Product Innovation Can’t Sidestep Prudence

By: Mitch Shames

Back in May, 2022, when Fidelity launched a facility enabling plan participants to purchase cryptocurrencies within their qualified plans, I wrote a piece in Investment News which raised prudence concerns regarding this new facility. Earlier in January, the SEC approved ETFs investing in Bitcoin and my concerns remain the same.

To be clear, the SEC’s approval relates solely to the fact that the ETFs under review met the SEC’s various requirements under the securities laws. The SEC did not, and it never does, sign off on the prudence of the investment or the vehicle. Prudence, for purposes of ERISA, is a judgment that must be made by plan fiduciaries.

As I outlined in the Investment News piece, in my judgment, cryptocurrencies are still too new of an innovation to be included as an investment option in a qualified plan. Just look to the collapse of FTX and the conviction of Sam Bankman-Fried for proof that cyrptocurrencies are not yet ready for prime time.

Don’t get me wrong, I’m not at all suggesting that cryptocurrencies will never be appropriate for qualified plans…nor that all crypto entrepreneurs are felons. Not at all. Instead, it is simply a timing issue, both the investment case and the platforms/exchanges related to crypto have not matured sufficiently for the retirement plan marketplace. An enormous amount of analytics and due diligence needs to be accomplished. However, my prediction is that the introduction of ETF’s are an important step along the path ultimately towards a prudence determination.

If you are interested please reach out to us. We love to brainstorm around these issues and we’d be happy to connect with you!