Financial Advisor (April 27, 2022) - Vanguard is not planning to follow in Fidelity Investments’ footsteps and develop a bitcoin offering for its 401(k) plan investors, the broker-dealer told Financial Advisor Magazine today.

“Vanguard has no plans to do so,” spokesperson Carolyn Wegemann said, when asked if the $8.1 trillion broker-dealer is moving toward a cryptocurrency 401(k) offering.

“Since cryptocurrencies are highly speculative in their current state, Vanguard believes their long-term investment case is weak,” the firm, which has $8.1 trillion in AUM, says on its website.

As of now, that leaves Fidelity, which has $11 trillion in assets under management, out in front with its 401(k) bitcoin offering. The giant investment management concern announced Tuesday that it will allow retirement investors to allocate up to a maximum of 20% of their nest eggs to bitcoin beginning in mid-2022.

The move comes despite a warning from the U.S. Department of Labor in March which advised 401(k) fiduciaries to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.”

Retirement plan fiduciaries must “diversify the plan’s investments in order to minimize the risk of large losses” according to the Employee Retirement Income Security Act of 1974 (ERISA), the agency warned.

The U.S. Securities and Exchange Commission has also expounded on its concerns about bitcoin’s potential for fraud, manipulation and investor safety in the agency’s rejection of several bitcoin exchange-traded funds in the past year.

Vanguard said its “investing philosophy encourages staying the course and tuning out the noise. Our time-tested principles emphasize that investing for the long-term is essential and reacting to short-term trends can be costly for one’s portfolio.”

But never say never. “While we don’t currently offer cryptocurrencies as an investment option, we acknowledge the impact they’re making in the investing world. As cryptocurrencies and blockchain become increasingly mainstream, we’ll continue to monitor their development and discern the best path forward for our investors,” the asset manager said.

The National Association of Personal Financial Advisors (Napfa), Public Investors Advocate Bar Association (Piaba) and Consumer Federation of America (CFA) sent a letter to the DOL on Tuesday following Fidelity’s announcement, supporting the agency’s stance. The groups agree “that plan fiduciaries should exercise extreme care before they consider adding a cryptocurrency option or related product to a 401(k) plan’s investment menu for plan participants.”

“First, I find it difficult to see how offering crypto in retirement plans at this point in the market's evolution is prudent,” Micah Hauptman, CFA’s Director of Investor Protection said in an interview.

“I worry that service providers and plan sponsors may be trying to offer shiny objects to investors that are really just investment fads and speculation schemes. Such an approach would not be consistent with engaging in a prudent and objective analysis about what is best for plans and their participants,” the former SEC staffer said.

Hauptman also warned that service providers that offer crypto to plans ultimately may be doing plan sponsors a disservice “because it's plan sponsors who will be at increased risk of fiduciary liability for these decisions.”

The SEC and Labor Department’s warnings could provide support to any claimants in potential future litigation against companies and their fiduciaries.

But Fidelity said on Tuesday that it has been developing the 401(k) bitcoin and cryptocurrency offering for some time.

Unlike regular bitcoin trading, which trades and reprices 24 hours a day, Fidelity plans to update its price once a day, like traditional mutual funds do.

Fees on the accounts are expected to range from 0.75% to 0.90% of assets, Fidelity said.

While Fidelity is the first big 401(k) platform to offer bitcoin inside 401(k) plans, it is not the last. In fact, ForUsAll, a 401(k) provider, announced in June 2021 that it is planning to offer cryptocurrencies to 401(k) participants through a separate a self-directed window. Partcipants will be required to take an interactive quiz about risks before they can invest.

Fidelity also plans to put educational materials in front of 401(k) participants before they buy cryptocurrencies, in order to get them to study and understand the risks.

While Fidelity’s announcement may encourage other broker-dealers to ramp up 401(k) cryptocurrency offerings, demand from employers is still building.

Some 57% of employers said they “would never” see cryptocurrencies as a viable investment option, according to the findings of a Plan Sponsor Council of America survey. Another 30% of employers said the recent DOL warning “simply affirms the concern we already had.”