Morgan Stanley: About to Unleash 15,000 Brokers to Promote Bitcoin ETFs

Morgan Stanley, one of the largest investment banks in the United States, is exploring the possibility of expanding its bitcoin exchange-traded fund (ETF) offerings by allowing its approximately 15,000 brokers to recommend these products to customers.

TLDR

• Morgan Stanley is considering allowing its 15,000 brokers to recommend spot bitcoin ETFs to customers.
• Currently, the firm allows bitcoin ETF purchases only on an unsolicited basis, meaning customers must approach their advisors about investing.
• The firm is establishing requirements for risk tolerance and limits on allocation and trading frequency before allowing solicited purchases.
• Major brokerage firms like Merrill Lynch and Wells Fargo also offer spot bitcoin ETFs but only on an unsolicited basis and with certain restrictions.

This move could potentially bring fresh energy and capital into the spot bitcoin ETF market, which has seen significant growth since the Securities and Exchange Commission (SEC) approved 11 spot bitcoin ETFs in January 2024.

Currently, Morgan Stanley allows its customers to purchase bitcoin ETFs, but only on an unsolicited basis. This means that customers must approach their advisors about investing in these products, rather than the advisors actively recommending them.

The firm’s potential policy change would enable brokers to pitch bitcoin ETFs directly to their clients, potentially increasing demand for these investment vehicles.

However, before allowing solicited purchases, Morgan Stanley is working to establish “guardrails” to manage the associated risks.

These include requirements for risk tolerance and limits on allocation and trading frequency. The firm aims to ensure that the expansion of bitcoin ETF sales is done in a controlled manner, providing access to all interested customers while prioritizing caution.

Two senior executives familiar with the company’s plans confirmed that Morgan Stanley is laying the groundwork for this change, although they did not provide a specific timeline for when the new policy might be implemented.

One executive emphasized the firm’s commitment to careful implementation, stating,

“We’re going to make sure that we’re very careful about it…we are going to make sure everybody has access to it. We just want to do it in a controlled way.”

If Morgan Stanley proceeds with allowing its brokers to recommend bitcoin ETFs, it would be the first among its peers to do so.

Other major brokerage firms, such as Bank of America’s Merrill Lynch and Wells Fargo, have taken a similarly cautious approach since the approval of spot bitcoin ETFs.

These firms offer the products but only on an unsolicited basis and, in some cases, with additional restrictions. For example, Merrill Lynch requires customers to have at least $10 million in assets to purchase a bitcoin ETF.

The potential move by Morgan Stanley is a testament to the growing demand for spot bitcoin ETFs, which allow investors to gain exposure to the oldest cryptocurrency without directly holding the asset.

Since their approval, these ETFs have attracted significant inflows, with U.S.-traded spot bitcoin ETFs from major financial institutions amassing a cumulative net inflow of $12.29 billion and over $53.6 billion in assets under management as of Wednesday, according to SoSoValue data.

However, some firms remain hesitant to embrace bitcoin ETFs. Raymond James Financial does not currently offer cryptocurrency products on its platform, while Vanguard has openly expressed its skepticism about the role of these products in long-term portfolios.

LPL Financial, the largest independent brokerage with over 22,000 brokers, planned to take three months to determine which bitcoin funds it could offer to customers.

Cetera Financial Group, another independent broker-dealer, has approved four bitcoin ETFs for its advisors to offer, along with additional education and training. Cetera has also implemented allocation limits and requires customers to have aggressive risk tolerances.

As Morgan Stanley continues to explore the expansion of its bitcoin ETF offerings, it remains conscious of the speculative nature of these investments.

A senior executive noted that while customers have shown strong interest in bitcoin ETFs, most are not “betting the ranch” on the cryptocurrency, instead allocating a small portion of their portfolio to these products.