The status quo of the financial services industry training employees on how to select investments has been an abysmal failure, as the recent February 2015 White House report has revealed.  This clear-cut conflict of interest has cost and is costing the average American combined over $17 billion annually as this straight-forward article reported at Marketwatch on April 1, 2015, “Conflicted Advice hurts IRA investors.”

Bona fide “education” is not provided by conflicted academics or by industry in the workplace, as The Derivative Project has highlighted in several posts.  Financial services firms, selling product, moving into the workplace, such as Financial Engines and Financial Finesse, under the false pretense of “independence” seek to maintain the status quo of:

(1) Lack of transparency of true investment performance and a means to avoid audited performance at the SEC

(2) Another generation of employees who succumb to “learned helplessness” and do not take charge of their future.

(3)  Ongoing fraud, Ponzi schemes and needless losses that increase not only taxpayer regulatory costs, but take 1/3 to 1/2 of every dollar saved by America’s stagnant and shrinking middle class.

We urge employees to request of their employers, the next generation alternative, bona fide, independent financial investment selection education, right here.

We close with an excerpt of a repeat of a September 2013 Blog Post at The Derivative Project, “FINRA Survey Reveals Rampant Fraud by Advisors”.  A change in calling a salesman a “fiduciary” without any change in the oversight by FINRA of this industry is not change.

Screen Shot 2015-12-09 at 10.02.10 AM

 

The FINRA Investor Education Foundation released a September 2013 study, Financial Fraud and Susceptibility in the United States on rampant fraud in the retail investment arena, where 1 in 4 retail investors have been subject to fraud.

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The executive summary of this survey states:

1. The ubiquity of fraud solicitations, coupled with the inability of many people to recognize the red flags of fraud, place a large number of Americans at risk of losing money to scams—with older Americans at greatest risk.

2.  Financial fraud solicitations are commonplace. A new survey by the FINRA Investor Education Foundation found that more than 8 in 10 respondents were solicited to participate in a potentially fraudulent offer. And 11% of all respondents lost a significant amount of money after engaging with an offer.”

A Table from the FINRA Survey indicates, ironically, many of the most common sources of fraud are standard practices today by the bulk of “financial advisors”.  Sales techniques, masquerading as “education” in the form of free lunch sales pitches and cold calls are common place techniques endorsed by every large “financial planning firm”, including SEC registered investment advisors (RIA’s) and all major brokerage firms today.

Free educational seminars offered by “advisors” in the workplace to employees, is one of the most common ways for “advisors” to pitch their product.  Employees are invited to an “educational” seminar.  It is not an educational seminar.  It is a misleading sales tactic to lure employees into a “seminar”, then a “free-consultation” and then a sales pitch to sell a product that is in the best interests of the advisor, not the employee.

Why can’t consumers distinguish between a “good advisor” and a “bad advisor”?  Having worked in the financial services industry for decades, in addition to the personal finance sector, the answer is clear:  This industry is rotten to the core.  There is no way to distinguish between a good actor and a bad actor.  There are no industry standards and performance measurement tools to aid the retail investor to begin to distinguish between the good and the bad actors.

There is indeed a retirement crisis. Americans are rapidly losing their life savings to not only fraud, but also excessive fees and poor performance due to the lack of performance measurement tools.

Can one fairly compare the results of this survey’s “rampant fraud” to the players in the “advice” industry today?  Yes, it is the industry that has created the environment to allow this crisis level of fraud to permeate the retail investment sector today.

Retirement Crisis 101  - The Roots of the Crisis

  • FINRA has allowed an “advice” industry to thrive in the shadows by prohibiting any retail retirement investor from filing a claim in the U.S. Court system.  Every fraud, scam and securities law breach in an IRA today is subject to mandatory arbitration.  FINRA writes the rules and enforces their rules to benefit the financial services industry.  The result: rampant fraud that never sees the light of day.
  • The SEC has never enforced administrative proceedings against a registered investment adviser who has breached its fiduciary duty against an IRA investor.  The IRA investor has no right of private action. The fraud, the deceit and the breach of securities laws are allowed to continue in the shadows.

The Answer to End the Fraud

Due to the regulatory capture and the powerful financial services lobby, there is but one answer to alleviate the plight of the retail retirement saver today. The Answer combines three key elements:

1      Workplace education provided by bona-fide, independent capital markets/asset management professionals, with no ties to the financial services industry

2      The tools provided to every retirement saver to analyze any proposed investment

3      An understanding by the retirement investor of the scope of the fraud created by financial intermediaries today.  A national PR initiative, such as that to end smoking, to alert every American to the dangers of every financial intermediary and the benefits of taking charge, is long overdue.

The current debate at the Department of Labor and the SEC on advisor “fiduciary standards” is a complete waste of time and taxpayer money. Fine print contract disclosures on conflicts of interest allowed by the SEC and dual registration of brokers and RIA’s says it all.  There are no fiduciaries in the retirement advice market and modifications in the current advisor structure and industry cannot change that.

The only solution is to provide retail investors the proper tools, benchmarks and education to make a determination, on their own, on what investment is in their best interest.  It is a simple vision that is indeed possible, with the prevalence of online technologies today.

“Tell me and I forget, teach me and I may remember, involve me and I learn.”

–Benjamin Franklin

Millennials do not be fooled. 21st century investing requires benchmarks and tools to make an informed choice to achieve the best returns for retirement.

Ok, last week was indeed volatile.  That is what dark pools love, lots of volatility to trade ETF’s, with lots of volumes provided by millennials’ retirement assets shoved into ETF’s, conned into the concept of a “passive revolution” where cheap means better. The more the new passive robo-advisors trade, the more they get paid for their volume by dark pools, on your nickel.

Portfolio turnover and brokerage trading costs matter.  Is your robo-advisor giving you returns after all fees, including portfolio turnover statistics and all brokerage trading costs?  It is time to look at the hard data, the analytics, to determine what money manager is in your best interest, active or passive.  Accepting that passive is better, without the raw data, is like buying a Tesla without a test drive or jumping into an Uber without looking at the Uber driver’s ratings data.

How Did Your Portfolio Perform Based on Computerized Modern Portfolio Theory(MPT), last Month?

Whoops!  The concept of modern portfolio theory(MPT) is to be in various asset classes because they will not all go down at once (of course as the 2008 the financial crisis demonstrated and many economists have long found this theory, efficient market hypothesis and modern portfolio theory are clearly flawed).

Here is a chart over the last month of the computer driven algorithm selections of one of the largest online “robo-advisors”.  Compare the MPT computer generated returns to to Not On My Nickel’s core retirement benchmark funds.  72% of the robo advisor’s portfolio was in the asset classes, taken from their  recommended chart, shown below, for a 31 year old’s retirement portfolio, demonstrated in the chart below vs Not On My Nickel core retirement benchmark funds.

Modern Portfolio Theory Selections at Robo Advisor

Note that the blue and purple lines, in the chart below, represent Not On My Nickel benchmark funds that can be accessed directly, without brokerage fees, or mandatory arbitration restrictions, such as the robo-advisors charge and mandate.  This is in a down market, over the last month, but the data holds up for over fifteen years, where the low-fee active managers have outperformed the low-fee, modern-portfolio theory based passive strategies.  These are Not On My Nickel’s platform benchmarks– Why?

