The Markets November 11, 2022

FTX Bankruptcy Has Chilling Effect on Crypto Use in Retirement Plans

The collapse of the cryptocurrency exchange and related plummet in the crypto market has increased concern about including the asset in DC plans.

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The rapid collapse of cryptocurrency exchange FTX has some in the retirement industry second-guessing a recent push toward including cryptocurrency in 401(k)s and other defined contribution retirement plans.

The fast fall of FTX, which caused a related drop in mainstay cryptocurrencies such as bitcoin, came to a head Friday with Bahamas-based FTX filing for Chapter 11 bankruptcy. No matter the outcome of the proceedings, industry experts say financial and retirement advisers may be chilled on recommending the asset, which is currently in use by some plan sponsors via offerings from industry-leader Fidelity Investments and small business plan provider ForUsAll.

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“About a year ago we had questions from clients about crypto within 401(k) plans and we suggested a ‘wait and see’ approach,” says Michael Gheen, vice president and senior client executive for retirement plan services at Oswald Financial. “The FTX bankruptcy really reinforced our approach. There is not enough regulation and too much risk today to add crypto as an investment option within the plan.”

The events over the past week have added to concerns voiced by some in the retirement industry, including regulators, that cryptocurrency inclusion needs serious consideration to meet the fiduciary standards enforced by the U.S. Department of Labor through the Employee Retirement Income Security Act.

“If you are sitting in the DOL’s shoes, this points to the fact that this isn’t a regulated currency, there are some issues to be worked out and that fiduciaries should be cautious,” says Wendy Von Wald, fiduciary product manager at Travelers Insurance. “Overall, I think what this does is just reinforce the need for fiduciaries to be real diligent in what they’re offering.”

A survey by fintech company Capitalize found that 60% of investors would like cryptocurrency in retirement plans, and the offering is particularly interesting to younger workers, according to a separate survey by Charles Schwab. Gheen of Oswald says they were asked by plan sponsor clients about cryptocurrency before the drop in values began earlier this year, but at the time they cautioned against it.

“We reminded committees members of their fiduciary responsibility to their participants,” Gheen says. “Our big concern is many plan participants are not sophisticated investors, however, they hear news about ‘crypto billionaires’ and may get caught up in the hype. With the concern of participants chasing returns, in hindsight we are relieved none of our clients added a crypto option to their plan.”

Debbie Matustik, a managing director with retirement advisory Pensionmark Financial Group in Austin, said the FTX collapse reinforced her views on cryptocurrency not being a good option for plan participants.

“To me, the potential risk inherent in cryptocurrencies makes them inappropriate for most participant-directed retirement plans,” Matustik said in emailed response. “Most plan participants do not have sufficient investment sophistication to truly understand the potential risks of an investment in crypto. The FTX crash and bankruptcy bears this out.”

Participant Access

The news comes as the country’s largest retirement plan recordkeeper, Fidelity, and small business plan provider ForUsAll have plan sponsor clients providing participants access to cryptocurrency assets within their 401(k) accounts.

A spokesperson for Fidelity said in an email that the Boston-based firm has had plan sponsors signed up since the fall offering access to Fidelity’s Digital Assets Account as a part of their core 401(k) line up. The firm did not immediately respond to comment on the FTX collapse.

ForUsAll announced last week that 50 plan sponsors were live with its cryptocurrency offering for 401(k) participants through the self-directed brokerage window. It also noted a number of safety precautions ForUsAll has in place before retirement investors can direct deferrals into cryptocurrency, including a waiver, a quiz on blockchain technology, and the fact of needing to go through the self-directed window itself. The San Francisco-based company did not immediately respond to comment on the FTX collapse.

ForUsAll is also embroiled in a lawsuit against the DOL about a warning the regulator gave to fiduciaries about including cryptocurrency in retirement plans, whether through the menu or a self-directed brokerage window. CEO David Ramirez recently told PLANADVISER that the firm offered to drop the lawsuit so long as the agency confirmed its warning on cryptocurrency in retirement plans does “not have the force of law.”

