Not On My Nickel Introduces New Case Study Series

Almost a year ago, June 11, 2014, Market Watch wrote  “Here are Five Finance Bloggers You Should be Reading”   No, Not On My Nickel did not make the list.  We do not sell “advice”, as the five Market Watch selected Bloggers do.  We do not sell investment products.

Not On My Nickel empowers retirement investors to take charge to go direct to the best core retirement money manager who files audited performance at the SEC.  We streamline the distribution channel, through our soon to come digital platform and inter-active tools.

Nickel provides independent, unbiased information/reporting– a critical component for capitalism and price transparency.  In an attempt to distinguish between financial news that is simply “Sponsored Ads”, we encourage readers to take a look at Not On My Nickel’s review of what is presented as financial journalism and Blogs, through our new Case Study series.

Should these Blogs and news outlets all be labeled “Sponsored Advertising” so as to provide full disclosure? Is the average reader making retirement investment decisions based on financial journalists representing these sponsored ads as real news?

“About MarketWatch

MarketWatch, published by Dow Jones & Co., tracks the pulse of markets for engaged investors with more than 16 million visitors per month.”

Here is the Market Watch summary, from their article above, of the two Advisors/Bloggers for which NOMN presents Case Study Number One.

Market Watch Top Five Bloggers

In addition to their “finance blogs” Mr. Ritholtz is a regular contributor to Bloomberg, frequently endorsing his firm’s strategy and at his Blog.  Mr. Brown is a regular contributor to CNBC’s daily TV shows.

NOMN Case Study Number I of “Financial Bloggers to Read”

Nickel presents the first in our Series:  NOMN Case Study Digital Advice Platforms and Financial Bloggers- Lift Off.  Take a peak.

Market Watch’s Blogger list includes Mr. Ritholtz and Mr. Brown, who are in business together at Ritholtz Wealth Management and Lift Off.  Lift Off is Ritholtz and Brown’s digital solution as described here at Business Insider by Linnette Lopez on October 1, 2014

“A NYC Wealth Management Firm Created A Super Cheap Way For Young People To Get Professional Investment Help”

Lift Off and Ritholtz Wealth Management

 

Business Insider represents to the young this is a “superior cheap way for the young to get  professional investment help.” Really?

We attach our Flow Chart for you to determine if the young just starting out, are better off with the “first robo advisor for young people” according to Ritholtz and Brown, owners of Lift Off, and Business Insider?

Based on Not On My Nickel’s criteria for selecting who is worthy to manage retirement assets for the young, we find these two top Dow Jones Market Watch recommended Bloggers’ “digital platform”  lacking transparency and misleading:

  • They provide no publicly available historical performance or defined, published long-term investment strategy that has withstood the test of time given up and down markets.
  • They have not provided five year audited performance to the SEC.
  • Their selected custodian and brokerage firm have been cited by the SEC for trading in dark pools with retail retirement investors money and cross-examined by the Senate Banking Committee for conflicts of interest.
  • Fees are not transparent, in fact they take many hours to dissect.  Their website is misleading, as to fees.
  • Given the level of intermediaries, we cannot say the firm has truly shown they are operating in the best interest of their client.
  • Their “digital platform” increases the number of intermediaries, increasing all-in costs.

Is Lift Off’s Website Misleading?  See below.  Clients pay .4% fee to Lift Off and another .10% to Upside and .50% – 1.81% to Envestnet Asset Management’s sub advisors for all in fees of potentially 2.3%.  Portfolio turnover is not disclosed and brokerage fees are unknown, if TD Ameritrade trades in dark pools.  Four intermediaries cannot be deemed the “Next generation digital solution.”  Here is a shot from Lift Off’s home page:

Lift Off WebsiteConclusion

  • Lift Off is not using technology to streamline the “supply chain” for retirement investors.  They are adding an unnecessary complexity, that not only limits transparency to the retirement investor.  Lift Off increases fees through an increase in intermediaries. It appears that financial journalists, at both Business Insider and Dow Jones’ Market Watch are simply promoting the firms that provide them advertising revenue, to the detriment of the retirement investor, as the White House Economic Report warned last February.