They outperform the relevant index, they are diversified, the managers are fiduciaries, act in your best interest, they do not trade with dark pools, have over five year track records exceeding their index and you do not have to agree to mandatory arbitration, or be subject to conflicted intermediaries–what more would you ever want or need to grow your retirement assets–low fees and top performance.

Not On My Nickel has nothing against passive strategies, if the selections of ETF’s outperform the active managers, after all costs for a minimum of five years, they will make it to our platform.  However, they just do not make the cut as these charts show.  It is clear none of the current computerized passive strategies do out-perform the top active managers.  It is Wall Street hype, as the data clearly indicates.  Yes, the average active manager underperforms, but why wouldn’t you invest with the few that do outperform?  Yes, Wall Street never says all active managers underperform, some do and Not On My Nickel can show who has outperformed the passive modern portfolio theory passive strategies.

Data does not lie, yet, words can misrepresent or deceive, as you can clearly see from the chart below.  Hard to believe that you have been duped? Take a look.  You have.  The “passive revolution” is but hype created by Wall Street to benefit Wall Street.

 

Asset Allocation and the Robo Algos

 

 

As this chart indicates, the greatest percentage of holdings all did go down at once, miserably under performing top-performing low-fee, actively managed balanced funds, not only for the month, but for over 10 years running.

Yes, but isn’t this robo-adivsor option cheaper than traditionally actively managed funds?

Actually, no.  Once one adds the management fee of .25% and the cost of the ETFs, rebalancing fees, and portfolio trading costs, the costs are comparable to the “online robo-advisor” option are more expensive, after all costs and the performance of the passive computerized ETF’s underperform, miserably, the low fee active managers.

How Do Modern Portfolio Theory selections compare to traditional balanced funds and a simple aggressive growth fund, with an overweight on an American technology superstar?

Take a look at this chart.  You be the judge.  You might want to reevaluate the concept that cheap doesn’t necessarily mean better. Yes, performance matters after all fees. Investment selection by trained experienced money managers make a significant difference.  The green, blue and purple lines represent active management, after all fees.  The purple active fund (PRWCX) underperformed the ETF, VTI, since it held bonds, not just stocks.  The ETF’s on the charts below are before advisor fees and trading costs!

 

Compare active to passive

The data speaks for itself.  Passive management based on modern portfolio theory is harming your retirement nest egg.  Media and Wall Street are all a buzz about the “passive revolution”.  Why?  It benefits them.  Time to look at the data.  Come join us at Not On My Nickel.  We believe in informed choice— our charts and tools empower you with the data to take charge based on data analytics, not based on Wall Street spin.

Contact us and we will add you to the list to receive our tools and platform first.  Do not let your portfolio be dragged down by the pink, red and yellow lines in the chart above.  It is not 21st century investing.

Informed Choice is 21st Century Retirement Investing

An informed choice, with NOMN’s inter-active cloud-based tools and platform, that empower you to take charge of your retirement assets to access the best active or passive SEC performance filling money manager, without Wall Street hype, is the 21st Century retirement investing revolution.

 

 

Are you giving up growth in your 401K to high fees and poor performance?

Are you giving up growth in your 401K to high fees and poor performance?

A Recent Government Report revealed 401k Participants May Have High Fees and Poor Performance in 401k Managed Accounts

Raise your hand if you know what a QDIA is or a Managed Account.  Wall Street and the Department of Labor have quietly changed the business of 401k investing, without much fanfare from the 4th estate like the New York Times to NPR or MPR Marketplace to your local newspaper. Seems like those personal finance writers/economic editors may just be working for Wall Street.

Whoops, seems like a pretty critical piece of the retirement savings world was not covered for mainstream Americans and after five years of skimming from 401k plans, another study belatedly shows Wall Street has once again duped the retirement investor in their 401k plan.

Qualified Default Investment Alternative (QDIA)

In many companies today, if you do not sign up for a your 401k or “Opt-Out” of making contributions, your Employer will automatically take money from your paycheck, up to 3%- 6%.  And just where do they put your money, without your knowledge?  Typically in a managed account in your 401k.  Why?  It is best for Wall Street, since they do not have to bother with worrying about such a silly thing as audited performance against a benchmark.  That matters to you, not Wall Street.

This new arrangement was approved by the Department of Labor back in 2006.  Wall Street executives, such as Larry Fink of Blackrock, are pushing to take up to 10% of your paycheck on a mandatory basis.  CNBC:  Blackrock’s Fink:  U.S. Needs Retirement Savings Policy.

Mandatory Savings to Fink's ETF's?

Mandatory Savings to Fink’s ETF’s?

What is a Managed Account?

A Managed Account is a fee-based investment management product. They were used for years to manage the tax implications of investment portfolios for high-net-worth investors. Today in 401k’s, managed accounts are often passive investments, like ETF’s, with an additional management fee. Unlike a mutual fund, which is a “registered investment company” under the Investment Company Act of 1940, a managed account does not have to file  their performance with the SEC.

In 2006, Wall Street convinced the Department of Labor to allow Managed Accounts as a new Qualified Default Investment Alternative (QDIA).  Other QDIA’s are Target Date Funds and Balanced Funds.  Managed accounts are the most popular of the three QDIA’s.

Financial Engines is the largest investment advisor providing “Managed Accounts” to retirement accounts, 401k’s.  They do not provide any performance information on their website, nor file it at the SEC.  They equate “their performance” or their “numbers” with how many sales they have made of their services to participants.  This is taken from Financial Engines’s website today:  “Our experience produces results”…

Financial Engines Equates their Sales with "Performance" for Investors

Financial Engines Equates their Sales with “Performance” for Investors

Ironically, they forgot to “prove” their numbers to your employer, as a recent GAO report revealed and appeared to convince your employer on their worth with a fancy pedigree and “advanced technology” over actual performance numbers.

A Recent Government Report Cites Significant Issues with Managed Accounts in 401k Plans

The GAO recently released its findings on significant issues with Managed Accounts in 401k plans.  Here is a link to that report, 401K Plans:  Improvements Can be Made to Better Protect Participants in Managed Accounts.

What are the significant issues, detailed in this report?

  • Your employer failed to ask what the performance of these new “Managed Accounts” are, after all fees!  Or one could say the Managed Accounts providers pulled a fast one on your employer, hyping their economists and fancy “technology.”
  • The Managed Account providers, such as Financial Engines, may be breaching their fiduciary duty on rollovers at retirement or when you leave your employer for a new job, since they make more money if you keep your account managed by them in your old 401k.

Not On My Nickel believes in the old-fashioned way of evaluating and picking a service when significant dollars are involved, such as for a retirement account. Our seven criteria would have eliminated Financial Engines.  Let’s review each criteria:

Financial Engines Evaluated Against Not On My Nickel Seven Criteria

Our strict criteria for selecting a money manager for your retirement nest egg

Our strict criteria for selecting a money manager for your retirement nest egg

(1)  Superior long term results – Failed – Financial Engines is automatically eliminated by NOMN criteria, as they do not publish their performance.  NOMN prefers a minimum of five years of performance that out-performs the relevant benchmark.

(2)  Low management fees – Failed- Their fees are redundant, since in the workplace you already pay a fee for each portfolio manager, so if you pay for Financial Engines’ advice on what mutual fund to select, you are paying twice for investment management selection.  NOMN’s upcoming retirement platform eliminates this redundancy, savings millions for retirement investors.

(3) Low portfolio turnover – Failed.  They do not publish their turnover to employees or publicly.