Not Plain Vanilla

The story of FTX’s fall reinforces the need for fiduciaries to be prudent with the investments they make available, and to monitor them consistently, Von Wald says. She notes that retirement fiduciaries are now commonly sued for investment decisions that are far less volatile and new than cryptocurrencies.

“If you’re going to be challenged for the most vanilla of investments like a stable value fund, or a money market fund, then selecting something like a virtual currency or bitcoin should definitely require additional time and review,” she says.

Matustik of Pensionmark Austin says they don’t have any clients that offer crypto in their plans. But rather than avoid the discussion, they introduce the topic proactively in client plan review meetings, noting the pros of including it—mostly to satisfy the “small percentage” of employees asking for it—versus the cons, including the risk of large losses by individual participants.  

Matustik noted that she may be proven wrong, but that as a retirement plan adviser she doesn’t see widespread adoption of cryptocurrency in 401(k) plans any time soon.

“The collapse of FTX simply illustrates the point,” she says. “It may actually provide a great (though unfortunate) future illustration of what risk really means when investing in the most speculative and volatile instruments.”

Deals & People November 11, 2022

Retirement Industry People Moves

Credit Suisse Asset Management appoints head of product; Milliman expands Employee Benefits Administration sales team; Strategic Investment Group hires head of non-U.S. equity; and more.

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Credit Suisse Asset Management Appoints Head of Product

Scott Ebner has been appointed head of product at Credit Suisse Asset Management, effective November 21. Ebner will become part of the management committee of the asset management division and will be based in New York.

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Ebner brings over two decades of experience in product strategy and development for institutional and wholesale clients. Prior to joining Credit Suisse Asset Management earlier this year in the product function, he held various product development roles at State Street Global Advisors, most recently as head of global institutional product. Previous professional positions were with NYSE Euronext and the American Stock Exchange.

In his new role at Credit Suisse Asset Management, Ebner will be responsible for further developing and implementing the product strategy, in close partnership with the investment and distribution departments, ensuring continuous alignment with client needs and the division’s strategic priorities.

Milliman Expands Employee Benefits Administration Sales Team

Milliman, a global consulting and actuarial firm, has announced that Jim Quartarone has joined the Employee Benefits Administration sales and marketing team as a regional sales manager. In this role, he is responsible for sales of retirement plan administration and consulting services, and for building strategic relationships with consultants and advisers across the Western region of the U.S.

Based in Colorado, Quartarone has more than 30 years of experience with ERISA qualified and nonqualified retirement plans, most recently with T. Rowe Price. His expertise includes plan design, compliance, communication, consulting, administration, implementation, relationship management, and investment advisory services for defined contribution and defined benefit retirement plans. Before entering the retirement industry, he served as a captain in the U.S. Army.

Strategic Investment Group Hires Head of Non-U.S. Equity

Strategic Investment Group is pleased to announce that Jackie O. Gifford has joined the firm as a managing director and head of non-U.S. equity, to co-head the public equities team with Ted Joseph, managing director and head of U.S. equity. Gifford joins a team of nine senior investment professionals that have an average of 28 years of industry experience and 16 years of collaboration at Strategic.

Gifford earned an MBA from Loyola University Graduate School and a B.A. in economics with a minor in finance from Pennsylvania State University. She joined Strategic from The Annie E. Casey Foundation, where she spent over 10 years, most recently as director of marketable investments, and prior to that, director of hedge fund investments. She also served for over a decade in leadership roles within the board of directors for the Baltimore Child Abuse Center including vice president, treasurer, and secretary.

Northwestern Mutual Adds to Pillar Financial Group

Northwestern Mutual has announced that Trudy Leen and her two-person team have joined Seattle-based Pillar Financial Group, part of Northwestern Mutual’s Private Client Group. Coming from Gateway Financial Partners with LPL Financial, Leen and her team officially joined Pillar Financial Group on October 27.

