LPL Financial is positioning itself as the broker-dealer to be first off the blocks by adding a blockchain-themed strategy to its separately managed accounts platform on Friday. LPL also says it is not planning to charge advisors a management fee for access to the Research Blockchain Innovators Portfolio.
The news comes one day after a top Securities and Exchange Commission official said that the cryptocurrency Ether is not a security and will not be regulated by the agency.
Blockchain is a digital ledger in which transactions taking place in bitcoin or Ether, for instance, are recorded.
(Related: 2018 Broker-Dealer Presidents Poll)
“We believe this new strategy can further help our advisors differentiate their practices in the marketplace,” said Chief Investment Officer Burt White, in a statement. “At this time, there are very limited investment solutions available for exposure to this opportunity. We are proud to be able to lead the industry by leveraging our scale and expertise to provide low-cost solutions that support our advisors’ ability to meet market demands.”
LPL, which works with about 16,100 affiliated advisors, says clients must make a minimum investment of $50,000 to add the blockchain strategy to their portfolios.
In the Presidents Poll of independent broker-dealers conducted in April by Investment Advisor, 67% of IBD executives said they did not expect to launch ways for clients to invest in blockchain technology in the short term. About 30% indicated that such a move was possible, and just 2% said they anticipated moving in this direction.
The portfolio, LPL explains, aims to give investors “exposure to companies that are committing resources to developing and implementing blockchain technology.” These companies view blockchain as a tool to help them cut costs and hence possibly boost earnings and stock performance.
According to popular wealth manager Ric Edelman, Vanguard and other large financial firms that have pledged to stay away from cryptocurrencies and other cutting-edge technology “will be eating those words.”
“We are seeing a lot of dumb statements out of Wall Street,” said Edelman, the founder and executive chairman of Edelman Financial Services, at TD Ameritrade’s LINC conference in early February. “Executives there are in denial about cryptocurrencies and blockchain. It’s just denial … [and] they do not understand the technology when they make comparisons between it and tulips and Beanie Babies.”
(Edelman Financial recently said its operations were being merged with robo-advisor Financial Engines.)
Pros & Cons
As of mid-June, five blockchain-focused ETFs have about $385 million in assets, according to ETFTrends.
In light of these readily available products, advisor and blogger Michael Kitces asked on Twitter: “An SMA for blockchain-related stocks with a $50k minimum when you can already buy blockchain ETFs with no minimum? Really curious to know [the management] fee for this SMA, & how much LPL makes on l[the] back end for distributing it vs. [a] simple ETF? Oh, and what advisor recommends these anyway!?”
According to LPL, the blockchain strategy has a management fee of 0.05% vs. a typical equity SMA management fee of 0.40%-0.50%.
“It’s absolutely a smart move. Blockchain is an emerging technology that people want access to efficiently as an investment. These blockchain [holdings] are not cryptocurrencies …,” said Tim Welsh, head of the consultancy Nexus Strategy and a former Charles Schwab executive, in an interview.
Blockchain is “a fundamental technology with massive applications and potential,” Welsh explained. “Maybe it’s not for grandma [to invest in], but for those looking for a technology-focused, growth portfolio it could be good exposure.”
Cambridge Investment Research, which has about 3,200 affiliated registered reps, said in a statement about its plans for blockchain offerings: “We are watching the marketplace and will be prepared if and when we have appropriate demand.”
— Related: 2018 Broker-Dealer Presidents Poll