(4)  Sustainable economic value – Failed.  The Financial Engines model is not sustainable.  About their website reference “advanced portfolio management technology”–appears someone thinks they stole it.  Financial Engines is being sued for patent infringement, Lawsuit Regarding Computer Generated Advice to 401(k) Participants Revs up Against Financial Engines

(5) N/A – Without performance measurement, portfolio turnover and published investment strategy, we have no idea how dedicated their portfolio management team is, since it seems to have a singular focus of an unproven computer model and not experienced investment management team.

(6)  Approved NOMN custodian - N/A

(7)  “Operating philosophy that proves clients come first” – Failed, employees are not given sufficient information from Financial Engines to make an informed decision on whether or not their service is in their best interest.  Without a minimum of five years published performance against other available QDIA’s in their 401k account, an employee cannot make an informed decision.

We all learned in 2008, Wall Street looks out for their interests, not yours.  The recent GAO report on Managed Accounts in your 401k’s without any published performance is your wake-up call.  Where is your paycheck going?  Why are your falling behind?  Financial Engines’ executive compensation grew over 173% from 2012 to 2013, all from taking fees from your retirement nest egg, without even bothering to report their management performance to your Employer, according to the GAO.

Executive Compensation at Financial Engines grew over 173% in one year.  What was your raise in 2013?

Executive Compensation at Financial Engines grew over 173% in one year. What was your raise in 2013?

Time to Not On Your Nickel your retirement savings with our seven criteria and upcoming platform/tools to make sure your nest egg has the best performance and the lowest costs.  Tools and data now readily available help you find the portfolio managers that do act in your best interest and deliver superior performance, without fancy, questionable academic theories and undefined advanced computer modeling. With charts and tools, you can see right through any undefined advanced theories— you have the hard numbers in one chart to make an informed decision.

 

Is the financial industry a scam? Dilbert, Scott Adams, wrote on his Blog last Thursday, “How to Make More Money in Stocks”,

“So my suggestion for permanently lifting the value of the stock market to new sustainably high price-earnings ratios is to pass a law making it illegal to offer financial services without disclosing the truth – that they are mostly a waste of your time.”

Josh Brown and Dilbert on CNBC 8814CNBC hosted Scott Adams  yesterday to discuss his position that financial advisors and the industry are a scam.  Josh Brown, (he calls himself the “Reformed Broker”) and went from being a broker to being a “money manager”, took issue with Dilbert’s critique of financial advisors.  Josh and Scott Adams are pictured to the left.

Not On My Nickel believes there is value in professional money management, strictly with the very few money managers that meet our strict seven criteria, detailed below. Not On My Nickel Criteria for Money Manager Selection

Josh Brown is not “reformed” since he does the same thing he did when he was a broker, he sells product without any accountability at Ritholtz Wealth Management.  Dilbert’s argument is sound.  “Financial advisors” such as Josh Brown throw together a few things and call themselves “wealth managers”, with no published performance measurement standards or benchmarks.

Josh may be good at social media, but he has yet to show any value that he has added, after all fees, on his website, at Ritholtz Wealth Management.  Before one selects a manager, review the NOMN checklist to the left.  In this instance, based on our seven criteria, CNBC regular, The Reformed Broker, who sparred with Dilbert, fails to deliver (1) a minimum of five years published performance against an agreed upon benchmark on his website or with the SEC, (2) fails to detail portfolio turnover and trading costs and thus (3) an operating philosophy that clients come first.  Clients have no idea what value they are receiving for money management, after all fees.

As the retirement investor advocate, The Derivative Project, recently wrote, the Government Accountability Office (GAO) has warned about fiduciary lapses in managed accounts and the failure to provide benchmarks and performance. Yes performance reporting and benchmarks matter.  The GAO has called the Department of Labor to task for not mandating performance and benchmarks for firms such as Ritholtz Wealth Management that seek to manage retirement assets in 401k plans. Without SEC-filed performance reporting, yes, the industry is a scam, that media is actively promoting to the detriment of every retirement investor.

Not On My Nickel subscriber’s know the danger of no benchmarks and performance, which we have written on many times.  The media has allowed the scam, that Dilbert describes, to perpetuate as we have detailed here:

Can You Trust Bloomberg’s Financial Reporting?

Public Radio’s Chris Farrell Shills for Wall Street – Financial Engines

Time to Uber Your Retirement Portfolio

McGraw Hill Financial/Education published the Reformed Broker’s two books, Backstage Wall Street and Clash of the Financial Pundits.  McGraw is owned by Apollo Global Management LLC, a private equity fund, that also owns S&P.  No surprise that Josh and his partner, Barry Ritholtz, who writes for Bloomberg, are now actively pushing passive investments, on CNBC and at Bloomberg, as this Tweet from McGraw yesterday, indicates:

McGraw Hill Financial and S&P

Why would one ever hire a “money manager” without five year’s performance history?  Probably because CNBC endorses and promotes them, without any financials and performance reporting, to back them up.  Passive investing, with an additional advice fee, is indeed a scam, as you are guaranteed to underperform the index. It matters which passive funds are chosen and how they are managed.  Why go with an unproven management style, unknown performance, guaranteed below the index, when there are excellent, but very few, active managers, that outperform the index, after all fees for over 15 years?

The “investing revolution” that Wall Street is promoting, such as in this McGraw Hill Financial Tweet, is a scam and not in the best interest of retirement investors. McGraw Hill’s unit, S&P is still being investigated for their conflicts in ratings during the financial crisis, as this July 23rd Press Release describes: S&P’s July 22, 2014 Wells Notice from the SEC.  The trust is gone, one must see the hard facts, in terms of published performance.

However, NOMN disagrees with Dilbert.  There are a few money managers that have withstood the test of time and deliver excellent value to retirement investors. There is a genuine societal need for professional money managers.  There are a few that add value.  There need to be more.

End the Wall Street created “learned helplessness” and dependency on conflicted “advisors”. Simply cut out the noise and allow free markets to take over, where retirement investors have the tools and transparency to access the best passive or active portfolio manager—on the first independent, non-conflicted soon- to – be released retirement platform, Not On My Nickel.

End the Wall Street-created “passive revolution” nonsense.  

(1) With passively managed accounts, there is no accountability for performance.  Wall Street does not file any returns with the SEC for their new “passive” investing revolution.  Chances are the retirement investor is losing more, than in the old model, one simply does not know.  Frauds and Ponzi schemes are proliferating at record rates in retirement accounts due to lack of performance reporting at the SEC.

(2) Wall Street is pushing trillions of dollars of retirement assets into dark pools, detracting from investor returns through poor trade execution and taking the daily trading revenue on retirement ETFs, for their own account and not passing the savings on to the retirement investor.

(3) Earning fee income on the $10 trillion dollar retirement account, where firms such as Wealthfront, Betterment, Ritholtz Wealth Management slap an assets under management fee on a few passive investments and head to the Hamptons, without a worry on investment selection, is hardly revolutionary.

Dilbert is correct-there is a scam— a fake, Wall Street created revolution….that pretends to be helping the retirement investor.

Uber Proof your Portolio

It is time to Uber your retirement portfolio.  What do you get when you Not On My Nickel?  You are in the driver’s seat.  You get a road-map. You have the tools to choose what is in your best interest.  It is a pretty picture, not to mention empowering and pleasurable to take charge.  No more headaches of Ponzi schemes or being duped or needlessly sacrificing over 1/3 to 1/2 of your nest egg for the pleasure of having your hand held by a salesman.

