What we like: Emphasis on returns to capital (savings); savers will continue to be rewarded.
What we don’t like: Modern-socialistic state belief using high tax rates in order to deal with societal inequalities.
What we are doing about it: We encourage opening savings accounts for children and grandchildren; fund 401(k)s to the max; watching if some of the societal inequalities as outlined by Piketty are dealt with sooner than later.
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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.
The maturation of the baby-boomer generation turned into a bit of a “promised land” for advisors. New products, services, specialties and strategies were devised better to serve this massive market. Advisors, along with the rest of the financial services industry, eagerly waited the fees, commissions, and product sales that would naturally flow as boomers prepared for, and transitioned to, retirement. Everyone was ready, but will those who were promised ever even reach the so-called promised land?
In an article(subscription required) published in Financial Planning, “Advisor Threat? Wave of New Online Services Incoming”, Charles Paikert reports the influx of venture capital and clients flocking to the online advisory space. Many of the services who have staked a claim on the promised land are getting clients before advisors even get in the door. Financial Guard is an example of a service offered directly to individual investors/employees. It provides advice and recommendations to employees on their 401(k) portfolios.
While these services are arguably tapping into a segmented market, it is important to note the increase in their popularity. However great the rise, it does not diminish the experience of working directly with a financial advisor. Let’s take a look at some of the applications and services with a presence in the online world:
SigFig, a mobile application that tracks, organizes, and makes recommendations on financial assets garnered $50 billion in assets managed in just nine months after the app launched.
In February 2013, online investment company Betterment had amassed $135 million in assets under management, investing on behalf of 30,000 users.
Online wealth management firm Personal Capital amassed $120 million in assets under management, 75% of which came in the first quarter of 2013. The firm continues to add $20 million to its platform monthly.
Jemstep, which provides recommendations on retirement goals, has attracted 10,000 users and tracks approximately $2 billion in assets. It has only been up and running since January 2013.
These new entrants are a prime example of what late British author and psychologist Havelock Ellis had to say about the promised land—It always lies on the other side of the wilderness.
 TechCrunch, “Financial Planning App SigFig Crosses $50B in Assets Managed Though the Platform,” 1/14/13
 Pandodaily, “With 135 million in Assets Under Management Betterment Lures Two Key Hires Awa From Traditional Finance.” 2/12/13
 Pandodaily, “Wealth management isn’t for old farts anymore. Personal Capital uses technology and design to spice up a boring topic.” 4/11/13
Bill Simon, Managing Director, Retirement Plan Services
In an article earlier this week, Mr. John Bogle, founder of the Vanguard Group, decreed that America’s current retirement system is broken. As far as a fix, he offers only two suggestions. The first is to increase the current level of taxable income subject to Social Security taxes to $140,000-$150,000. The second is a reduction in the automatic cost of living adjustments that are used to calculate benefits.
While both would generate significant increases and savings to Social Security, they do not address the larger issues with our retirement system. As Bogle notes, the three pillars of retirement are Social Security, Defined Benefit plans and Defined Contribution plans—and they are in bad shape. In order for defined contributions plans to work better, we need to continue to automate as much of the functionality as possible, incentivize larger contributions, and make sure that an appropriate investment option is selected based on the participants age and realistic expectations about goals and markets.
Here is some food for thought. What if you could earn an additional tax credit by deferring at least 10% of salary or not having a loan against your 401(k)? What if an employer gave one additional vacation day per year if a company-wide goal of participation and contribution was reached? Ultimately, the system can work, but we need to continue to innovate and provide fresh ideas.
Many businesses and advisors may be glad to have 408(b)(2) and 404(a)(5) behind them, but the reality is that the more difficult work may just be starting. As fiduciaries or advisors to the plan, it is the responsibility of the plan sponsor to review and analyze their plans’ fees and services to assure plan participants that they are reasonable. As a recent Wall Street Journal article points out, not only have a significant percentage of small business owners not even reviewed the disclosure notices, but of those that have, more than half don’t fully understand what they are reading. Confusion creates opportunity. At Brinker Capital we can clearly demonstrate how our 408(b)(2) disclosure is designed to provide clarity and transparency to this critical requirement while providing assistance and support to the advisor and plan sponsor.