Schwab execs sound off on Bitcoin, HSAs and Morgan Stanley exit from broker protocol

Government likely to rein in popular cryptocurrency, health savings accounts will grow, and wirehouse's decision on recruiting agreement called a mistake.
NOV 15, 2017

Bitcoin may be quickly gaining popularity as an emerging investment, but it's more likely to be disrupted by governments than to be a disrupter itself, a Charles Schwab & Co. Inc. executive said on Wednesday. Since the beginning of the year, the so-called cryptocurrency has garnered a 704% increase in its price, prompting clients to ask investment advisers whether they should include it in their portfolios. But Schwab CEO Walt Bettinger said that government regulation is likely to rein in bitcoin. The reason is because the distribution and management of currency is one of the primary mechanisms of governance. Wide use of bitcoin could put money out of a government's control and hamper its ability to crack down on crime or levy taxes. "The idea that cryptocurrency can get to a substantial enough size without some form of governmental intervention, not just in the U.S. but globally, I think there are some real doubts about," Mr. Bettinger said at the annual Schwab Impact conference in Chicago. "It almost could undermine the ability of governments to function, at least in the ways we've known governments to function." In a Q&A session with Schwab executive vice president and head of Schwab Advisor Services Bernie Clark, Mr. Bettinger addressed an array of issues prompted by questions submitted through an online app by a large chunk of the nearly 5,000 attendees at the event. One focus of inquiry was health care. Health savings accounts, which allow tax-free contributions, gains and withdrawals to cover medical expenses, are becoming more and more popular as companies implement high-deductible health plans. They're also a favorite of congressional Republicans who are trying to repeal the Affordable Care Act. The accounts have more than $40 billion in assets. "Our view is that everyone will have HSA accounts," Mr. Bettinger said. "They'll be completely portable. They'll have every investment option available to them that is available today in the investment world. They'll become ubiquitous across all aspects of our lives." Online investment advisers also came up in questions. Mr. Bettinger was skeptical about so-called robo advice without a human element added to it. "The idea of differentiation based on asset allocation is not likely to be successful," he said. "It's so hard over time to create value on an asset-allocation standpoint. It's going to be a service. Everyone will offer it." Mr. Clark criticized the recent decision by Morgan Stanley to abandon the the broker recruiting protocol, an agreement among brokers not to hinder their representatives when they leave for another firm or to start their own businesses provided the follow agreed-upon guidelines. Morgan Stanley "is an organization that thinks they can lock people down," said Mr. Clark. "What a mistake that is. It is something that we will address appropriately. It might accelerate some of the movement to the independent space." A Morgan Stanley spokeswoman declined to respond to Mr. Clark's comments. Mr. Clark touted independent advisers, who are bound by fiduciary duty to their clients, as being in the best position to help them navigate changes in the markets and in society that affect their finances. "You need to be the curators of that information," Mr. Clark said. "You can have the influence to push them in new directions. Broaden your horizons."

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