Building a Crypto Inclusive Investment Policy Statement: A Modern Advisor’s Guide

We know cryptocurrency is no longer just a buzzword tossed around at tech meetups and online forums. It’s matured into a legitimate asset class. Bitcoin, Ethereum, stablecoins, and even NFTs are making their way into client portfolios, from the cautiously curious to the fully committed.

But here’s the thing: while crypto has gone mainstream, most Investment Policy Statements (IPS) haven’t caught up.

For financial advisors, this is a big opportunity and a responsibility. Clients are asking more questions about digital assets, and they need structure, guidance, and guardrails. That’s where a crypto-inclusive IPS comes in.

So, how do you build one that balances innovation with prudence? Let’s break it down in a way that’s practical, conversational, and real-world ready.

What Is an Investment Policy Statement, Again?

Just a quick refresher: An Investment Policy Statement is essentially a blueprint. It outlines a client’s goals, investment philosophy, time horizon, liquidity needs, and allocation of money. Think of it as the “rulebook” for managing their portfolio.

Traditionally, an IPS covers things like asset classes (stocks, bonds, cash), expected returns, rebalancing strategy, and risk tolerance.

But in 2025? That’s not enough.

With crypto entering the scene, your IPS needs a modern refresh.

Why Include Crypto in an IPS?

Because your clients already are, including it, that is.

Even if you’re not advising them on crypto directly, many clients are investing in it on their own. Ignoring that reality leaves a blind spot in your planning. Including crypto in the IPS helps:

• Create accountability and transparency
• Set expectations around risk, volatility, and tax consequences
• Prevent emotional, knee-jerk investing decisions
• Align crypto exposure with broader financial goals

In short, it lets you plan instead of just react.

Step 1: Clarify the Role of Crypto in the Portfolio

First things first: What is crypto for in your client’s portfolio?

Some clients view it as a hedge against inflation. Others see it as a growth asset or an innovation play. Some just want to get in on the action “in case it takes off.”

You don’t need to be a crypto evangelist, but you do need to define the purpose of crypto in the context of the client’s goals.

A few framing options you might consider:

• Speculative Allocation: Limited exposure (1–5%) focused on potential outsized returns
• Inflation Hedge: Exposure to Bitcoin or other assets meant to protect purchasing power
• Innovation Tilt: Investment in blockchain tech as part of a thematic allocation

Whatever the rationale, it needs to be spelled out clearly in the IPS.

Step 2: Set Allocation Limits

This is where things get real.

Crypto is volatile. It can rocket up 200% or crash 70% in a year. You need to help clients manage expectations and protect themselves from overexposure.

Your IPS should include specific language like:

“The portfolio will include a target allocation of 2–5% to digital assets, primarily large-cap cryptocurrencies such as Bitcoin and Ethereum. Rebalancing will occur quarterly to maintain this allocation range.”

You can adjust based on client sophistication and risk appetite, but defining a range avoids emotional “all-in” moves when things are hot or cold.

Step 3: Define Eligible Crypto Assets

Not all crypto is created equal.

Some clients might want exposure to top coins. Others may be asking about meme coins or brand-new tokens they’ve seen on TikTok.

The IPS is your chance to set parameters. You might limit holdings to:

• Assets in the top 20 by market cap
• Cryptos with a minimum 2-year history
• Only coins available through regulated custodians

Being specific here helps avoid portfolio creep and keeps things in line with the client’s overall plan.

Step 4: Discuss Custody and Access

Here’s something traditional portfolios rarely deal with: private keys and wallets.

Who holds the crypto? Is it in a Coinbase account? A hardware wallet? A self-custody setup with seed phrases?

As an advisor, you may not control access to the assets, but it’s important to acknowledge it in the IPS. A simple section like this can do the job:

“Digital assets will be held in client-controlled custodial accounts or third-party wallets. The advisor will not have direct access but will provide guidance on asset tracking and reporting.”

And don’t forget about inheritance planning. Clients need to understand what happens to their crypto if they become incapacitated or pass away.

Step 5: Incorporate Tax Considerations

Crypto taxes are… complicated.

Capital gains, income from staking or mining, tax-loss harvesting; it’s a lot. Your IPS doesn’t have to be a full tax manual, but it should at least touch on tax implications.

For example:

“The client acknowledges that cryptocurrency transactions may generate reportable taxable events. The advisor will coordinate with tax professionals to support accurate reporting and tax optimization strategies.”

This language builds awareness and encourages proactive collaboration with CPAs or tax advisors.

Step 6: Revisit and Review

Unlike traditional IPS documents that might go untouched for years, a crypto-inclusive IPS should be a living document. The space evolves quickly; so should your client’s policy.

Set a review cadence:

• Annually
• After major market moves (e.g., 50% drop in Bitcoin)
• After significant regulation changes
• When the client’s risk tolerance shifts

Frequent check-ins not only keep the IPS relevant; they also build trust.

Step 7: Align Crypto Exposure with Risk Tolerance

This step ties it all together.

Crypto is risky. Like, really risky. So it’s essential that any IPS incorporating digital assets is grounded in a realistic understanding of the client’s comfort with volatility.

That means going beyond the old “1–10 scale” approach.

You need a modern risk profiling tool that factors in behavior, emotion, and decision-making tendencies. Because how a client thinks they’ll react to a 50% drawdown is often very different from how they actually react.

That leads us right to the next point…

Conclusion: The Future of IPS is Crypto-Aware

Digital assets are here to stay. The question isn’t if they belong in the portfolio; it’s how they fit into a thoughtful, customized, risk-managed plan.

As a financial advisor, your role is to help clients navigate this landscape with clarity, structure, and realism. A crypto-inclusive IPS gives you the framework to do just that.

When you set clear roles, define limits, and align investments with goals and risk, you’re not just protecting your clients; you’re empowering them.

And let’s be honest: that’s what great financial advice is all about.

If you’re building portfolios that include crypto, you must understand how much risk your clients can emotionally and financially handle. That’s where Pocket Risk shines.

It offers a next-generation risk tolerance questionnaire that’s designed for real people, not robots. With built-in behavioral science, it captures how your clients really feel about volatility, drawdowns, and uncertainty. It’s not just a form; it’s a conversation starter.

The insights you get from the risk profiling questionnaire help you tailor crypto allocations (and everything else) to match your client’s mindset and goals.