Bitcoin or Blue-Chip Growth?
That’s a question that Fidelity 401(k) participants will soon face.
Recently, the fund giant announced that later this year, it will allow 401(k) plan participants to allocate up to 20% of assets to a bitcoin product. Countering this move, Vanguard followed with an announcement of its own, saying that it has no plans to follow Fidelity’s move.
While the two fund companies take opposing sides on the “Crypto in retirement plans” debate, we think this issue poses a more important question for financial advisors and their clients:
Are crypto investments suitable for clients?
Financial advisors follow either the Fiduciary Standard (with RIAs) or Reg BI (for those affiliated with independent Broker Dealers). While there are some key differences between the two regulations, a common theme between the two: acting as a fiduciary and in the client’s best interests.
Numerous organizations across the industry, including the National Association of Personal Financial Advisors (NAPFA) and the Consumer Federation of America (CFA) have expressed skepticism about Fidelity’s move. The groups support a Department of Labor (DOL) position that retirement plan fiduciaries should “exercise extreme caution before even considering a crypto option.”
Reg BI has among its various tenets, two key components: suitability and cost. Understanding what products are suitable and the respective cost, is a client-by-client conversation. Depending on a client’s financial objectives and investment policy statement (IPS), the lowest cost option may not be the optimal choice.
That said, numerous industry organizations are concerned with adding crypto allocations to retirement plans. Why? In their view, when an investment option has higher risk than others and costs more, it’s hard to argue that it’s in a client’s best interest.
The Fiduciary Standard compels RIA advisors to act in the client’s best interests with planning and investment strategies and decision-making. With the rise of cryptocurrencies, financial advisors are more challenged than ever when advising clients to make decisions that are in the client’s best interests based on their IPS. Further, to counsel clients against making a behavior-driven decision rooted in FOMO and without any FUD. Or worse, a desire to engage in conversations with colleagues, friends, and neighbors about the crypto they just invested in that they’re convinced will MOON.
We’ve written before about what we see as three key considerations that investors and their advisors should consider, in addition to Reg BI or the Fiduciary Standard. It bears repeating, particularly as the industry (or at least for the moment, Fidelity) moves toward crypto products in retirement plan accounts. In our view, these considerations:
Know what you own
- Cryptos are digital assets, without physical delivery that allows investors to take possession of an asset
- The crypto market trades 24×7, yet the early Fidelity offering will only trade once per day, hampering liquidity of an already volatile product
- The future emergence of Bitcoin ETFs and tighter regulation may somewhat improve transparency and liquidity
Pay the right price
- Crypto investing extracts higher fees than ETFs or even mutual funds
- At 0.75-0.90% of assets, the new Fidelity offering is by no means cheap. It’s not the most expensive fund in the roster, but far from the least costly.
Leverage existing products to participate in markets
- 401(k) plan participants typically have a diverse array of investment choices available
- Advisors can guide clients in doing what’s in their best interests and staying on track by regularly reassessing security selection across portfolios
Remaining on the right side of Reg BI and the Fiduciary Standard can be challenging, especially when clients are presented with a fast-growing assortment of investment choices. Even more challenging is oversight and monitoring of each client’s portfolios against the stated IPS.
The real question for financial advisors is: how can I monitor hundreds of client accounts against the IPS for each? And how will I know if any policy in the IPS (asset allocation, risk, cost, yield/income, ESG, and tax) is above or below the set target?
At LOGICLY, we’ve heard those questions from advisors. To answer those questions, advisors use Portfolio Coach, an AI-powered solution that does the hard work of monitoring client accounts and portfolios. It simplifies and automates portfolio management by staying vigilant over client portfolios, alerting advisors to policy variances across six different IPS categories.
For clients, it’s peace of mind that they’re on track – that they’ll make it. For advisors, it’s the peace of mind that LOGICLY is watching over their clients, around the clock.
Read about LOGICLY solutions for advisors including:
- Using the Tax App to Increase Tax Alpha & Efficiency
- How to Win More Business with the Efficient Frontier
- Why You Should Analyze Fund Regressions BEFORE Choosing ETFs or Funds
- How LOGICLY Aids Advisors in Navigating Reg BI Requirements
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