The news: President Trump recently signed an executive order to allow Americans to invest 401(k) retirement savings in private equity, cryptocurrency, real estate, and other alternative assets, per NBC. The administration believes this will give retirement savers more opportunities for potentially higher returns.

The impacts: This may excite younger consumers in particular, as they generally are more interested in alternative investments. But critics and financial experts warn that these new options come with higher risks and costs than traditional 401(k)s. 

These options lack the transparency and liquidity of more traditional investments, which could make it difficult to sell assets during a market downturn. Additionally, fees for private funds can be significantly higher than those for mutual funds.

Why this matters: The traditional banking model centers on stability, trust, and relatively conservative financial products. In addition to new opportunities, introducing high-risk, alternative assets into retirement accounts creates significant challenges for the banking sector.

• Risk of eroding customer trust: Potential losses from high-risk investments could damage customers’ trust in the financial system and their primary bank, making them more skeptical of all financial products and advice. 
• Pressure to offer new products: Banks may feel pressure to keep up with competitors and offer a wider range of investment products, including those in alternative assets. This will require new investments in technology, compliance, and staff training.
• Increased legal and regulatory exposure: Banks and other financial institutions (FIs) could face greater legal liability if they fail to warn customers about the risks of these investments. FIs must carefully navigate the new regulatory environment to avoid lawsuits and fines.
• Shift in customer expectations: Customers may begin expecting their bank to fulfill all of their financial needs, including high-risk investment options. Banks that don't adapt their offerings may lose customers to more innovative competitors.