Standard Custody debuts crypto custody tools via link-up with wealth management platform
The future of on-chain wealth management involves a mix of self- and qualified-custody for digital assets, executives say
David Sandron/Shutterstock modified by Blockworks
A new offering seeks to give financial advisers and their clients more flexibility when it comes to crypto custody — an area that has historically presented challenges for certain institutions.
Standard Custody & Trust Company has joined forces with on-chain wealth management platform L1 Advisors to launch a product that seeks to blend the security of qualified custody with the control of self-custody, the companies told Blockworks.
Built for registered investment advisors (RIAs), wealth managers and family offices, financial advisers can now monitor assets in qualified custody or in clients’ self-custodied wallets through the L1 platform.
The advisers can then create custom custody setups for each client based on risk profile, goals and other criteria, according to L1 Advisors CEO Miguel Kudry.
“A client who believes in self-sovereignty and wants exposure to DeFi can be both self-custodied and leverage qualified custody for tax advantaged account types,” Kudry told Blockworks in an email. “At the same time, clients who seek a more balanced risk profile can benefit from the security of qualified custody and only use self-custody as a pass-through to DeFi protocols and products.”
Based on compliance needs of each adviser, some may choose to have discretion over assets in qualified custody, he added. Others might defer all discretion to their clients.
Nick Rygiel, owner and financial adviser at Ironclad Financial, said his firm began its digital asset advisory offering by working with clients who were self-custodied through the L1 platform.
Those with growing assets under advisement needed a way to add assets into client estate plans, he noted. The new product from Standard Custody and L1 Advisors enables Ironclad to expand to working with digital assets in trusts and other tax-advantaged structures.
“The values of a qualified custodian along with Standard Custody’s access to best execution via escrow allows Ironclad to compliantly check all the boxes for different client appetites,” Rygiel said.
Crypto custody challenges
A main problem for digital asset custody for RIAs and other wealth managers in the US is that there is not a clear definition of “qualified custody,” according to Adam Blumberg, co-founder of Interaxis.
“RIAs use custodians to hold assets, and then exercise discretion — basically a Limited Power of Attorney — to affect trades within client accounts on assets held with those custodians,” he told Blockworks.
The SEC proposed amendments to the so-called “Safeguarding Advisory Client Assets” rule in February — which gained criticism from SEC Commissioner Hester Peirce, a long-time advocate for crypto.
The Blockchain Association argued in a May letter that the requirements would discourage crypto-native custodians from continuing to provide such services.
Read more: Bain Capital Crypto Among 5 Firms Bashing SEC’s Proposed Custody Rule
Crypto custodians also don’t necessarily sync well with traditional custodians, Blumberg said. As an RIA managing client assets, or as a family office, it isn’t seamless to move assets from dollars or equities straight to crypto at a custodian, he noted.
“There is a conversion to fiat, a wire transfer — which can take a while — and then a purchase of crypto,” Blumberg explained. “Fee-heavy, time intensive and risks along the way.”
Blockchain infrastructure provider PolySign, the parent company of Standard Custody and Trust Company, raised $53 million last year. PolySign CEO Jack McDonald told Blockworks at the time that “a better platform for custody and fund administration” was necessary for institutional investors.
Though a January survey found that a majority of financial advisers plan to maintain or increase their clients’ exposure to crypto, one by Goldman Sachs in May found family offices were not as interested in the asset class.
Digital assets adoption is being driven by the end client and a regulatory focus on safeguarding of assets, according to Matt Wahl, PolySign’s director of business development.
“Each of these clients require a customized approach that only a hybrid of qualified and self-custody can deliver,” he told Blockworks in an email. “This partnership allows advisers to finally deliver a solution for the digital asset client, and it couldn’t be more timely with the largest generational wealth transfer approaching.”
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