Sales & Marketing | 06.17.26

After the Hype, Teachable Moments

by: Rich Blake

Crypto. Meme stocks. Artificial intelligence. SpaceX.

The dream factory never stops churning out new shiny objects.

Investment advisors inclined to nix the notion of chasing the latest craze — preaching diversification instead — might seem boring or old-fashioned. Consider it a badge of honor. Fads fizzle out. But teachable moments, for industry professionals and their clients, can last a lifetime

Choosing Your Battles

SpaceX’s initial public offering, possibly one of the most highly anticipated initial public offerings (IPOs) to ever activate saliva glands, has sparked interest in the shares themselves but also space-related companies in general as well as “pre-IPO” futures contracts on leverage-friendly platforms such as Hyperliquid.

Retail brokerages are climbing over each other to get an allocation of the shares, owing to their clients’ demand (and Elon Musk’s eagerness to widen the participation tent beyond big institutions).

Excitement and investment discipline are not usually compatible, says Nathan Lee, an advisor and behavioral-finance specialist at Servet Wealth Management in New York.

But perhaps a client simply insists on getting in on day one, no matter what the price. There’s a window here to have a pertinent discussion.

One of the biggest questions surrounding Elon Musk’s reusable rocket company has to do with valuation. Morningstar estimates that SpaceX’s fair value is well below the (95 times earnings?!) figures being bandied about for the IPO. Now that’s a conversation starter.

Regardless of whether Morningstar analysts wind up right or wrong, their bucket of cold water at least puts a spotlight on the issue of how “public investors may be paying a very high price for future growth that still needs to materialize,” says Lee.

He tells clients that if they wish to discuss potential access to the IPO, there first needs to be a conversation about whether it makes sense.

But investing is supposed to be for the long haul and so wouldn’t a sterner approach — it’s too pricey, best steer clear — make even more sense?

Rage Against the Casino

Nowadays there seems to be a heightened focus on trying to extract outsized gains in a shorter time horizon. It’s part of an overall effort to woo younger clients, some industry members concede.

Between the Trump administration pushing its Department of Labor to give 401(k) plan administrators the ability to sell private credit funds — many of which are reeling from a wave of defaults and throwing up gates — and firms like Charles Schwab promoting 24-hour crypto trading, there seems to be a creeping mindset among financial advisors that relatively riskier offerings should be fair game. In the age of phone-based instantaneousness it can seem as if the world has morphed into one giant betting platform.

“Right now, instead of rejecting the casino, the financial advice industry is embracing it,” says Bruce Kelly, a columnist at Investment News.

Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services, adds: “As a country, we’re getting hooked on gambling and weaning ourselves off investing.”

As a result, she explains, the industry is looking at products, such as the contracts offered by predictions markets platforms like Kalshi and Polymarket, geared toward short-term payoffs.

The Next ‘Next Big Thing’

Prediction markets are here to stay it would seem. These realms burst onto the American marketplace in the fall of 2024, ahead of the U.S. presidential election, and their popularity has since exploded.

Prediction markets have expanded to offer event contracts based on crypto, climate, economics, financials, companies and sports. Worlds are colliding as industry participants seek out opportunities, as KPMG explains: Polymarket recently purchased CFTC- registered QC; Robinhood and Webull announced partnerships with Kalshi to offer event contracts; and FanDuel has partnered with CME Group to expand into the financial derivatives market.

According to KPMG, the traditional financial services industry has two key aspects of prediction markets to consider: how to surveil employee trading, and whether to allow clients to trade on event contracts through brokerage accounts.

“Our clients have expressed concerns regarding the use of material non-public information (MNPI) in prediction markets, which pose a substantial threat beyond the integrity of these markets and onto the firms and individuals themselves. To protect their reputation, comply with regulatory requirements and uphold the highest standards of ethical conduct, financial service firms should consider proactive measures to identify, mitigate and prevent such risks.”

For advisors, the task now is not to speculate about where prediction markets will ultimately land jurisdictionally, but to ensure that their own participation reflects the standards that have long governed the advisory business, says Freshfields, a global law firm.

Those advisors who treat prediction markets as an extension of their information ecosystem — and regulate them accordingly — will be best positioned both to innovate and to withstand scrutiny as enforcement attention inevitably catches up to market reality.

Hold Your Ground

Allworth Financial co-founder Pat McClain recalls three decades of dissuading clients from chasing hot dots.

“I cannot count the number of times that I have met with clients who were excited about investing in something that was clearly a fad,” he says. “And almost as many times, I have been able to explain to them why that investment was a bad idea.”

The most important function of any advisor, McClain adds, is to keep clients from making mistakes from which they cannot recover.

How can you resist succumbing to the herd mentality and avoid chasing fad investments?

Simple, McClain concludes: “Work with an advisor.”