There is something new under the Sun.  We spent the weekend in San Francisco. Wow.  Uber is a bona-fide disruptor and a pleasure.  Let’s start with ease of use, followed by cost and a more pleasurable experience.  One appreciates transparency, beauty and cost.

Not On My Nickel delivers transparency and tools — a pretty, sunny, real-time picture:

  • Performance measurement with transparency of returns and costs – In simple, clean charts, you quickly have Performance, updated daily, after all fees.  For the very first time you are able to measure your performance, something your financial advisor has yet to provide you, after all fees. Not On My Nickel believes in evidenced-based investing.  Show me the money, the performance and the actual results, after all fees, not some fancy sales pitch.

 

  • You are in the driver’s seat.  You do not have to wait.  You know exact where your money is, how it is being invested, since you are no longer dependent on an intermediary.  You have direct access to the money manager’s investment philosophy and learn first when there are any changes.  There is no more dependency on an intermediary who filters what you see.

 

  • Crowd sourcing – Our website is a social hub.  Did your advisor testify to the Financial Stablility Oversight Council about the systemic risks of money market mutual funds?  Not a one did!  Not On My Nickel’s advocate did on your behalf.  Advisors will not tell you about the critical issues, nor fight for what is in society’s best interest,  if it detracts from their revenues. As you Not On My Nickel, you know the issues that advisors do not tell you about, before they detract from your performance,  such as:
  1. Why a money market fund might not be in your best interest.  How do they pose systemic risk?
  2. Has your Advisor told you about the SEC’s proposed changes and new exit fees in money market mutual funds?  You may have limited access to your cash in money market mutual funds for over ten days if Wall Street causes another run on your money, as in 2008, with the Reserve Money Market fund.
  3. What is voluntary recapture in a money market fund?
  4. What are the issues with Target Date Funds?
  • Access to superior money managers, based on the most critical Not On My Nickel seven criteria.  Not On My Nickel shows you how to know if you are paying more, in trading costs, if your advisor’s firm is trading in dark pools.  Is your Advisor?

 

  • Dynamic rebalancing – Let the pros do it. Do not let sales personnel, with no investment management experience or some computer algorithm, a so-called “disruptor”, based on historical trends, decide when it is time to rebalance, Not On My Nickel your portfolio and let the pros, the experienced money managers, do it for you.

Remember every “trusted adviser” must file with the SEC in their ADV:

 “Registration of an investment adviser does not imply any level of skill or training.”

As Neil Irwin wrote in The New York Times today:  “Why Can’t the Banking Industry Solve its Ethics Problems?“,  “The complexity of modern finance, the greed and gullibility of individual financial consumers…and financial sharp practices that fall short of fraud…”,

There is a reason why financial advisors’ profits are sky high, as reported in Investment News today:

Ameriprise Advice Unit Reports 29% Increase in Pretax Profit”

There is a reason why financial advisors select the mutual funds that pay them the most:

“DFA, American Funds Retain Top Spot — and Most Money Fund Advisors”

Advisors skim from your retirement nest egg, without adding any value, after all fees.

You can access superior money managers to DFA and American Funds, without paying an Advisor one percent, such as DFA Advisors. One distributor of DFA Funds, Buckingham Asset Management LLC charges 1.25 % (portfolio up to $500,000) to sell DFA Funds. American funds charges a 5.75 % up front-end load.

Every Nickel You Pay to an Advisor is a Nickel that is not Invested in Your Retirement

It is time to DIY your retirement savings and go direct to the best portfolio managers, without a conflicted intermediary.

On a $25,000 retirement account, to purchase a DFA small cap fund, one would pay Buckingham Asset Management $313, annually, or and American Funds, $1437.50, upfront, in addition to their 12B-1 fee, that goes to the Advisor annually–for an additional $60.  Note, the American Fund’s advisor, has no requirement by law, to monitor the investment for you (Non-discretionary portfolio.)  Yes, it is annual income to the Advisor for doing absolutely nothing.

Time to Uber-proof your retirement portfolio.  Learn how to access superior performance, at less cost, with an upfront investment of your time, that will pay dividends each year in greater returns. Take charge with the tools that show you the picture that you have been waiting for:

Look at the Performance Chart Below

The green line is what you could have chosen, on your own, if you had Not On My Nickel’d earlier this year.

The blue line is what your Advisor will sell you for one percent.

The red line is what the so-called Silicon Valley “disruptors”, like Wealthfront or Betterment, will sell you–an Index fund that is cheap, but under performs seasoned money managers.

Screen Shot 2014-07-30 at 12.42.31 PM

Do not be greedy and do not be gullible.  Take charge, as you have the power of compounding on your side.  If you wait, the advantage of time is gone.

Time to Uber – proof your portfolio and take charge, where you are in the driver’s seat.  It is time to Not On My Nickel on our soon to-be released retirement platform.

Time to end the learned helplessness and dependency on conflicted sales personnel, whose objective is their bottom line, not yours.

 

 

Wall Street, through its bullhorn (CNBC) has anointed the “Disrupters” to Wall Street.  Remember CNBC is pure entertainment and books the guests that will simply sell their show, it is just that simple.  The CNBC Disruptors are in turn all Wall Street “broker- dealers”, making money off of trading, unfortunately in venues, with inherent conflicts of interest, that are destabilizing the markets for all of us.  We hardly call that disruptive.

We like the concept of one of the “CNBC disruptors”, lowering financial intermediary costs.  Wealthfront is Number 20 on CNBC’s list.  Yet, we don’t want the average retirement investor to fall prey to the new Wall Street/CNBC hype that these firms are bona fide “disruptors”, if they are actually providing lower returns and contributing to market instabilities.  We have concerns with the actual performance and all in results from these new online firms are providing for retirement investors. Here is Wealthfront’s CEO Adam Nash’s comment (in red below) to CNBC,on being selected a “Disruptor”:

Wealthfront Comment to CNBC

Concern Number One – Wealthfront (Betterment and Motif – also on CNBC’s new list) Questionable Broker-Dealer Practices

The Senate Securities, Banking and Insurance Committee held a hearing today, “High Frequency Trading’s Impact on the Economy” and the Senate Committee on Permanent Investigations held a hearing yesterday, “Conflicts of Interest, Investor Loss of Confidence and High Speed Trading.”

Andrew (Andy) M. Brooks, Vice President and Head of U.S. Equity Trading of T. Rowe Price Associates, Inc. spoke elegantly in defense of a regulated market structure to protect the average retirement investor.  In his written testimony he stated:

‘We are supportive of genuine market making; however, we acknowledge that there are predatory strategies in the marketplace that have been enabled by our overly complex and fragmented trading markets. Those parties utilizing such strategies are exploiting market structure issues to their benefit and to the overall market’s and individual investor’s detriment.

Market participants utilizing such strategies are essentially making a riskless bet on the market, like a gambler who places a bet on a race that’s already been run and for which he knows the outcome.”

Wealthfront Takes Payments for Trade Routing and Takes No Responsibility for Obtaining Best Prices -Is this Inappropriate?

