Corbett wrote.

“With this opportunity, sitting on the sidelines was not a risk we wanted to take,” he added.