The Derivative Project

Wall Street, Hillary and a Disingenuous Revolution

Wall Street, Hillary and a Disingenuous Revolution

Wall Street, Hillary and a Disingenuous Revolution

William D. Cohan wrote in Politico, November 11th, “Why Wall Street Loves Hillary.”  Perhaps just happenstance, but at the very same time, November 10th, a former Clinton Aide, announced his new firm,  Aspiration,  designed to “democratize” investing for the middle class….click here for  “revolution”  so says the Aspiration website.

The press section at Aspiration.com is in one word, an artful, duplicitous, underhanded, foxy, crooked slap in the face to every hard-working American who has to save every nickel he or she can for retirement, now that corporate pensions are long gone. What did this firm pay to get the false advertising for their Press site?  Descriptions –”like Uber” or “Priceline”, “more ethical”, “previously only available to wealthiest Americans”…This type of misleading press has no place in a civilized democracy and one would hope 2016 Presidential candidates, whether that be a Hillary Clinton or a Jeb Bush, would move quickly to distance themselves from firms that are potentially jeopardizing the growth of American’s retirement nest eggs and from the financial news sources that actively promote them without actual facts.  Remember Yahoo! News and Tech Crunch—who, what, why, where, when…

The Stakes are High for the Middle Class to Be in the Best Retirement Investment, at the Lowest Cost

Tim Pawlenty, CEO, of the Financial Services Roundtable, has announced Wall Street’s push, to take 10% of everyone’s salary automatically for retirement, in their Save 10 Campaign. The stakes are very high for the middle class’ future and that of society overall.  10% of one’s salary must be properly invested and not squandered on giving Wall Street one-half to one-third of every nickel saved.

The middle class will fall further and further behind, if their life savings is shoved into poorly performing, high fee investments, with firms that do not have the common courtesy to give the middle class holdings, projections, bona-fide derivative strategies, all in fees, portfolio turnover, projected performance based on past scenarios–prior to asking them to trust them.  What sophisticated investor would give their life savings to someone prior to being given all in costs, holdings, turnover, and five years audited performance?

In sum, a firm like Aspiration and the press that endorsed this new firm, without raw data, is beyond disgraceful and completely irresponsible.

Founder of the firm, Aspiration, is Andrei Cherny, CEO, a former Clinton aide.  His biography states that he “helped start the successful fight for the Consumer Protection Bureau.”   One would have expected more of a supposed “consumer advocate.”  Aspiration is deemed a “revolution” since you can choose to pay an intermediary fee or not and have access to investments previously reserved for the wealthy, which is simply, not correct.

Fact Check:  Aspiration.com

Here are screen shots form Mr. Cherny’s press section of his new firm. We have also included a screen shot of a July 2014 Not On My Nickel Blog post, “Time to Uber Your Retirement Portfolio.”

What is really sly is reviewing Not On My Nickel’s “Uber” blog post and putting that concept into Aspiration press reports, while Aspiration retains the status quo, the exact same expensive, redundant Wall Street model, that is not in the best interest of retirement investors.  Yes, the press, whether that be Yahoo Finance, or Tech Crunch, in this instance, always has their news slant-how to best position Wall Street, which Aspiration successfully does, yet at the detriment of the retirement investor.

Yahoo News and Aspiration.com

 

Salon and AspirationTech Crunch and Aspiration

 

 

NOMN Time to Uber Your Retirement Portfolio

An Aspiration investor has no choice. Mr. Cherny stated in this interview on MSN and the Wall Street Journal that his firm “aligns with investors, gives them control-empowerment.”  This is simply not factual.  Aspiration investors have absolutely no choice as to the fees they pay for their investment and no control on where their nest egg is invested.  There is no transparency.  This is Wall Street snake oil sales at its finest.

Aspiration investors now have no past performance, other than one month that underperformed Morningstar’s benchmark. Aspiration investors have no ability to gauge the value of the proposed investment. They are automatically placed in a fund of funds, by Aspiration, managed by Emerald Asset Management.  Why should anyone pay Aspiration to place them in a fund?   They are a redundant layer, intermediary, that given current technology is no longer a necessary ingredient of the distribution chain.   They add no value, particularly when they are pushing an unknown quantity as “revolution” to the middle class, with no facts and misleading pronouncements.

What Does Aspiration Get?

It is time to once again do what you can do best at Not On My Nickel–tools and transparency, just the raw facts.  You decide with tools and transparency whether or not Aspiration is a “revolution.”

