Jump to content

Does any broker-dealer allow crypto in its self-directed brokerage account?


Recommended Posts

EBSA’s Compliance Assistance Release No. 2022-01 (March 10, 2022) attracted attention about its suggestion: “The plan fiduciaries responsible for . . . allowing [cryptocurrency] investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described [in the Release].”

Crypto is unlikely as a designated investment alternative of a typical individual-account plan. So, a way a participant might direct investment in crypto would be through a “brokerage window” or “self-directed brokerage account”.

Does anyone know which SDBA providers allow crypto?

Does anyone know of a provider that specifically excludes crypto from its SDBA product?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Your question might need to be refined.  

I have a 4k account with a former employer that has a SDBA that as far as I know doesn't allow crypto directly but I haven't seen anything from stopping me from buying any kind of ETF based on the movements of crypto or hold crypto. 

I realize one can say that is a little different but given one of the big objections of crypto in a qualified plan is the volatility.  An ETF would have that volatility also.  

So I guess I am suggesting that the concept of allowing crypto is wider than just allowing bitcoins.... to be bought.   And like I said I haven't seen any restriction on the one SDBA I am in that has restricted any kind of ETF but I don't think I can buy crypto directly as it isn't on the drop down box of buy options.   

Link to comment
Share on other sites

ESOP Guy, thank you for your useful information and your helpful suggestion to refine my query.

Here’s my working assumption: A plan’s fiduciary, for its decisions about what it excludes from what the broker-dealer otherwise would allow for the window, prefers a logic independent of considering the investment merits. (I’m deliberately ignoring the Release’s points about speculation and volatility.) Rather, a fiduciary prefers neutral reasons. For example, a fiduciary might rule out an investment if a purchase, holding, or sale of it would involve a nonexempt prohibited transaction. Another reason might be a fiduciary’s finding that a directing participant might be practically unable to get reasonable information about the investment.

An ETF share or other participation in an exchange-traded fund does not involve a lack of information. The disclosure regimes of the Securities Act of 1933 and the Investment Company Act of 1940 apply. About an ETF, a directing participant may ask for the fund’s prospectus, statement of additional information, annual and semi-annual reports, and other information securities law calls for. The decision-maker can get at least that information to evaluate a fund’s investment strategies or an operating company’s business prospects.

For my questions, let’s assume the brokerage window already excludes anything that is a security but is not registered as securities law requires for dealing with the undifferentiated general public. And let’s ignore an exchange-traded fund and any SEC-registered security, no matter how much the fund’s or other issuer’s values might be affected by crypto businesses.

So, here are my restated question:

Which SDBA providers allow buying, holding, or selling:

a direct crypto asset?

commodities (such as futures or swaps) involving a direct crypto asset?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

I’m wondering that—even if a participant-directed retirement plan fiduciary wants to follow some ideas in EBSA’s Compliance Assistance Release (about a brokerage window, not designated investment alternatives)—there might be rather little for a fiduciary to do.

For example, if a fiduciary were to attempt to follow the Release’s hints about investments too difficult for a directing participant to understand, how would one draw a principled distinction between:

an ETF that invests in shares of operating companies with a crypto-related business, and

an ETF that invests in shares of operating companies in some other kind of business that a participant might not understand?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Maybe I'm completely off with my take but I do have some time in the Alternative Asset space for retirement accounts. I don't know of SDBA that allows direct investment in Crypto. However, what I have seen are plans, that allow certain custodians that specialize in Alternative Assets in Retirement Accounts, to serve as one of the custodians for the plan. The client then opens an account with them (which is titled in the name of the Plan FBO the client) and then would purchase the Crypto (or any other non-traditional asset) through that custodian but the ownership of that asset would be in the name of the custodian FBO Plan for further credit to the participant. That's what I've seen. The companies that allowed this type of investment in their retirement accounts were mostly silicon valley companies or VC companies.

Link to comment
Share on other sites

JOH, thank you for your further information.

The arrangement JOH describes might be something for a fiduciary to evaluate (if the fiduciary seeks to follow the EBSA Release's ideas).

I'm interested in what is done with a brokerage window with a securities broker-dealer for which a mainstream recordkeeper arranged for regular feeds into its recordkeeping system.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

  • 2 weeks later...

About one week after our discussion left off:

Fidelity Investments® announced that Fidelity’s Digital Assets AccountSM will become available “mid-year” to workplace 401(k) plans. An individual’s account is credited with “units of their plan’s Digital Assets Account that primarily holds bitcoin plus short-term money market investments[.]” The account has only one unit price for each valuation day.

The account is designed for use as a designated investment alternative, rather than in a brokerage window. An employer or other plan fiduciary decides whether to allow a Digital Assets Account, and (within Fidelity’s requirements) sets limits on contributions and other amounts directed to the account. No Fidelity business provides investment advice about a Digital Assets Account’s assets.

(Quotations and other factual information here are from Fidelity’s communications. All trademarks and service marks mentioned belong to FMR LLC. I don’t endorse Fidelity or any of its products or services.)

Unless a plan’s governing documents provide this Digital Assets Account as an investment alternative, an employer bears fiduciary responsibility for a decision about whether to allow it.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

In the past quarter-century’s cases litigated by motivated plaintiffs’ lawyers, I’ve seen not even one in which Fidelity did not successfully defend the idea that Fidelity is a nonfiduciary to the extent of implementing what another fiduciary assented to.

Rather, to go after Fidelity the Secretary of Labor would need to sue the decision-making employer on its fiduciary breach.

And if a claim against Fidelity is on an ERISA § 405(a)(3) failure to make reasonable efforts to prevent or remedy the employer’s breach, the Secretary would need to prove Fidelity knew the instructing fiduciary’s decision-making could not have been prudent.

If the Secretary of Labor sues MicroStrategy Incorporated [Nasdaq: MSTR] (and the complaint is not dismissed for its failure to state a plausible claim), one imagines the evidence would include a careful record of some committee’s deliberations, with findings that many MicroStrategy employees have, or can obtain, enough knowledge to understand an investment in bitcoin.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...