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In, “401(k)s are still a problem, but…,” author Dan Kadlec summarizes the current 401(k) situation, namely, that a) employers are beginning to provide more and better investment choices, b) these choices are more cost effective for the employee, and finally, c) employers are starting to see themselves more responsible, so to speak, for their employees’ retirement planning. For his numbers, Mr. Kadlec cited a study from Brightscope and the Investment Company Institute. The Study
CCM Blog likes what Mr. Costello, Mr. Conard, and Mr. Aufderheide are doing for people with Blooom. In, 4-start-ups-democratizing-investing, I linked a video that shows Mr. Costello explaining the urgency to get your 401(k) right, narrowing the wealth-gap. After reading the article as presented by Mr. Kadlec, there were some areas of concern I noted for Blooom in relation to their business model. For instance, Blooom’s Who We Are page gives the following reasons (poor options) to enlist the company’s services: “Ask Your HR Department, Call Your Custodian, Do-it-Yourself, Family.”
Ask You HR Department/Call
Your Custodian/Do-It-Yourself/Family
I communicated with several friends with 401(k)s and asked
them to talk to me in general about their 401(k)s so as not to grill them too
much. The responses were mixed and I’ll
share some salient ones from two friends.
A Millennial friend said this,
“My 401(k) has an autopilot thing where
you just pick the level of risk and it picks the investment choices based on
that.”
Her 401(k)’s custodian is
Fidelity. A Gen-X friend said the
following,
“Through a program at work our 401(k) is with Prudential.”
When asked if she got help with her 401(k) from
HR at work she gave the following rave review,
“Our HR department is kinda
useless. We get help from a 3rd
party.”
She didn’t remember unfortunately off the top of her head who this “third
party” company her employer had contracted to service her 401(k) advising needs
and those of her co-workers. I didn’t
want to give her homework.
What’s concerning to me as it relates Blooom is if they’re not
already starting to experience a loss of market/market share and a fading
niche. The report cited by Mr. Kadlec is
ominous for Blooom in some respects. He
states,
“The broadened choice is largely the result of adding target-date
mutual funds, possibly the most innovative financial product for individuals in
the past 20 years.”
Hypothetically
speaking, say I’m a new employee at Company XYZ and are told that my 401(k) custodian is T. Rowe Price. I decide to
select as investment choices monthly contributions to Price’s Retirement 2040
Fund (TRRDX) and some company stock because I’d get it at a discount to market
value. Can I call it a day and be done
worrying about my 401(k)? What about
what my Gen-X friend said about her employer contracting an outside service for
401(k) advising? Could she be talking
about Blooom or is it some other player availing themselves to private
companies? Indeed, custodians
themselves offer the whole gamut of the retirement
landscape with their services: offerings, holding, planning, and consulting. Bloom's point is that they can do a better job, that waiting 30 minutes on hold for "suggestions" and not advice is time poorly spent.
Mr. Kadlec did point out some good news for Blooom and other
401(k) advising companies:
“For those in small plans, though, the news isn’t so
good. Expenses remain high: In plans
with fewer than $1 million in assets, the average expense ratio for domestic
equity mutual funds is 0.95%, versus 0.48% for plans with more than $1 billion
in assets…”
This bodes well for business at Blooom. Smaller employers may become the bulk of
their business, if not already. We already know that unless you are an investing guru, "Doing-It-Yourself," is a bad idea. In my estimation, employees of smaller companies are probably the ones having no other recourse but to manage their 401(k)s themselves. As for "Family"...my advice is that you don't go there!
I will communicate with Blooom and see if someone there can be a shining light on what I have written here. All plants need illumination to Blooom.
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