Wealthfront’s broker-dealer deals with “market participants” described by Mr. Brooks above. Why? Wealthfront is involved with one’s retirement dollars in the payment of fees for “order” flow, where one might get a lesser price than available at the time.   Payments to broker-dealers, such as to Weathfront’s brokerage, was a topic of concern at both Senate hearings this week.  As Wealthfront’s Customer Agreement states:

(1) “Wealthfront shall not have any responsibility for obtaining for the Account the best prices or any particular commission rates. Client recognizes that Client may not obtain rates as low as it might otherwise obtain if Wealthfront had discretion to select broker‐dealers other than Broker.”

Wealthfront, Betterment and Motif all use a relatively new broker, clearing firm, custodian – Apex, that receives payment for order flows and deals in dark pools, where there is no price transparency.  Wealthfront’s customer agreement states it also accepts payments for trade execution:

“Apex or Wealthfront may receive compensation or other consideration for the placing of orders with market centers…”

As the testimony at the two Senate hearings revealed,  these new automated trading systems and high frequency trading firms are creating conflicts of interest, higher costs, market instability, potentially such as the May 6, 2010 Flash Crash..  Quite possibly, volume for their trades is being funneled to them by Wealthfront, Betterment and Motif. You have agreed to this order flow in your Customer Agreements and it in no way benefits the retirement investor.  It strictly benefits Wall Street.

Increased regulatory costs to monitoring their destabilizing “conflicted” behavior may be costing the U.S. retirement investor in higher trading costs and most definitely wasted tax revenues to fund the regulation and studies to determine how to stabilize our capital markets.  This money could be better spent on sustainable economic development, to benefit society overall.

What is a retirement investor to do to bring about change, better returns, less risk and lower taxes?

  • Remove your money today from any “money manager” that has or utilizes a broker-dealer that is receiving money for routing retirement dollars for payment and/or to dark pools, where there is no price transparency.
  • Obtain your one and two year trailing annual returns from Betterment and Wealthfront  for your retirement account. Are there better options?  Are these online “advisors” adding value after all costs? Are they really “disruptors” or actually new “parasites” generating profits through a lower fee on passive investments combined profits from direct payments for trade executions, hiding your actual performance after all costs, resulting in guaranteed returns below the relevant index?

The selection of this years Nobel prize winners’ beliefs reflect the Committee’s respect for both active and passive strategists, Shiller and Fama.. Are you leaving too much on the table by simply letting computer algos decide what passive strategy may work for your retirement nest egg?  How do you know this computer algo is any good? Despite these firms statements these are “new” computer strategies, they have been used for over 30 years in managing retirement dollars for small accounts.

Remember these firms have no published performance history with the SEC.  They have changed their “strategy” and investment objectives frequently.  They have flipped flopped from being a “non-discretionary” to “discretionary” investment manager overnight.

These are significant red flags.

After all fees, analysis shows the new “disruptors” are not only fueling dark pools and excessive trading with “maker-taker” that is costing the stability of our markets as several experts testified this week to Congress, but also delivering passive returns, below the index, after their fees and the relevant ETF fees.  There are many market “experts” that still support active investing.  It may be best to hedge your bets, as this years Nobel Prize committee did.

So are the new “disruptors” contributing to lower returns and greater market instability for the retirement investor?

 

 

 

 

 

 

The SEC has very strict guidance on how mutual fund performance may be reported.  When you go to sites such as Yahoo Finance, Google Finance and if you subscribe to Morningstar, you will always find the same reporting standards for monthly, quarterly and annual performance for mutual funds.

Unfortunately, it appears the “media” in personal finance has another Agenda, as we have written about with the New York Times, as in this Blog Post, “Hello New York Times, Please Define “Conventional Money Management”.

In an April 10, 2014 Bloomberg article: Mutual Fund Leaderboard: Who’s on Top in 2014? by Suzanne Wooley, Ben Steverman and Bloomberg Rankings, we analyzed one of their top picks for their large cap blend category.

What is the source of the Bloomberg quarterly returns?

What is the source of the Bloomberg quarterly returns?

 

We have asked Bloomberg for clarification on their methodology and sources, as shown to the left and have not heard back from them.  We wanted to confirm we have not made an error.

Take a look at Not On My Nickel’s research methodology and you be the judge.

Bloomberg selected the Dreyfus Fund (DREVX) as their  top performing large cap blend in its category for First Quarter 2014. Their methodology:  “Bloomberg Rankings identified the top-performing fund in each category.  Included were U.S. -domiclied retail mutual funds with a return above 7% in the first quarter and at least $250 million in assets”.

Here is what Bloomberg’s slide is telling retail retirement investors – that the Dreyfus Fund’s first quarter return was 10.7%. Bloomberg Mutual Fund Leader Board April 10, 2014

What should you look for in personal finance articles on mutual fund performance?

(1) Consistency in reporting standards for returns.

(2)  Performance over several periods and never just highlights for a Fund manager’s quarterly returns that simply serves to encourage performance chasing.

(3)  Always includes the overall fees and portfolio turnover for the fund, including references to the management style and the portfolio holdings.

Pictured to the right are the Total Returns for the Dreyfus Fund (DRVEX) as of 3/31/14,Morningstar total returns for DREVX as reported by Morningstar.  There appears to be a significant discrepancy from what Bloomberg reported for first quarter returns:  10.7% vs 1.23% for Quarter ending 3/31/14, as reported by Morningstar.

Bloomberg Has Done Excellent Work on Institutional Side

Quite frankly we are perplexed by this reporting and await Bloomberg’s explanation for what appears to be a significant misrepresentation.  However, Bloomberg is not subject to SEC oversight and has more latitude than the fund companies in reporting performance.  But, this still is not in the best interest of their retail retirement investors who read their reporting.  It may harm their portfolios with improper return data being published, if selections are based on their inaccurate reporting.

Your Independent Research vs Bloomberg’s Leaderboard

You be the judge.  Do you want biased information from conflicted media sources or unbiased research, tools and training to make an informed decision for your retirement nest egg.  The chart below is for 6 months to give a touch longer time horizon.  However, Not On My Nickel urges our subscribers to look at our Six Criteria (Under Save our Sanity) in selecting any portfolio manager.  Only select a manager that has a minimum of five years SEC – filed audited performance.

One should also note the fees in the Bloomberg top large cap blend selection are higher than the Not On My Nickel ‘s researched large cap blend fund. The portfolio turnover is just 3.79% in the fund below and is over 72.91% in the Dreyfus Fund.  Portfolio turnover is directly related to very high trading costs that take away from your returns—money out of your pocket.

We still have not heard from Bloomberg on their “return” methodology for their “Mutual Fund Leaderboard:  Who is On Top in 2014?”  It appears personal finance columns, in media that should be providing a service to retail retirement investors are providing a major disservice.  The New York Times and now Bloomberg reflect the state of the retail retirement “advice” market- disingenuous, misrepresentative and very conflicted.  Reader beware.

You Be the Judge – Why Did Bloomberg Represent, DREVX, as the Top in their Category-or is NOMN in Error?

Not On My Nickel Researched Fund v Bloomberg Top Pick

 

 

Happy businessmen
With the advent of the Internet, retirement investors can now take control of their nest-eggs with the proper tools and research
With the advent of the Internet and easy access to information, many people are now buying airplane tickets and booking hotels online. The intermediary, the travel agent, has been eliminated in many transactions. Why? One can obtain the same thing through less money and through their own research, perhaps delivering a better vacation by exploring the alternatives that best fit their life styles.

Not On My Nickel believes with the proper tools, real education and transparency, retirement investors can get engaged and pick their own portfolio managers. Why is this so critical today?

