MassMutual upgrades Flourish to trade and hold RIA crypto AUM, compete at a Coinbase level, on strength of Orion, Black Diamond, Tamarac tracking — but big RIA client, Buckingham, says ‘no thanks’ to the offer, for now

Fibo Quantum

The New York-based manager of $1 billion-plus of FDIC insured cash is banking on not getting ahead of the curve and getting crushed by Bitcoin ETFs down the road.

MassMutual will compete with Coinbase and Robinhood as a vendor of direct trades in cryptocurrency using its RIA cash manager as the vehicle for reaching investors with about $600 billion.

The 170 year-old Springfield, Mass.-based insurer is using Flourish, which services the cash management needs of 400* RIAs and their $1 billion of cash assets, to launch the crypto brokerage and private label a custodian. It announced the launch of sub-subsidiary Flourish Crypto, Sept. 30.

MassMutual first exploded into crypto Dec. 10 last year by purchasing $100 million of Bitcoin. 

Tyrone Ross: This will fail if you can’t drive adoption from the behemoths.

The $615-billion insurer announced its intent to buy Flourish four days later on Dec. 14 — ostensibly because of a then-booming business of funneling RIA cash into higher-earning FDIC accounts that demand sophisticated software to funnel high-balances to multiple bank accounts to stay fully insured.

The Flourish Crypto launch is based on the premise that RIA firms are finally hungry enough to buy Bitcoin directly —  the way retail clients do with Coinbase, Robinhood and other newfangled online brokers. See: What exactly is an RIA?

But advisors’ appetite depends on their ability to track the performance of the cryptocurrency on the portfolio accounting software they already use and do it at a bargain.

“There’s a really jarring disconnect between what’s available to advisors and what’s available to retail investors,” says Flourish head Ben Cruikshank.

The asset class is maturing and solutions available to RIAs [are] lacking. [Now] advisors can move these assets into their existing financial planning and reporting infrastructure.”

Indeed, Bitcoin climbed above $50,000 today despite a torrent of bad news lately.

Hacking solutions

Flourish, founded in 2017, lets advisors, or their clients, directly trade and own Bitcoin for a 25-basis-point commission, compared to 249 basis points on Coinbase. Flourish also levies a 65 basis point custody fee. The assets get held with Paxos Trust company. Coinbase charges no custody fee.  Ethereum could be added later. 

Daniel Eyre
Daniel Eyre: Grayscale’s success can be correlated to the simplicity of engaging with the fund.

Some interoperability is in place with the lead performance reporting software applications in the industry–Orion, Black Diamond, Tamarac, and eMoney–but clunkier than it is for common stock. 

Advisors must trade through Flourish’s software first, before toggling back to their reporting software, which tracks and reports on their assets.

Robinhood provides commission-free trading on Bitcoin — and no custody fee, but it’s a little like comparing apples to oranges. Unlike Coinbase, investors can’t withdraw cryptocurrency. Investors need to sell the crypto coins, then transfer the proceeds to a bank.

Neither Robinhood nor Coinbase caters to third party intermediaries, so RIAs need — at best — to hack solutions with clients and do so at arm’s length. 

A number of companies have begun bidding for RIA crypto customers.

BlockChange is another. It acts as a full-service digital TAMP.

Organized challenge

Flourish, like Onramp and BlockChange, has also structured its business around owning Bitcoin, rather than tracking it, says Daniel Eyre, co-founder and CEO of San Francisco crypto-TAMP Blockchange, via email..

Ric Edelman
Ric Edelman: Many RIAs trade individual securities instead of using funds, so [Flourish] will be natural for them.

“The big advantage of a directly managed approach like Flourish or Blockchange is that clients have direct exposure to the underlying assets. This offers superior tax advantages and removes premium risk, which can be a significant concern with funds like Grayscale,” he explains.

For now, New York City asset manager Grayscale’s buy-and-hold cryptocurrency approach has the lead among RIAs. See: Grayscale shreds the hype about Bitcoin’s power to ‘democratize’ finance by showing that RIAs really want a dominant Wall Street middleman and are willing to pay hedge-fund-like fees for ‘transparency’ and an SEC-approved wrapper.

Yet, since Grayscale funds are available only as a secondarily-traded over the counter purchase to retail investors, or as a private placement investment to accredited investors.

