Crypto in your 401(k)

Today Bloomberg Report Susan Woolly joins me to talk about the recent history of four oh one ks and crypto and why the US Labor Department is less than enthusiastic about fidelities. Move Susanne, so good to have you here. It's not often that I get to talk to someone who covers a sort of a more predictable end of the market versus the complete chaos of crypto old times. And really that's what I want to ask you today.

You know, Fidelity one of the largest investment managers in the world, not an organization that you naturally think of when it comes to running towards risk, and recently announced that they were going to allow people to have exposure

to crypto in there. For one case, why it is very weird big picture to have like one of the largest, the largest FUR one K plan administrator offering a product that lets you have crypto in your four oh one K, which is a workplace savings plan that you're supposed to have. You know, prudent investments in that have to be monitored and they have to be in the best interests of participants. They tend to be well vetted stock and bond funds

and mutual and money market funds, things like that. So to have crypto come into the mix doesn't seem what you would expect. It's it's it's pretty wild. Actually to have Fidelity jump in it seems kind of crazy on the face of it, but when you look a little deeper into Fidelity, they've been one of the financial services companies in this space that has actually moved into crypto

faster than others. They have the digital assets on they do, and they've been sort of exploring the crypto space since eighteen, which is early adopter by institutional standards, so respect So, if I I am a person with a four oh one key, thank you Bloomberg um, and I say, Okay, under what circumstances would it make sense for me to opt into something like this? It very much depends on how comfortable you are about crypto, which I would imagine

is high comfortable. Um. Depends how comfortable one is with crypto and your knowledge of crypto, your ability to take risk. UM. I would argue, your your age, because crypto is so can be so volidile that if you're approaching retirement, putting a chunk of your money and crypto would be taking a big gamble. A lot of financial advisors suggest maybe, if you're going to do it, maybe one to five percent.

If you talk to advisors who are sort of much more into the crypto space, they might say ten percent. Right right. Again, that risk tolerance, what are some of the other risky or let's say volatile assets that have historically been included in these sorts of retirement savings accounts. You could argue that a lot of the equity funds

in retirement accounts now are pretty risky. Because we've seen even the SMP funds where people think that they're diversified among five hundred stocks, A good chunk of that index is in the megacap tech stocks like Amazon on Facebook which have been hammered. So that is supposedly a safe and diversified investment. Right now it doesn't feel that way. But generally in a four one K plan you have

pretty plain vanilla. You've got your stuck all different flavors of you know, stock funds, you've got different kinds of bond funds, you've got money funds, you've got maybe an emerging markets fund, some international funds for sprinkling of flavor, little sprinkling of flavor, but really nothing like crypto. There's been some talk of maybe getting private equity. Private equity firms have wanted to get their toe hold in four one K land, and that's something to keep an eye on.

So Fidelity is i would say, a first mover in the big institutional space, but there have certainly been much smaller providers who have been trying to offer similar things. What about fidelities offering seems to you to kind of thread that needle of providing some exposure to risk in

potential return but also a degree of stability. Well, the way Fidelity has created the product, the individual company, the plant sponsor of the four one k can decide they can allow what people to put up to of their balance in crypto. It's unlikely that many funds will do that what some of the smaller providers have done. Um there's a company and much smaller for and cab administrator called for us all dot Com. They will allow people

to put up to five percent. You can transfer five percent of your balance in and then five percent of your contributions from then on can go into crypto. There's a lot of education around this, obviously, because plant sponsors have a fiduciary duty to be sure not making stupid decisions exactly. So there's a lot of for us ALL, for example, I think you have to go through an interactive quiz before your you know, air quotes allowed invest

in crypto. So it's like informed consent essentially, exactly, got it. One of my other questions about this is I noticed that the Department of Labor was not super keen yes about this headline from FINALSI why the Department of Labor? I mean they're the ones that enforced this law called ORISSA,

the Employee Retirement Security Income Act. And ORISSA is the law that says you have to have prudent you know, non speculative assets, and they are I mean, what they are saying is they think crypto is speculative and vol at all. There's no broadly accepted methodology for how to value it, you know, unlike stocks and bonds, which have methodologies and academics have been studying them for decades and decades. Um,

it's only been around for like thirteen years exactly. So they are sort of saying, like, give me your argument for why this is prudent. And they've been very surprisingly sort of aggressive and coming out against like in regulators speak, well, regulators speak okay, yes, okay, okay. So they had said they have grave concern right, which is the equivalence of aggressive yes in a regulatory just sort of like yeah, you're like, whoa regulator head on fire and got it?

Got it? Fascinating. So, speaking of head on fire, if your you know, friends and family were to say, hey, I have the ability to put crypto in my four oh one K, what does that mean in practice? Like what would that look like for them if they were to go through the tutorial and then say yes, well with fidelities product, it'll be listed. Um, if first your company has to decide that they're going to let you get into crypto, and that is a big decision for them.

Got it. So it's actually you would have to if you really wanted it, you'd have to lobby whoever your company's benefits manager and hope that your benefits managers into crypto or son or daughter this into crypto. You know, So you would go in and with Fidelity they create a digits called a Digital Assets account and they basically like create an account for your plan and you kind

of get units in that plan, but it's all you daily. Um. They have some money market funds as part of it, so they can settle daily trades and you would so you would see it if you went into your foe own K providers website offering, you'd see Okay, my stuck what up this? And my big kind went up that you know, it was along with everything else. Got it?

And just as a as a final question, you know, Fidelity is obviously one of the biggest and most established players in the space we talked about for us all. Do you see other of the major institutional providers kind of following in their footsteps or do you think we're still they're still an await and see. I think there's still no wait and see. I think that Fidelity is having conversations with the d OL and apartmatively the Department of labor Um. We'll see how that goes. Senator Warren

is dead set against this um exactly. Yes, there's a lot of countries, so I think people are going to wait and see because this is a very conservative industry and crypto has seen, as you know, the opposite, Yes, the as folks like to call it, the wild West of crypto. Well, thank you, Suzanne. That was so helpful. I feel like I have a much better understanding of

what this might mean for me. You can find more of Susan's reporting on the Bloomberg Terminal, on Bloomberg dot com and on Twitter at get This at wealth Watch. Thank you. On the next episode of Bloomberg Crypto, we tackle celebrities and n f t s. Should you put your trust in movie stars, pop singers and athletes when it comes to non fungible tokens? What are some of the legal questions? And play with the celebrity endorsements. Tomorrow a chat with Bloomberg report to missy igofa Bolo. I'm

Stacy Marie Ishmael and This is Bloomberg. Crypto, a daily podcast from Bloomberg and I Heeart Radio. From more shows from I Heeart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Email your comments, questions, or suggestions to Crypto at Bloomberg dot net. Follow us on Twitter at Crypto. The pre user and editor of this episode is Vicky Vergelina. Our engineer is Desto wonder At original music by Leo Sidron. Bloomberg's head of Podcasts is Francesca Leavy