With Honest Dollar acquisition, Goldman Sachs moves into online retirement investing

Goldman Sachs buys Honest Dollar, retirement investing

Goldman Sachs sees gold in them hills…retirement hills, that is. The investment bank announced earlier this week that it was acquiring Honest Dollar, a startup that offers 401(k) retirement plans for entrepreneurs and small businesses. There are approximately 45 million Americans who do not have access to employer-sponsored retirement plans and Honest Dollar set out to address this market by providing an easy-to-register platform that is sensitive to costs carried by small businesses or individual proprietors.

A company-sponsored pension enables employers to offer workers a long-term savings and investment account that defers taxes on gains until an employee taps into it. Beyond the incentive of tax-advantaged growth, companies who offer 401(k) accounts frequently provide matching deposits in their employees’ accounts after employees make their own contributions. As more people transition to the gig economy and companies leverage an on-demand workforce, relatively few companies offer 401(k)s. Only about 14% of companies in the US provide retirement benefits to their employees, according to the U.S. Government Accountability Office. Without these benefits, many Americans are left without any vehicle of long-term retirement savings.

Honest Dollar offers small businesses and freelancers simple and affordable retirement plans. Fees are low (starting at $8 per employee per month) and investment portfolios kept simple (just 4 Vanguard exchange-traded funds). The Austin, Texas-based startup launched in earnest last summer, when founder, William Hurley examined the behavior of early users of his company’s website. He noticed a sizeable percentage of users were leaving the site without completing registrations. “It was when we were asking for the EIN (employer identification number) that they were dropping out,” he explained to Xconomy. “The majority of them were 1099 contractors.”

Founder Hurley, who has the appearance of a young Abraham Lincoln techie, has experience building creative, technology-enabled businesses. In 2010, Hurley founded Chaotic Moon Studies, a digital studio that creates cutting edge software for brands, and sold the business to Accenture in 2014. Most recently, the studio made waves with its biotech tattoos — wearable electronic components that both look cool and also monitor your vital statistics like body temperature and heart rate. It’s this level of clever, creative thinking that Hurley infused into HonestDollar to tackle a serious financial problem: how to simplify a product and process that’s made the financial companies behind them lots of money but suffers from lack of transparency and burdensome cost structure for small businesses.

“Honest Dollar has created a simple solution to a complex retirement savings problem,” Timothy J. O’Neill and Eric S. Lane, co-heads of investment management at Goldman, said in a statement. “Together, we have the potential to help millions of people achieve their investing goals.”

For its part, Goldman has been making its own moves in the online finance space. The investment bank is investing heavily in building out its core online financial services capabilities to cater to individuals. Late last year, GS bought GE Capital Bank’s online deposit platform, bringing in $16 billion of deposits, of which $8 billion was in online deposits. It’s also been poaching top management at marketplace lenders and credit card firms to develop its own online lender. Its acquisition of Honest Dollar appears to round out a portfolio of investments and in-house development to further service Main Street, not just Wall Street.

The sponsored-retirement space is seeing its fair share of development, as well. Roboadvisor Betterment recently introduced its own 401(k) plan business aimed at the same market that Honest Dollar is targeting. Blooom, which raised $4 million in October of 2015 lead by fintech-focused venture capital firm, QED Investors, has a slightly different value proposition in the 401(k) market. Instead of going through employers who offer 401(k)s, this Kansas City-based firm works with investors. People who hold a 401(k) account can leave it at its current institution and use blooom to optimize their investing strategy without a lot of jargon and charts.

FeeX: The Robin Hood of (Investment) Fees

upstart lending

Investment fees can literally suck hundreds of thousands of dollars out of your retirement accounts over your lifetime.

What makes this even more aggravating is that as investors, we aren’t even aware of some of the fees we pay because fund managers have gone through such lengths to obfuscate them.

FeeX bills itself as the “Robin Hood of Fees” and Erik Laurence, the company’s VP of Marketing and Business Development, joins us to talk about why minimizing fees is so important for investors and what we can do about it long term to improve our investing returns. Thanks to Molly O’Brien, FeeX USA’s Marketing and Community Manager who joined us as well for this interview.