Because they track cryptocurrencies rather than hold them, the funds often trade at variable premiums and, at times, discounts to cryptocurrencies like Bitcoin.

ETF Stampede

Flourish spent eight months building and testing Flourish Crypto with several of its 400 RIAs to make it as a practicable as owning a Grayscale fund.

“Can we make direct ownership as convenient as a fund? That’s really the challenge that we’re organized around,” Cruikshank says.

Flourish, which employs 46, up from 30 in December, also has no immediate plans to add investment models for advisors to outsource crypto trading, but it is under consideration, according to the firm.

Whether Flourish beats Grayscale funds is one issue, but the company also has to prove it can survive the coming stampede of Bitcoin ETFs, says Matt Apkarian, a Cerulli senior analyst for product development, via email.

“It could see success in the near term by being favored over Grayscale. But once [a Bitcoin ETF is] approved, the fees could be an issue,” he explains.

“The value add of reporting, billing, and taxes would be null and void [if] advisors can just buy a Bitcoin ETF [for] the client portfolio that already has those features,” he adds.

Yet Cruikshank pours cold water on the idea that 2022 will be the year of the crypto ETF.

Even if it is, not every RIA wants to hold set-and-forget funds that have proved liable to major tracking errors, he argues.

“Analysts thought 2021 was the year of the Bitcoin ETF, arguably 2020 … It’s no secret the timeline is very indefinite, and the SEC has made it very clear they have real concerns,” he explains.

“Advisors should ask whether it’s reasonable to wait indefinitely, if they and their clients are ready to invest today.” 

Complex clockwork

Cryptocurrencies straddle the world of securities and the world of currencies; they trade round the clock and there are a dizzying 12,170 in existence, according to CoinMarketCap.

Adam Birenbaum
Adam Birenbaum: [Crypto] is not currently part of our investment thesis

Such complexity could put off advisors from using Flourish’s self-directed trading service, because most RIAs only make small investments to satisfy crypto-curious clients, according Apkarian.

“With crypto allocations typically only totaling 1% to 2%, or up to 5% for those who are committed to the strategy, I don’t know how much of an impact discretionary trading will make,” he says.

“Advisors are most often just taking their clients’ cryptocurrency outside ownership into account when assessing risk, rather than actually buying it on [their] behalf,” he adds.

That said, advisors are hardly trading novices, and the fact that Flourish already sings from the mainstream RIA billing hymnal is a huge advantage, says Ric Edelman, founder of Edelman Financial Engines and the Digital Assets Council of Financial Professionals, via email.

“Many RIAs trade individual securities instead of using funds, so this will be natural for them. Advisors are increasingly seeking practice management solutions that allow them to integrate digital assets into their portfolios,” he explains.

But Tyrone Ross, CEO of New York City crypto software vendor Onramp Invest, says RIAs would be taking a needless risk. 

“RIAs should want [crypto] to happen away from them. They don’t want to be hands-on, and they shouldn’t be. The SEC has high hurdles, and [RIAs] could get regulated right out of the business,” he says, via email. 

Fighting plan A

Yet Flourish may find it an up-hill struggle to convince crypto minded RIAs to opt for its unproven service over Grayscale’s funds.

Matt Apkarian
Matt Apkarian: It could see success in the near term by being favored over Grayscale

Grayscale funds have also become crypto plan A for most advisors, says Eyre.

“Grayscale’s success can be correlated to the simplicity of engaging with the fund. It’s a safe choice in an asset class that some investors still perceive to have significant risk,” he explains.

Perhaps, but Grayscale’s convenience is hugely overstated, counters Cruikshank.

“With Flourish the client can sign up in five minutes. There’s no discount, no premium, no subscription documents, no investor accreditation requirements, no strange liquidity restrictions; you get 24/7 trading prices [for] Bitcoin, cost effective, tax efficient, all that,” he explains.

Getting the jump

Flourish first hit the industry radar early last year. It closed out its first year in business by adding two high-profile RIAs to its 2019-launched cash management service. See: Buckingham Strategic Wealth and Private Ocean hire startup Flourish.

Dan Burnstein
Dan Burnstein: Just because something is new, doesn’t mean it can’t be trusted.

