Merrill Lynch is not the only wirehouse that forbids its financial advisors from trading cryptocurrencies and their derivatives. Brokers at Wells Fargo, UBS, Morgan Stanley and RBC are also not allowed to offer the new asset class to clients, the companies confirmed Thursday morning.
In a memo sent Dec. 8 to its brokers, Merrill Lynch banned them from pitching bitcoin-related investments and from executing client requests to trade Grayscale’s Bitcoin Investment Trust Fund (OTC:GBTC), citing concerns over suitability. Clients will have the opportunity to sell existing positions in the related securities if they have any, according to the memo.
The Wall Street Journal first reported the ban Wednesday.
Merrill Lynch is not the only brokerage with concerns and policies banning bitcoin, cryptocurrencies and related investments for their retail wealth management clients.
Wells Fargo does not allow advisors to trade or pitch either GBTC or bitcoin futures, launched in December. The same policy applies to advisors who are part of the independent Wells Fargo Advisors Financial Network, said a person familiar with the matter.
There are also no current plans in place by either Wells Fargo Advisors or Wells Fargo Securities to open trading desks for cryptocurrencies, something other banks have been rumored to be doing.
UBS also doesn’t support or facilitate the trading of bitcoin or other related investments, according to a person familiar with the firm’s policies. While no memo has been sent to advisors forbidding it, both Axel Weber, chairman of UBS Group AG board of directors and Paul Donovan, global chief economist for UBS Wealth Management, have been vocal internally about the bank’s attitude toward it, a person at UBS familiar with the communication said.
UBS’ decision stemmed not from GBTC or the bitcoin futures contracts themselves, but from caution around the unique risks and hurdles of the underlying cryptocurrencies and exchanges. Fees to trade cryptocurrencies can be expensive, some of the exchanges have faced liquidity issues and the volatility of the new asset class raises a suitability question for clients, according to someone familiar with the situation.
The person also cited the security as a major risk, as millions of dollars in cryptocurrencies have been stolen or lost with little or no recourse for investors.
RBC also doesn’t offer services in bitcoin and other cryptocurrencies to its personal, commercial or institutional clients. A spokesperson said the bank is evaluating the risks and controls required before green-lighting the investments.
A spokesperson for Morgan Stanley said the brokerage does not currently offer Morgan Stanley Wealth Management clients access to securities or derivatives linked to bitcoin or other digital currencies. The spokesperson declined to comment further when asked if the brokerage had explicitly forbidden its advisors from recommending cryptocurrencies to clients.
A different spokesperson at Morgan Stanley said other units of the bank are looking at bitcoin futures and other related securities and weighing the opportunities, perhaps on the trading desks and for investment banking opportunities, but nothing has been decided yet.
It was reported in December that Goldman Sachs was setting up a bitcoin trading desk, days after the cryptocurrency hit an all-time high of more than $19,000, up from about $900 at the start of 2017.
Ross Gerber, the co-founder, president and CEO of the $650 million AUM Gerber Kawasaki Wealth and Investment Management in California, said brokerages could be hurting advisors by forbidding them from offering cryptocurrency products or advice.
He said most clients who come to him with questions about cryptocurrencies aren’t interested in buying them—they already own them, and are now looking to manage their entire portfolio. For the brokerages, they might be losing an opportunity to better diversify their client’s wealth, charge commissions on trades or collect fees.
But Gerber wasn’t surprised by the brokerages’ reluctance, given the risks in the new type of asset and the way it’s still difficult for most investors to reliably access the cryptocurrency markets. “The broker dealers of the world sell financial products and if they can’t sell that product, they’re not going to be for it.”