No Transparency

(1) In most cases you have no idea what the performance will be for the selections that your financial advisor is recommending for your retirement nest egg. See Not On My Nickel’s Blog on the lack of audited performance standards for Advisors. They are using asset allocation models and placing you in so many asset classes, you really do not know if it is better or worse for your returns.

Redundant Fees that Deliver No Value

(2) You are paying the financial intermediary in most cases an unnecessary fee and you are guaranteed to do worse than an index fund, if you are in an index fund, as a result of this fee.

Advisor Created Obfuscation in Employer Plans – Get A Simple Straightforward List of the BEST Portfolio Managers, with Proper Education, at Not On My Nickel

(3) If you are provided a simple list of the very, very few top portfolio managers/mutual funds that have outperformed the index for many years, after fees, you will most likely do better, since you are saving the advisor fee and your returns are not being diluted by poorly performing funds.

Advisors Subject Your Savings to Potential for Fraud - Not On My Nickel Eliminates the Risk of Advisor Fraud

(4) You eliminate the risk of Ponzi schemes! Here is a another one reported recently in Investment News: FINRA alleged that from December 2010 to January 2013, he converted customer assets in two trust accounts, using at least 50 transactions falsely characterized as loans, and transferred the money to two of his friends. One victim was a 77-year-old retired homemaker with Alzheimer’s who lived in a nursing home, FINRA said in the settlement agreement. Mr. Thornes diverted about $1.7 million from the homemaker’s $2 million trust account, FINRA said.

Why Hasn’t The Retirement Investor Taken Charge Sooner?  Workplace Financial Education Has Been Designed To Move Your Towards Hiring a Financial Advisor

Assume for a moment you go to your 401(k) menu selections, how do you know which one to pick?

• Does the financial education package provided by your employer, as mandated by the Department of Labor, show you how to select the best fund for your
needs? Not normally.

• Does the financial education package provided by your employer, as mandated by the Department of Labor highlight the additional costs and risks of going
with a Target Date Fund? (Read SEC Investor Advisory Committee’s List of Risks with Target Date funds here –  It is a long list!)

• Does your financial education package encourage you to get help in picking a mutual fund?  No, there is no employer provided education on how to measure what mutual fund is best for you!  Here is the typical response you get for any employer plan option:  “Yes, click here to hire an advisor.”

• Does your prospective financial advisor show you your monthly returns for your total portfolio after all fees, including the advisor fee, before you choose to invest with them? If not, it is time to take over.

Example – a Fidelity 403(b) Plan

One Employer’s Defined Contribution offers 353 options! Wow, where do you begin?

Now for this plan, administered by Fidelity Investments, it does provide a good screening option for the investments they offer. Say you want to select a Balanced Fund, with low fees. You run Fidelity’s screener using low expenses and here is what you get, shown in the Chart Below:

Screen Shot 2013-07-29 at 12.33.35 PM

Do not hit the button after you take a look at this graph – “I need help, I need a financial advisor!”  Through Not On My Nickel’s real financial education curriculum, that is hands-on, pragmatic and straight-forward, you will be on your way. It is the first and only retirement curriculum designed for you to take charge of your retirement savings, without an unnecessary layer of a financial advisor that operates in their interest.  Learn through Not On My Nickel straight-forward curriculum how to read this chart, what each item means and how to make the choices in your best interest.  Learn why you would never want to select the Target Date Option. Learn how much money you are losing if you are in the Target Date Option.  Learn the fees associated with each option.

Remember from NOMN’s last week’s Blog Post on audited performance standards, if your financial advisor does not post their performance standards monthly on their website, and are measured against an approved index, caution. Note that is a red flag and cause for concern.

Learn more about Not On My Nickel tools, educational services and how to research the select few top performing mutual funds for your retirement nest egg today. Invest a few hours of time and you will be on your way to taking charge of your retirement nest-egg with portfolio managers you believe in, without the high fees and associated risks of the unknown.

Brokerage Window

Remember, if you are in a 401(k) plan with options that have high fees and poor performance, you have an alternative today!  You may use your 401(k) Plan’s Brokerage Window with the research and education provided by a Not On My Nickel subscription, whose annual costs are less than the Load Charge on a typical mutual fund and provides the tools, research and education to eliminate all these fees detracting from the performance of your retirement savings.

 

 

Businessman climbing LadderMP900382636
If you are in a Charles Schwab sponsored retirement plan, chances are your paycheck may be automatically debited for worthless* “advice” fees that will go directly to Charles Schwab and its partner

Charles Schwab believes they know what is best for you. They have made arrangements with GuidedChoice to automatically charge your paycheck for their self-serving investment advice. They are so certain what you need, they moved ahead and may have your employer taking money from your paycheck to pay for questionable “advice services”, without even checking with you first.  In this Blog Post, Not On My Nickel will demonstrate this ‘low-cost’ advice is clearly not in your interest and may be a breach of ERISA fiduciary standards.

The most egregious part of this “taking” is the advice model delivers results below the index!  The more money you save, the greater rate you will provide income to Schwab and GuidedChoice.  It is the retirement scam of the 21st Century: assets under management advice fees that take a percentage of your savings, with no measurable return parameters.

Here is a link to a Reuters article that describes this arrangement, “A New 401(k) Success Formula: Low Cost Plus Advice.”

The article states: “The plan also auto-enrolls participants in an investment advisory service that adds another 45 basis points to expenses (A basis point is .01 percent.) It’s possible to opt out, but nearly 90 percent of participants use the service, Schwab says. In return for their 45 basis points, savers get fairly comprehensive planning: Regular personalized consultations on allocation and rebalancing help from advisers from the third-party service GuidedChoice.”

Not On My Nickel is in favor of any new service that can deliver top returns at low fees. However, as we pointed out in our Blog Post on July 29, if the Advisors, in this case Charles Schwab and GuidedChoice, are not providing any history of audited performance returns, after all fees, do not touch their service. It is in a four letter word: a sham.

In analyzing GuidedChoice’s website, there is absolutely no indication of the success of their advice and how it compares to that of select portfolio managers, who are professional fiduciaries and who have spent a lifetime buidling a bona-fide career and profession in fiduciary investment management.  There are not many of these true fiduciary managers today, but Not On My Nickel has identified the very few to whom you would feel comfortable entrusting your retirement savings.

*Not On My Nickel is compelled to use the term ‘worthless’ for two reasons:

(1)  Employees have no benchmark to measure the performance of the investment advice provided, it is not “audited” performance

(2)  Schwab and GuidedChoice do not provide SEC filings on the compositions of their recommended portfolios, yet as assets grow they take larger fees from the employee.

GuidedChoice Confirms They Have No Published BenchMark for Gauging The Value of Their Fees

In checking with GuidedChoice directly, by telephone, Not On My Nickel asked GuidedChoice if they had any past history of returns, based on their advice. They informed us there is no published history since it is all “individualized”. That is code word for no-transparency, since their published results will reveal you will underperform top performing portfolio managers, after GuidedChoice fees and Schwab’s index investment management costs.

Oh yes, you may “Opt Out” if you discover that Schwab is automatically charging your account for a new “financial advice” service, which was hidden in a Size 4 Font disclosure document. People are very busy and rarely can find the time to read the fine print, as we all know.  At a minimum, Charles Schwab should ask the employee if they would like their services/GuidedChoice’s advice services.  This is clearly not appropriate for any entity to deduct automatically from an employee’s paycheck without prior approval for a service that is not in the employees’ best interest.

