Transcript:

Corey: Mr. Tuchman joins us right now. He’s a partner at Rebalance – interesting business there. Mitch, what’s the problem that you guys are trying to solve?

Mitch: Well, we find that lots of people who are over 45 years old and have some money to invest in their retirement savings – particularly what we call “mass affluent,” people with $100,000 and maybe $500,000 – are trying to seek great advice. They end up finding someone they trust, a retirement broker or brokerage firm, and often times end up paying over a third of all of the expected returns of their investments in fees, and they have no idea this is happening. The fees are hidden, and they are essential when working with a commissioned salesperson. At the end of the day they are not going to retire with as much money.

Carol: A lot of folks though are doing this through their company-sponsored 401(k) plans. So, what about the responsibility there or the transparency there?

Mitch: So, that’s generally pretty good because 401(k) or 403(b) plans sponsored by an employer operate under what we call a fiduciary standard, meaning employees can sue their employers if they are not doing things for the plan that are in their best interest. However, if you work for a smaller company, the retirement investing plans tend to get loaded with fees. The problem is once you leave the company, you have to do what’s called a rollover, that is move the money into an IRA. Once the money gets into an IRA, all hell breaks loose. That’s when the retirement brokers come and feast on people’s accounts. Ultimately, all of your money ends up in an IRA as you move the money out of past employer-sponsored plans and you’re on your own, come retirement. And the statistics show that the returns on those IRAs suffer.

Corey: Interesting. You know, we were at a Fidelity trader conference this week in Los Angeles, and I thought one of the interesting takeaways was over the lifetime of an investor putting money away there are different services that they want — this is Fidelity’s notion — different services they want from the investment company. That at a certain point they want to be able to see their stuff online. They might want to make the decisions about what they do online. They might even want this sort of “robo advisor” advice, but at certain important touch points they either want to call people and maybe they want to sit down with somebody and talk about their retirement. So I’m curious what your description of the time when someone sits down with someone they trust and how that is lacking in the robo-advisor business, which we know is maybe a great threat to some of the big institutions out there.

Mitch: In our business at Rebalance, we find there are two kinds of people. Not to generalize, but there are certain people who would never, ever hand their retirement accounts over to someone else to manage. They just would never do it. They like to manage it themselves, they like to pick funds and stocks. So, I’m not talking about those people. I’m talking about the other people who are hungry to have someone else handle their retirement accounts. They have anxiety and stress about what to do with their money, so they are desperately seeking someone they can trust. They don’t enjoy retirement investing. They don’t know anything about it. They don’t have time for it. So they want to give it to somebody.

Carol: And this goes back to your fiduciary standard, that this is potentially where were are kind of moving towards, correct? I know you guys have been pretty vocal and your team has been pretty vocal about this.

Mitch: Yes, as people get older and accumulate more money, the more complicated their financial situation becomes. So, if you are under 35 and you have saved up $20,000, $30,000, $50,000, a robo solution is great. You probably don’t need to talk to anybody, and an algorithm can make these decisions for you. Our market at Rebalance is typically over 45 years old. They’ve saved up $100,000, up to $500,000, and they have a complex situation.

Carol: We got 30 seconds left here Mitch, so in terms of the fiduciary standard it’s not quite in place yet correct, but it could be.

Mitch: We think it will be, absolutely, and hope so.

Carol: And you think in terms of fees and transparency for those folks who have a certain amount of money and are looking for help it will give them a better situation, especially when it comes to the fees that they are charged and so on and so forth?

Mitch: It’s really simple —if these consumer protections get passed, no stock broker will be allowed to sell without fully disclosing all of the fees and any built-in conflicts of interest on the part of the stock broker.

Carol: All right, interesting and I know it is a situation we monitor here at Bloomberg. Mitch Tuchman, managing partner at Rebalance, and his team work with clients nationwide. You are listening to the Bloomberg Advantage. Carol Masser along with Corey Johnson right here on Bloomberg Radio.