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What would Ned Johnson do?
The late great Fidelity Investments honcho built his family’s Boston-based money management firm into one of the largest in the world during a long career.
Johnson died on March 23 this year, aged 91.
On April 26, just over a month later, his daughter and heir, Fidelity CEO Abby Johnson, unveiled controversial plans to include Bitcoin in the 401(k) platform it operates on behalf of thousands of American companies.
Coincidences? Probably. The Bitcoin move had surely been in the pipeline for months. And Fidelity had dipped its toe in the Bitcoin pool long before.
But it raises the intriguing question of what Ned would have thought of this latest move. The old Yankee and Boston Brahmin had a reputation as a conservative steward of his clients’ assets. He was also jealous of Fidelity’s corporate reputation. And the Bitcoin movement is generating publicity for all the wrong reasons. That includes getting into public spats with senators and the Department of Labor. And associates the firm with a tanking asset that has been reduced by a third since the announcement.
Sen. Dick Durbin from Illinois has now together with his colleagues Tina Smith (Minnesota) and Elizabeth Warren, from Fidelity’s home state of Massachusetts, publicly reprimanded the fund giant over Bitcoin.
Three senators slam the cryptocurrency as a “volatile, illiquid and speculative asset” and a “casino,” and want to know why Fidelity, “a trusted name in the pension industry” and “one of the leading names in the financial world” would back it in 401 (k) plans.
In fact, the letter from the three senators criticizes not only Fidelity, but pretty much everyone involved in boosting these cryptocurrencies over the past couple of years. That includes “investment experts on social media, to high-paid actors and celebrities, and even some Washington lawmakers” who made cryptocurrency seem respectable to the public and helped propel Bitcoin up to around $60,000, they said.
See also: Fidelity launched Bitcoin 401(k)s. Fintechs are also wading in.
“Some even went so far as to call bitcoin an ‘inflation hedge’ that would prove a useful investment tool in times of high inflation,” they added.
Yes absolutely.
Senator Smith sent this statement to MarketWatch on Friday:
“I start with the fundamental value that retirement security is extremely important. We only need to look at the Great Recession to see how volatile and risky retirement investments are really hurting a lot of people. I think crypto is often misunderstood and has proven to be quite unpredictable and can leave people investing significant portions of their retirement high and dry. I think we need to think carefully about whether financial institutions should enable people to bank their pensions in cryptocurrency without strong regulatory safeguards.”
Fidelity replied:
“Fidelity continues to have strong interest in digital assets and the blockchain. We are proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest. Indeed, customer interest has not only been strong, but also spans a wide range of industries and company sizes We are on track to launch our first plan sponsor clients this fall.
We continue our respectful dialogue with policymakers to provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative service. Consistent with our ongoing dialogue with regulators and policymakers, we are working directly with them.”
Fidelity says it is responding to customer interest. The company offers the platform and back office for the company’s 401(k) and pension plans. It currently serves 23,000 companies and nearly 40 million plan participants.
The company says Bitcoin is the only cryptocurrency it plans to offer in its suite of offerings, and participants will be allowed to commit no more than 20% of their money to the digital currency. Plan sponsors don’t have to include the Bitcoin offering in their 401(k)s, and they can impose lower limits even if they do, Fidelity adds.
You can look at this in two ways.
Personally, I am not a fan of Bitcoin. I’ve been begging for years for someone, anyone, to explain to me why we need it, and what I can do with it that I can’t do with anything else. I still haven’t received an answer. If it were the only digital currency in the world, it would have monopoly value. But coinmarketcap.com lists nearly 10,000 competing digital coins and new ones are being launched all the time. Just because the technology behind it is smart doesn’t make the coin valuable. Sorry, I saw this movie before, in 1999-2000.
Don’t even get me started on NFTs.
Litigator Mark Bokyo told a retirement industry conference this week that including Bitcoin in 401(k) plans is going to be good news … for lawyers, when participants end up suing.
On the other hand, there is nothing to prevent people from betting their 401(k) plans on all kinds of “volatile, illiquid and speculative” assets, which include many of the stocks on the stock market. Many plan sponsors allow you to hold individual stocks in your plan, as well as diversified mutual funds.
And there’s nothing stopping people from speculating on these digital coins with their hard-earned cash outside of their retirement accounts, either. As long as regulators allowed this speculative bubble to burst and then collapse, people were going to find a way to lose money. Whether we want to encourage them to blow their 401(k)s on it is another matter.
This article originally appeared on MarketWatch.
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