You Did Not Select This Advice Firm, GuidedChoice. What are Its Qualifications?

As with all financial advisors, be aware of these key facts:

• There are no minimum professional standards for Advisors.

• They are not fiduciaries and they may act in their best interest, not yours, based on the fine-print disclosure documents.

• If they breach securities laws, you have no right of private action in your IRA and you are subject to mandatory arbitration, so you have no legal recourse.  Charles Schwab actually banned class action lawsuits in their brokerage account agreements and have just temporarily removed the ban until further court proceedings rule in their favor.  You may read more here.

• There are no past performance results, so one has absolutely no idea about the quality of the advice. There are no standardized performance measures to determine if the advice is any good.  They do not file performance results, semi-annually, with the SEC.  In sum, this service has no accountability and adds no measurable value to your life savings in your 401K plan or IRA.

Remember, GuidedChoice employees are NOT trained portfolio managers who specialize in portfolio management. If they have a CFP, they may have had one easy course on “Investments” which is no criteria for advising any retirement saver on where to invest their life savings.  Those decisions should be left to professionals, those that design and monitor portfolios daily, who specialize in portfolio management, who have a professional career in investment management.

What Are the Qualifications of Not On My Nickel Researched Portfolio Managers?

Remember that the most important factor in selecting any firm or entity for advising on your retirement savings:  Do they provide regular performance results, against an accepted benchmark, with the SEC?  Do they file portfolio holdings, regularly with the SEC?  If they do not, do not take ANY investment advice from them.  Do not invest in their investment offerings.

Here is a benchmark for a professional investment manager, that Not On My Nickel uses for selection of fiduciary portfolio managers.  Not On My Nickel analyzes the SEC filings of every SEC registered investment adviser and investment adviser firm that is considered worthy of strict ERISA standards.  Every Not On My Nickel researched portfolio manager must file regular reports with the SEC on their investment experience and history, their fees, their portfolio objectives, their holdings and their performance, against an accepted index.  Here is one such portfolio manager and Fund:

SEC Filings on Primecap Management

Yahoo Finance description of Primecap Odyssey and Tools to Compare their Performance Against Industry Benchmarks

Theo A. Kolokotrones, Portfolio Manager, PRIMECAP INVESTMENTS Odyssey Fund (POAGX)

B.A. University of Chicago,
M.B.A. Harvard University

According to Morningstar, “The five listed managers on the Primecap Odyssey funds are an experienced bunch, averaging more than 30 years in the investment field. They’ve aligned their own interests strongly with those of investors: Each of the five managers has more than $1 million of his own money invested in each of the three Primecap Odyssey funds.”

In the chart below, Not On My Nickel has included the returns of Mr. Kolokotrones’ fund, PrimeCap Odyssey, as a comparison to the index funds and advice fees that Charles Schwab and GuidedChoice are taking .45% to advise you, in addition to a .15% investment management fee.  You be the judge. You are paying Charles Schwab and GuidedChoice .60% for unknown performance, that is guaranteed to underperform the index.  Alternatively, for example, you could pay Mr. Kolokotrone’s .70% for his years of experience in monitoring global capital markets and selecting investments, based on market and security selection fundamental analysis. Would you prefer a professional fiduciary that places your interests over theirs, or an unproven computer model, combined with a salesforce, who provides you unknown, unmeasurable, indeterminable “advice”, with no proven results?  Would you prefer a portfolio manager that files its returns, regularly with the SEC, against an agreed upon benchmark, or placing your life savings in the hands of a computer model and salesforce with no proven history or professional experience in managing money?

What does GuidedChoice base its advice to you on? A backward-looking computer model.

GuidedChoice and Schwab can service thousands of employees, with no time invested, other than running it through a computer model, that may take less than 3 minutes.

According to its SEC Filings, GuidedChoice has 500,000 clients and only FIVE employees who perform advisory functions, including research.

Reuters reported, last May, and SEC filings reveal that the average 401(k) balance is now $80,900 in Schwab’s Index Advantage. Schwab and GuidedChoice, based on the Reuters article, linked to earlier, and Guided Choice’s ADV filed with the SEC, charge .45% per participant for “advice.”  GuidedChoice’s 500,000 clients, with an average 401(k) balance of $80,900, would generate income to Schwab and GuidedChoice of $364 per client.  This equates to annual revenues of $182,000,000, with no measuring stick to evaluate their worth to you or any retirement saver. $182,000,000 in revenues to Schwab and GuidedChoice, derived from deductions to employee paychecks without their prior approval, is quite a smart business model.

Neither Schwab nor GuidedChoice have furnished the Department of Labor or the SEC any past performance figures or benchmark to evaluate the worth of their business model to the retirement saver.  It is all “hearsay.”  Are Schwab and GuidedChoice true fiduciaries under ERISA?  Not On My Nickel believes they are not fiduciaries, simply because there exist more cost-effective solutions for employees, that generate better performance results for employees. Conflicted financial education provided by untrained GuidedChoice advisors may be doing more harm than good and creating a false dependency for retirement investors on a conflicted salesforce providing ‘advice’ of an unknown value.

If Schwab and GuidedChoice cannot show the performance, after all fees, for their asset management charges, the employee cannot evaluate the worth of the service. It is time to eliminate these add-on “advice services” based on assets under management. If employees want advice, let them pay an hourly fee, at an established market rate for the “advice.”

How Do I Know if The Schwab/GuidedChoice Computer Model is Any Good?

You do not know. GuidedChoice does not provide any audited, measurable returns.  GuidedChoice bases its advice on Modern Portfolio Theory. Harry Markowitz who developed this model is on the Board of GuidedChoice. Here is the link from their website.

Here is the type of portfolio they will more than likely design for you, shown in the chart below, based on the Reuters article linked to above.  They use a computer model to select passive Exchange Traded Funds or ETF’s. However, what the experts are now saying is all this diversification may be detracting from your returns. Many professionals are now recommending excluding the asset class of commodities from your portfolio.

You be the judge.  Here are the returns for a Target Date ETF portfolio, designed by BlackRock for State Farm’s 401(k)’s. It is comparable to what Schwab and GuidedChoice’s computer would design for you.  We compare the returns of this Modern Porfolio Theory designed 401(k) to simply holding a NOMN researched Balanced Fund, where the portfolio manager, who specializes in portfolio design, makes all the decisions for you, not a computer model.

This NOMN researched portfolio manager is actively taking into account aberrations in global capital markets, such as the unprecedented relationship between the stock market and interest rates, due to the quantitative easing by the Federal Reserve Bank, since the financial crisis in 2008.  A backward looking model, such as Modern Portfolio Theory does not account for these abberrations, that could be significantly detracting from your returns based on a current very, very low interest rate environment.  We also included returns for a professional investment adviser, Theo A. Kolokotrones, Portfolio Manager of Primecap Odyssey to show you the results that a trained, experienced professional investment adviser can deliver against agreed upon benchmarks. (The red line is for the Fund that Mr. Kolokotrones manages, Prime Cap Odyssey.)  We exclude Primecap Odyssey results from the comparison of returns, between a Not On My Nickel researched balanced fund and the passively managed alternative presented by GuidedChoice and Schwab.

Please note, the larger your balances grow, the more that Schwab and GuidedChoice take from your retirement savings for their advice. that cannot be measured against a benchmark to determine the value.  The formula is .45% times your outstanding retirement savings balance.  If you save $150,000, they may then take $675 each year, without providing any increased service or value.