With over 30 years of experience in the finance industry, Leen has extensive knowledge in financial planning, wealth management, investment services, legacy building and insurance programs. Leen’s expertise will add to the 200 years of combined experience already represented at Pillar Financial Group.

In addition to Leen, Ashley Scribner and Dara Fogg will lead the office as service coordinators. Pillar Financial Group now has offices in Seattle, WA, Phoenix, AZ, Chicago, IL, Sandpoint and Priest River, ID.

This transition is in partnership with Northwestern Mutual’s distribution growth ventures team and other supporting functions. Northwestern Mutual’s DGV team is focused on nontraditional ways to grow the company’s distribution system.

UBS Hires Las Vegas Financial Adviser

UBS Wealth Management USA today announced that Sara McCue has joined the firm as a financial adviser. She joins the UBS Desert Mountain market, managed by Charles Powers, and is based in the Summerlin office

McCue manages $145 million in client assets for high-net-worth individuals and families. She focuses on providing clients with wealth management advice to address their individual financial needs, including insurance and retirement planning, trust and estate services and philanthropy.

McCue joins UBS from Merrill and brings more than two decades of financial services experience. She began her career in 2002 as a bond analyst for Babson Capital, where she worked with institutional and ultra-high-net-worth clients, before joining State Street Bank as a private equity analyst. In 2006, Sara joined Morgan Stanley as a financial adviser and then joined Merrill in 2009. By 2014, McCue was the lead portfolio manager for a high-net-worth physician-based clientele in Beverly Hills. She relocated to Las Vegas in 2015 to be closer to family to raise her two children.

Sara graduated magna cum laude with a degree in finance from Boston University’s School of Management and is a Chartered Financial Analyst.

AIG Announces Five-Year Employment Agreement with CEO

American International Group, Inc., has announced that AIG and Peter Zaffino, president and chief executive officer and chairman of the board, have entered into an agreement securing Zaffino’s employment through November 10, 2027.

Lincoln Financial Network Hires 2 Financial Professionals

Lincoln Financial Network, the retail wealth management affiliate of Lincoln Financial Group, has announced that Scott LoPresti and Dean DiPierro have joined the firm. As part of the LFN community, LoPresti and DiPierro are empowered to deliver independent, comprehensive financial advice to clients, with the support, services, network and strength of Lincoln Financial to grow their practice and have an even greater effect on their clients, community and the industry.

LoPresti and DiPierro will continue to operate as partners in their independent wealth management practice specializing in helping clients preserve wealth and manage risk, with nearly $500 million in client assets under management. The team brings approximately 30 years of combined financial planning experience, both most recently with LPL Financial, and prior to that, Ameritas Investment Corp. Based in Croton-on-Hudson, New York, LoPresti and DiPierro are registered with LFN’s independent broker-dealer Lincoln Financial Advisers.

Northern Trust Adds to Foundation & Institutional Advisors Practice

Northern Trust has announced that Michael Janko has joined the Foundation & Institutional Advisors practice as a senior investment adviser in Boston, where he will support the firm’s foundation, endowment and institutional nonprofit clients.

Janko, who has more than three decades of investment experience, was most recently part of BNY Mellon’s outsourced chief investment officer team, working with a broad range of nonprofit organizations. Prior to that, he led BNYM Wealth Management’s Endowment & Foundation practice group. Previously, he served as a portfolio manager at SunTrust Investments in Florida and as a portfolio manager at BayBank Investments (Bank of America).

Janko graduated from Suffolk University with an MBA in finance from the Sawyer School of Management and a B.A. in industrial and organizational psychology. Janko has authored articles on topics specific to investing for non-profits and is a frequent panelist and speaker on these topics.

He is on the Advisory Board of The Copernicus Institute for the Arts, Sciences, and Law of New England. Previously, he served at a Lynn, Mass. non-profit organization seeking positive outcomes for at-risk youth on Boston’s North Shore.

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