Today the company, an independent MassMutual** subsidiary since December 2020, manages in excess of $1 billion in RIA cash. See: The RIA and insurance worlds draw closer again as MassMutual buys Flourish, a digital bank with 350 RIA banking clients.

Cash management has also given Flourish a foot in the door — and a proven reputation — with RIAs, which gives it the jump on other would be crypto solutions, says Cruikshank.

“[Cash] is the foundational layer of anything we want to do going forward. The rails to move money in and out and around [RIA] products is incredibly valuable … the backbone of everything we’re doing,” he explains.

That said, Cruikshank declined to reveal whether the company’s cash management business is profitable.

Cash bonafides won’t count for much, says Eyre.

“Current Flourish users will likely find the new crypto service attractive simply because — presumably — it has a familiar user experience and is easy to segue to. However I don’t feel like it will push advisors to take up Flourish for just that reason alone.”

Flourish cash management rival StoneCastle has no plans to enter crypto-trading, according to the firm. MaxMyInterest did not respond to a request for comment. See: StoneCastle storms into RIA market with high-yield, FDIC-insured accounts in direct challenge to MaxMyInterest for the title, King of Cash.

Hard to sway

Flourish has also yet to convince one of its largest cash management clients, Buckingham Wealth Partners, to sign on the crypto dotted line, despite an early September meeting with the firm’s chief investment officer and chief operating officer. Nor will Flourish crypto be available to MassMutual reps.

“[Crypto] is not currently part of our investment thesis,” says Buckingham chairman and CEO Adam Birenbaum.

Indeed, if getting smaller RIAs on board with anything other than the Grayscale plan A is tricky, getting giants to move is far harder, says Ross.

“It’s difficult for any crypto company to convince RIAs to adopt crypto solutions. They’ve been growing immensely without adopting crypto. The larger the RIA, the harder it is for them move toward crypto,” he explains.

“[Flourish] will fail if [it] can’t drive adoption from the behemoths,” he adds.

Safe as houses

Flourish puts advisors in charge of buying and selling cryptocurrencies–or their clients if RIAs activate a client trading feature–but crypto custodian Paxos handles the minutae, including safely securing crypto asset keys, often a lucrative target for hackers.

“Cryptocurrencies and digital assets represent a ‘brave new world’ in financial services. But just because something is new, does not mean it cannot be trusted,” says Dan Burnstein, Paxos general counsel and chief compliance officer, in a Flourish blog post.

Founded in 2012, Paxos was the first crypto custodian to obtain a well-regarded New York Department of Financial Services crypto charter in 2015. The custodian is also one of three with conditional approval from the office of the Comptroller of the Currency to establish a national charter.

“Paxos approaches [crypto] from a regulatory first posture … and we need to make sure this [Flourish] solution works from the smallest disclosure up to overall regulatory status[es] and filings. It gives advisors quite a lot of peace of mind about the safety of the storage solution,” Cruikshank says.

Flourish has also partnered with New York City RIA compliance consultancy Compliance Solutions Strategies (CSS).

CSS provides Flourish Crypto clients with a free, legally vetted disclosure update for their form ADVs to ensure RIAs can meet part of the added compliance burden around crypto investing.

Flourish is also in the process of compiling a compliance dossier for RIAs with an undisclosed white shoe law firm.

Option value

The potential market for cryptocurrency solutions is significant, given RIAs today manage a ballpark $5 trillion.

If just 2% of the total RIA portfolio asset base is invested in digital assets, the total addressable market for firms like Flourish Crypto stands at roughly $100 billion, and at 5% it would climb to $250 billion.

Assuming any one company succeeds in gaining 20% marketshare, levying ballpark fees of 90 bps, the revenues stand at between $180 million and $450 million.

Yet Cruikshank demurs when pressed to detail Flourish’s long-term market outlook for its business model.

“Cryptocurrencies have the potential for being completely transformative, and if those worlds come to pass, I couldn’t even speculate … [but] it’s important for advisors to almost view this as option value on that world,” he says.


* * Although Flourish Cash is a sister firm to Flourish Crypto, it trades through FINRA broker-dealer Flourish Financial; whereas Flourish Crypto works through a registered commodity broker-dealer, Flourish Digital Assets

** MassMutual also owns a minority stake in former Flourish owner, and digital assets technology company and asset manager, NYDIG.

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