With the Not On My Nickel  education model, you eliminate the conflicted advice and you will have access to the tools to learn how to select the top fiduciary portfolio managers on your own.  Soon you will be confident in selecting true professional fiduciaries to manage your retirement savings, thus eliminating the conflicted financial intermediary that skims off ever- increasing fees from your returns.

The Chart Below Compares the Hypothetical Performance of a Schwab/GuidedChoice Account to a Not On My Nickel Researched Balanced Fund

The green line, on the graph below, is a NOMN researched Balanced Fund and the blue line is a passively managed Target Date Fund, designed based on Modern Portfolio Theory, comparable to the “Managed Account” provided to you by GuidedChoice and Schwab’s Managed Account. The red line is an actively managed aggressive growth fund, a choice available through Not On My Nickel researched portfolio managers, that could be added for those willing to take on more risk.

We are forced to use this ETF portfolio in the example below since Schwab and GuidedChoice refuse to provide investors any past returns.  Why?  Their model is bait and switch.  You pay a lower fee for computerized investment management, but Schwab makes it up in the advice component, charging the 401(k) participant for “advice” delivered by sales personnel and based on a  computer model.  The objective of the Schwab/GuidedChoice model is to simply gather more assets and thus income, from you, without regard to outcome.  You can see with the Schwab/Guided Choice option, your investment performance is guaranteed to underperform the index, after fees!

Screen Shot 2013-08-19 at 8.38.16 AM

 

 

 

 

In the Green Comparison Chart below left, is the Analysis of How Much a 401(k) Participant Stands to Lose Through Schwab/GuidedChoice’s New “Advice” 401(k) Model

Screen Shot 2013-08-19 at 5.34.26 AM

As you can see in the Chart below, through selection of a professional investment manager, in lieu of a computerized model and GuidedChoice/Schwab sales force, you stand to more than double your money with the NOMN researched option.  In addition you have significant risks with the Schwab/Guided Choice option:

 Many ETFs risk not tracking their index.  What is the past performance of the Schwab selected indices?  How close is their performance to the relevant index?

 Many ETF’s cannot withstand unusual market volatility, causing trade settlement issues as described in this article in Institutional Investor.

 Modern Portfolio Theory is under attack for numerous reasons, including the failure of certain diversification strategies in time of crisis and the dilution of returns.

What should I do for Advice?

Given the lack of action on the part of the Department of Labor and the SEC, the regulatory bodies that are there to protect retirement investors, you have absolutely no choice but to take one or two hours of your time to take action to protect your life savings. Not On My Nickel provides you with the tools, education and research to select top portfolio managers, such as Mr. Kolokothrones (yes, the red line on the chart above!) at PrimeCap Odyssey, on your own.  You save the financial intermediary fees and you earn better performance from trained and experience portfolio managers that are true ERISA fiduciaries.

Learn how to do access these portfolio managers yourself. Not On My Nickel provides you the bona fide financial education and the tools to evaluate and understand the benchmarks, to end the dependency on the poor advice and poor financial education provided by your employer in today’s marketplace.

Not On My Nickel’s service is easy and it is empowering.  It does take a little time up front, which is time well spent.  If you have the time to do the ongoing monitoring of your selected portfolio managers, you may not even need Not On My Nickel after the first year.  The satisfaction from taking charge and watching your retirement savings grow, with the help of a true fiduciary professional manager is immense.  Ignore the hype of these armies of sales personnel, such as Charles Schwab and GuidedChoice that are simply looking for ongoing schemes to take a slice of your retirement savings, through their ever-so-lucrative percentage of assets under management business model, that is clearly a breach of ERISA fiduciary standards.  Take charge and use Not On My Nickel’s research and tools to access bona-fide fiduciary managers.

 

Don’t Be Fooled Anymore – Get The Audited Numbers on Your Performance, Based on a BenchmarkDunce Holding Paper Money

In this Blog we take you through the steps to learn how to:

  Compare a fund manager’s performance to the appropriate index.

  Learn how a mutual fund’s performance is regulated by the SEC, but your Advisor’s performance is not audited or regulated by the SEC.

In general, financial advisors are not actually managing your money. They place your money with various portfolio managers or some combination of passively managed exchange traded funds (ETF’s). In last week’s Blog we reviewed how America’s top “Advisor” is the best salesperson, according to Barron’s. Read the fine print of your contract. Once your Advisor selects an investment for you, your Advisor has no ongoing duty to monitor that investment, even if they are charging you a fee to do so!

What are the risks for having a salesman managing your nest egg?

As the SEC has warned, your advisor has no training, education or professional qualification to select these portfolio managers; it is not mandated by the SEC.  In its March 13, 2013 Report on the Regulation of Investment Advisers the SEC warned investors that:

“Unlike the laws of many other countries, the U.S. federal securities laws do not prescribe minimum experience or qualification requirements for persons providing investment advice.”

Your Advisor may pick one good ETF or Fund, but may also pick several that drag down the performance of the strong fund, due to lack of experience and training.

Your Advisor does not prepare audited returns that are filed with the SEC, so there is no benchmark to see how you are actually doing, based on the Advisor’s selections, for your retirement nest egg, after the Advisor’s fees.

Your Advisor does not continue to monitor the investments they place you in! It is your responsibility.

There are many Ponzi schemes because there are no standards for Advisors and many “crooks” thus enter this business and prey on your emotions and promise high returns. (Bernie Madoff has warned from jail – “Madoff, Other Felons Say Markets Unfair.”

Eliminate these great risks and investment directly with the Portfolio Manager in a mutual fund(s) that you select and can monitor, based on ongoing professional research and education.

The SEC has defined the benefits of a mutual fund at their website.

Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.

Diversification or “Do not put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.

Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.

Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

Audited Performance Standards by Your Mutual Fund Portfolio Manager

Mutual funds are regulated by the Investment Company Act of 1940 which
requires:

  The mutual fund company must disclose publicly its financial health on a
regular basis.

  By law, each mutual fund is required to file a prospectus and regular
shareholder reports with the SEC

  It has to register with the SEC and file quarterly reports with the SEC.

  The mutual fund manager has a fiduciary duty to act in your best interests,
not hers, while the SEC permits your financial advisor to act in
their best interest

  There are strict controls for where the securities are held and who has access
to them, which is examined by an independent accountant at least three
times each year.  Do you know where your Advisor is placing your funds and how often it is audited by an accountant?

Here is the format that the SEC requires that the Mutual Fund adhere to for reporting:

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Not On My Nickel provides you monthly audited performance figures, per SEC standards (except for taxes, since they are not relevant until distribution in 401K or IRA) on a monthly basis for the mutual funds that you choose. In future Blog Posts we will show you how to determine your overall return if you are in multiple funds and give you a simple format to plug in your own numbers to watch your savings grow.

Here is an example of a researched NOMN balanced fund (Blue Line) and NOMN aggressive growth fund (Red Line) compared to a State Farm Target Date Fund (Green Line).  Do you know how to compare your performance, based on your Advisor’s recommendations in this graph?,  If not, it is time to take charge and get access to the best returns, at the lowest cost, based on audited performance standards.

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So, without audited performance, that the SEC mandates for SEC registered portfolio managers, but not financial advisors, you are throwing your money into the wind. Time to take charge, eliminate the redundant fees and place your money directly with the SEC fiduciary portfolio manager.