NEW YORK, Aug. 10 (Reuters) – The White House just rolled out a new directive that could let you invest your 401(k)s retirement savings in alternative assets like cryptocurrency or privately held companies. Sounds exciting, right? Not so fast, say financial pros—this move could add a whole new level of risk that many everyday investors might not fully grasp.
“This is brand new—none of it has been stress-tested during a market crash or prolonged downturn,” said Christopher Bailey, director of retirement at Cerulli Associates, an asset management research firm. “There are liquidity concerns, fee issues, and more.”
Big Potential… and Big Risks
The Trump administration argues that opening 401(k) plans to options like private equity, crypto, or companies such as OpenAI and SpaceX could lead to higher returns. Supporters say it’s about giving ordinary people access to the same opportunities wealthy investors enjoy.
But critics warn that these investments come with baggage: higher fees, less transparency, and more complexity than traditional funds.
“I don’t think people are talking enough about the potential for higher fees,” said Philitsa Hanson, head of product at Allvue Systems, which builds software for private asset managers. “This raises more questions than answers. Someone will need to be very thoughtful about how these assets fit into retirement plans.”
The Fee Problem
Private equity firms typically operate on the “2 and 20” model—charging a 2% management fee plus 20% of any profits. That’s a huge jump from the average 0.26% fee charged by the mutual funds that make up most 401(k) plans today, according to the Investment Company Institute.
Dmitriy Katsnelson, deputy chief investment officer at Wealthspire Advisors, says this could reverse decades of progress in cutting investment costs. “It’s been all about cutting fees, doing no harm,” he said. “It’s going to take a while to figure out how to make this work and manage the risks.”
To appeal to 401(k) investors, alternative asset managers may need to create new products with lower fees, better liquidity, and more transparency.
Transparency and Liquidity Challenges
Jason Kephart, an analyst at Morningstar, notes that some alternative investments hide their true costs in footnotes. “They might actually be underrepresenting the real cost to the end investor,” he said. “It’s hard to see how plan sponsors are going to be comfortable with that.”
With stocks and mutual funds, investors can check their portfolios daily and see exactly what’s moving the needle. That’s not the case with private equity or other illiquid assets.
“Private equity is the opposite,” Hanson said. “You’re asking systems built for daily trading to handle assets that may be manually priced and hard to sell. That’s a fundamental mismatch.”
Education and Legal Hurdles
Bailey says asset managers and plan sponsors will have to step up investor education. Most people aren’t spending their free time analyzing whether private equity belongs in their retirement mix.
Jon Gray, president of Blackstone, recently told analysts that private assets might be more suitable for younger investors with longer time horizons, rather than those close to retirement.
There are also legal risks. One high-profile example: Intel faced a lawsuit over including hedge funds, private equity, and commodities in its retirement plans. The case dragged on for seven years before an appeals court dismissed it.
Lawyers at Debevoise & Plimpton warn that many asset managers don’t have the resources to fight multi-year lawsuits. Regulators will likely need to give the industry legal protections before Trump’s plan can fully take shape.