About Erik

FeeX's Erik LaurenceErik Laurence is the Vice President of Marketing and Business Development for FeeX.

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Photo credit: Kurayba / VisualHunt.com / CC BY-SA

Getting good advice (finally) for your 401k — with Chris Costello

retirement investing with Income&

Why is it so hard to know what to do with your 401k? Why is it hard to understand what you’re invested in and get advice on how to improve it?

Chris Costello, co founder of Blooom, joins Zack Miller on the Tradestreaming Podcast to discuss retirement planning and investing and how his firm is addressing the problem with an easy-to-use, affordable investing tool.

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About Chris

Chris Costello of BlooomA co-founder at Blooom, Chris has been working with clients and building portfolio allocations for almost two decades. He also co-founded and runs another investment advisory firm managing over $500 million for clients.

Resources mentioned in this podcast

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Successful investment advice for retirement assets — with Brian Murphy

retirement investing

Getting good investment advice for your retirement portfolios isn’t easy and the industry doesn’t make an investor’s work any easier in this respect.

Brian Murphy, CEO and Co-founder of Kivalia, has found a better way. Through an innovative use of crowdsourcing, he’s able to determine the investment universe within any given retirement plan. From there, investors receive periodic retirement advice from Kivalia.

And the results speak for themselves. Brian joins us on Tradestreaming Radio to discuss the struggles investors face when investing for retirement, how the market is changing, and the resources people can use to improve their investing results.

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About Brian Murphy

CEO and cofounder of KivaliaBrian is the CEO and Co-founder of Kivalia. He also runs Registered Investment Advisory firm, Pariveda.

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401(k) “re-enrollments”: Nudging employees to make bad decisions

Far be it from me to argue with behavioral economist, Richard Thaler (Nudge was awesome, bro) but 401(k) re-enrollment is only good for the sponsors of such plans like T. Rowe Price ($TROW).

The WSJ is reporting this morning on a growing trend for employers to choose something called “re-enrollment” for their employees’ retirement plans.  It goes like this:

Employees have the options of sticking with their current investment selection, if it’s still offered, or choosing another mix. But in a re-enrollment, unless the participant specifically opts out, his or her 401(k) will be re-allocated to the company’s chosen default investment.

Thaler was concerned that employees don’t have enough time/brainspace to make better decisions so it sounds like he likes this approach

“Many [participants] never change their asset allocation or contributions over their working lifetime, meaning that their asset allocation as they get older can be quite different than the one they intended,” says Richard Thaler, professor of economics at the University of Chicago Booth School of Business

Listen, I’m all for nudging children towards better eating habits by the strategic placement and display of such foods in school cafeterias but forcing employees to a made-up allocation for exposure to the stock market…well, not only is that paternalistic, that’s just bad investing.

Digging deeper into target date funds

I understand where the companies are coming from.  The data show that rarely — if ever — do employees change their asset allocations.  Fine — but what target date funds do is determine exactly how much allocation investors in such funds should have to the market.  The hope is that returns will be X over a certain time period (the target date).

But guess what?  These things always had too much exposure for most investors to the broad stock market and remain badly markets, explained and disclosed (and that’s the dig by industry rag, Morningstar).  Another market plummet and wham, a lot of employees who didn’t even realize they had been re-enrolled will wake up with a lot less $$ in their retirement accounts.

The truth is that target date funds are a flawed product for a genuine problem: helping guide retirement investors to make better decisions.  The answer isn’t ensuring they max out on equity allocations.

Only thing this is good for is the stocks of the mutual fund companies who run 401 (k) plans.  This smacks of being “the industry solution” for the vast build-up of cash in most retirement accounts.

Well, O retirement investor, consider yourself (re)warned.

As for actionable investment ideas? I’d love to see exactly how much cash there is on the sidelines and expectations for re-enrollment.  This could be a good catalyst for Franklin ($BEN) and T. Rowe Price ($TROW) as this cash gets crammed into mutual funds.

Read more

  • Your employer knows best. Perhaps. (WSJ)
  • New Problems with 401(k) Target Date Funds (Institutional Investor)
  • A new 401(k) default? Moving money into target funds (Nudge Blog)
  • Morningstar 2010 Target Date Fund Survey (Morningstar)