Merrill Lynch isn’t alone in preventing its financial advisors from engaging in cryptocurrency and related derivative trading. Confirmed on Thursday, Wells Fargo, UBS, Morgan Stanley, and RBC also restrict their brokers from providing access to this emerging asset class for their clientele.
In a communication sent to brokers on December 8th, Merrill Lynch announced a prohibition on promoting bitcoin-related investments and executing client requests for trading Grayscale’s
Bitcoin Investment Trust Fund (OTC:GBTC)
, citing concerns regarding investment suitability. The memo indicated that clients will retain the ability to liquidate existing holdings in these securities, should they possess any.
The Wall Street Journal initially broke the news of this restriction on Wednesday.
Several brokerages share similar reservations and have policies restricting bitcoin, cryptocurrency investments, and their derivatives for retail wealth management clients.
Wells Fargo prohibits its advisors from trading or promoting GBTC or Bitcoin futures, which launched the previous December. According to a source familiar with the matter, this policy extends to advisors affiliated with the independent Wells Fargo Advisors Financial Network.
Furthermore, neither Wells Fargo Advisors nor Wells Fargo Securities currently plan to establish cryptocurrency trading desks, despite rumors that other financial institutions are considering such initiatives.
According to a source familiar with their policies, UBS also refrains from supporting or enabling trading in Bitcoin or related investments. While advisors have not received a formal memorandum prohibiting such activities, both Axel Weber, Chairman of the UBS Group AG Board of Directors, and Paul Donovan, Global Chief Economist for UBS Wealth Management, have communicated the bank’s stance on the matter internally, according to a UBS insider.
UBS’s decision was prompted not specifically by GBTC or Bitcoin futures contracts, but by concerns surrounding the inherent risks and challenges associated with the underlying cryptocurrencies and exchanges. Fees for cryptocurrency transactions can be substantial, some exchanges have experienced liquidity issues, and the asset class’s inherent volatility raises suitability concerns for certain clients, according to a source familiar with the situation.
This source also highlighted security risks, noting that substantial sums of cryptocurrency have been lost or stolen, leaving investors with limited or no recourse.
RBC also does not provide services related to Bitcoin and other cryptocurrencies to its individual, commercial, or institutional clients. A spokesperson stated that the bank is currently assessing the risks and necessary controls before approving such investments.
A spokesperson for Morgan Stanley confirmed that Morgan Stanley Wealth Management clients currently lack access to securities or derivatives linked to Bitcoin or other digital currencies. When questioned about whether advisors were explicitly prohibited from recommending cryptocurrencies, the spokesperson declined to comment further.
Another Morgan Stanley spokesperson indicated that other divisions within the bank are evaluating Bitcoin futures and related securities, weighing potential opportunities for trading desks and investment banking activities, but no definitive decisions have been made.
Reports from December indicated that Goldman Sachs was establishing a Bitcoin trading desk shortly after the cryptocurrency reached a record high of over $19,000, a substantial increase from approximately $900 at the beginning of the year.
Ross Gerber, Co-founder, President, and CEO of Gerber Kawasaki Wealth and Investment Management, a California-based firm managing $650 million in assets, suggested that brokerages restricting cryptocurrency offerings or advice could negatively impact advisors.
He explained that most clients approaching him with cryptocurrency inquiries already own these assets and are seeking comprehensive portfolio management. By restricting access, brokerages might be missing out on opportunities to enhance client wealth diversification, generate commission revenue from trades, or collect management fees.
Gerber expressed his lack of surprise at the brokerages’ hesitance, citing the inherent risks of this novel asset class and the persistent challenges for most investors in reliably accessing cryptocurrency markets. “Broker-dealers primarily sell financial products, and if they can’t sell a particular product, they are unlikely to endorse it.”