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.

 

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.

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?