“Conflicted investment advisors are costing retirement investors over $17 billion annually.”  These advisors and financial Bloggers thrive through less than ethical financial journalists, that put their profits over the safety and performance of America’s retirement investors.

  • The SEC is proposing that more data on holdings be gathered from Advisors, for both financial system systemic risk and protections of retirement investors, as outlined in this May 22, 2015 Reuter‘s article, “SEC proposes rules to gather more data on Funds, Advisors”.   The SEC states:  “Some of this new data would involve information about management of so-called “separate accounts,” or accounts that companies manage for individual clients, as opposed to pooled investment vehicles.” Lift Off places the young, through their online platform (Upside) in Envestnet Asset Management’s separate accounts.

The average 401k is $89,000.  If you give that $89,000 to Lift Off to manage, before unknown brokerage fees and other ETF/mutual fund fees, you have given your intermediaries over $2000 annually.  If interest rates remain low, with the stock market at record highs, the young might be actually losing money annually, with such high intermediary fees.

 

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.

 

Screen Shot 2013-11-02 at 7.11.10 AM

Someone Has Made Picking a Mutual Fund Way Too Complicated

It just isn’t that tough to do, with the proper tools, training and benchmarks.  Here is a very simple secret.  Before the advent of 401(k)’s,  individuals with some accumulated wealth were able to locate a top performing fiduciary portfolio manager without a financial intermediary.  Not On My Nickel takes you back to those days.

There is a debate going on at both the Securities and Exchange Commission and the Department of Labor on whether or not a stockbroker should act in your best interests, to the “fiduciary” standard of ERISA or the “fiduciary” standard of the Investment Advisers Act of 1940 or the “suitability” standard of the stockbroker.  The reality is it really doesn’t matter for the average retirement investor.  Why?  Both types of Advisors are conflicted and the only solution for the average retirement investor is to learn how to use the simple tools to make an informed choice themselves. Neither stockbroker nor fee only planner provides any performance results after all fees.  You simply do not know the value of either intermediary – stockbroker or fee-only fiduciary planner.  Based on Not On My Nickel’s analysis comparing the returns of the top performing active balanced fund managers and blended growth and mid-cap growth funds, to the very few performance records available for fee-only planners, you are losing out significantly to high fee and poor performance selections using either type of intermediary.

Listen to Representative Hurt (Republican VA) speak on why you need access to a stockbroker’s advice to pick a mutual fund, Congressman Hurt Floor Speech on HR 2374.  

Ask Congressman Hurt why it makes sense to pay more each and every year for the exact same product that you can buy yourself at a discount brokerage firm, or directly from the Fund firm, without these high fees, using tools, research and information through educational services, such as Not On My Nickel?  (For the record, Not On My Nickel offered to show our analysis to the House Financial Services Committee prior to their vote on HR 2374.  They refused to accept the information and refused to meet with us to understand another alternative for today’s retirement investors, that might be in their best interest.)

Do you really believe it is worth paying more money to a stockbroker each year for the exact same product?  Do you think you should pay your real estate agent a finders fee each year for the wonderful home she found for you?  Also, remember the Stockbroker has no ongoing duty to monitor this Fund they told you to buy.  That is your responsibility.

  • Do you know what your investment performance is after all fees, when you pay an intermediary for advice?
  • Do you know how that compares to if you simply invested, yourself, in the top performing balanced fund and growth funds that have out performed their relevant indices for decades?
  • Do you know if your returns are better after 10 years based on a computerized portfolio management model based on modern portfolio theory, in active or passive funds and paying a fee for advice, compared to selecting these Funds yourself, based on targeted research?

It is more than beyond time that you are given the answers to these questions.  Not On My Nickel helps you gather these answers so you can know what you are paying for in all-in asset management fess, just as easily as you can determine what is a fair fee to pay today for the IPad Air.  However, the difference is you need this transparency as the costs have estimated to impact you in the $100,000′s of dollars – a far greater impactful decision that saving $20 on the IPad Air.

How To Save Hundreds of Thousands of Dollars Over Your Retirement Investing Lifetime

Today we will share with you how you can purchase the same mutual fund, yourself, and save thousands upon thousands of dollars over your investing lifetime in one simple step.

As the concept of Target Date Funds is suggesting, the average retirement investor just needs one or two low fee, consistently managed balanced funds and for the young, one or two top growth funds. The problem is the Target Date Funds currently offered carry higher fees and poor performance compared to the select top balanced funds that NOMN has researched.

As NOMN wrote on August 2, 2013:  Target Date Funds Carry Greater Risk and Cost More: Why is the Department of Labor Allowing Them?

Let us a assume you buy the T. Rowe Price moderate allocation fund (PRWCX) directly from  a discount brokerage, such as Scottrade, your self.  You pay Scottrade a one-time fee of $17. You can also buy the Fund directly from T. Rowe price and save any transaction fee.

If you buy the same fund through a stock broker you will pay greater fees each year, for the exact same Fund, or precisely .35% more of your outstanding balance, than if you purchased the Fund on your own.

Think about this.  Your are paying more for the exact same product, year after year, after year.  What other industry allows this type of dysfunctional pricing?  What are you getting for paying hundreds of dollars more for the same product?  Nothing. Under the “suitability” standard the stockbroker has no further obligation to you.  Once you buy the fund, his responsibility ends, even though you keep paying him an annual fee!

The Drawback of the Stockbroker – How Much You Lose Each Year By Using a Stockbroker in Dollars and Cents

Here is the chart from the moderate allocation mutual fund, PRWCX, T. Rowe Price’s 6-30-13 semi-annual prospectus, filed with the SEC.  Take a look at how much you are giving to the stockbroker and the financial services firm for using an intermediary. You pay 1.04% each year of the outstanding balance if you buy the Fund from a stockbroker. If you buy it your self, you pay only .73% each year!

Screen Shot 2013-11-02 at 5.47.54 AM

 

The Fund firm, T. Rowe Price, also shows you how much you lose in performance on your investment by buying the mutual fund through a stockbroker in this chart below:

 

Screen Shot 2013-11-02 at 5.48.18 AM

 

What the above chart tells you, for the year ending June 30, 2013, if you had purchased the Mutual Fund PRWCX from the stockbroker you would have made on $200,000, $35,780.  If you bought the Fund on your own, you would have made on a $200,000 investment, $36,520 or $740 more in one year!  Remember, through the power of compounding and as your balance grows, your loss for purchasing this fund from the stockbroker will grow larger and larger each year, as you will always pay expenses at the “Advisor Class” rate.  Again, under the “Suitability” standard, the stockbroker does not even owe you a telephone call for the extra fees you are paying.

Do You Know Where to Get the Best Price on the New I Pad Air?

Of course you do.  There is complete transparency on the new I Pad Air pricing.  It is called capitalism and a free and competitive marketplace.  Read today’s article from “tom’s Hardware.”

Apple, Staples, Best Buy, Matching I Pad Air Pricing

The financial services firms provide the “financial education” in your workplace.  There control the message and information flow. There is not any transparency, which is a major contribution to our current retirement crisis and “financial literacy.”  Retirement investors have been made to depend on all these high-fee intermediaries and have no idea about how to value the pricing and performance of the advice they are paying for. Of course, these intermediaries are conflicted.  Their livelihood depends on you buying mutual funds from them and not on your own. We are certain very few employees are trained in their workplace by the financial services firms on the devastating impact these fees have on the growth of your retirement portfolio.

Not On My Nickel seeks to provide retirement investors the same pricing transparency you can get from tom’s Hardware, so one can make an informed choice on the largest investment of their lifetime.

Part II of this post is forthcoming on why a “Fee Only Planner” costs you as much or more as a stockbroker and may even be less of a fiduciary, despite their claims that they are.

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!

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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

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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.