We pulled out our tools and we did a little fact checking on Aspiration’s new “Revolution”.  Aspiration seems to be just putting investors into another high fee fund, this time a “Fund of Funds” which is the most expensive alternative for retirement investors.

Whoops, as the first picture shows, Aspiration is gaining quite a bit, even if you do not pay them a dime.  They get access to proprietary research, new IPO’s, brokerage conferences for free, and much more.  They can use all this “free research” resulting from the volumes of potential trades your assets will deliver to Aspiration, where brokerages will give them for free research and access.

Asipration Investors LLC ADV

 

What Does the Middle Class Investor Get – High Fees and Poor Performance?

There are not yet performance figures out for the new fund, beyond the first month.  However, it is being sub advised by Emerald Asset Management. We applied Not On My Nickel’s seven criteria to see if Emerald Asset Management has operated in the best interest of retirement investors.

We took a look at their Growth funds and what one sees are high expense ratios and very high brokerage trading turnover, that potentially benefits Aspiration with more trips and access to research.  Here is a screen shot of expense ratios from one of their funds–on the high side for any mutual fund:

Screen Shot 2014-11-16 at 1.00.13 PM

Emerald Mutual Fund Advisers has a bit of everything that NOMN subscribers know not to touch.  They have the high fees, high portfolio turnover, 12B-1 fees and deferred sales loads that are a thing of the past.  This screen shot below, of Emerald’s small cap growth fund, represents everything passé and nothing revolution:

Screen Shot 2014-11-16 at 2.41.06 PM

 

 

Note in the chart above, Emerald’s Growth Fund’s turnover is 70% or over 20% over the industry average.  Trading fees directly lowers the performance of the fund through trading costs.  Not On My Nickel’s benchmark growth fund’s turnover is 7%.  Our managers invest for the long-term and keep trading costs low for investors.

Aspiration has agreed to cap the expense ratios, but that will not account for the undisclosed costs of brokerage trades or potential poor execution in ETF’s in dark pool trades, which will not be capped. It is not clear from their SEC filed ADV how capped expenses   will translate into actual investment returns in the fund.

What does stand out is that Aspiration selected a sub adviser, Emerald, whose history represents gouging the retirement investor with 12B-1 fees, deferred sales charges and very high expense and turnover ratios in their mutual funds. Their class C share above reports a 2.5% expense ratio–that is simply gouging the retirement investor. This does not portend any sort of “revolution.”

What About Emerald’s Past Performance?

Again, one does not know, what will be in the new “Fund”, however, their small cap fund (HSPCX) performance does not compare favorably over the past five years with Not On My Nickel benchmark balanced fund and mid-cap growth fund, as the chart below depicts–the green line is a NOMN mid-cap benchmark fund and the red line is a NOMN benchmark balanced fund, which would typically underperform a small cap fund (Emerald’s HSPCX- blue line) because it is more conservative, holding bonds.  Note the Emerald small cap fund underperformed the NOMN balanced fund over the last decade.  If their small cap fund does not outperform a moderate allocation balanced fund, why would want to entrust them with investments in an unproven, yet-to-be defined alternative fund of funds?

Emerald v NOMN Balanced and MidCap Benchmark Funds

 

Here is Aspiration’s one month fund (ASPFX) performance, compared to NOMN benchmark funds, as of November 13, 2014.  One cannot gauge the effectiveness of a strategy, however, with just one month’s performance, which is why it would have been in the best interest of Aspiration to not offer this investment alternative until they have a real gauge, over a minimum of five years, of its effectiveness for retirement investors.  This is like rushing a new drug to market before mandatory FDA tests for a certain controlled period, that balances up and down markets.

ASPFX One Month Performance

 

 

Morningstar 15 Year Benchmark Returns for Aspiration’s ASPFX Fund is 2.76%, yet ASPFX Expenses are 3.01%

Morningstar Alternative Benchmark

Fact Check on Alternative Investments for the First Time Offered to Middle Class

Alternative strategies have been available to middle class investors for years, in the form of managed futures funds and now ETF’s and mutual funds with alternative strategies.

The middle class investor needs facts and transparency, not a fake “revolution”.  Please Tech Crunch, alternatives have been available to middle class investors for over 20 years.  Ameriprise advisors sold Managed Futures funds beginning in the early ’90′s to the middle class.  The SEC launched an investigation into alternative mutual funds, just last August.

SEC Launches Investigation of Alternative Funds

Conclusion

Aspiration is implying they are using Not On My Nickel’s actual intermediary disruption, which does eliminate costly intermediaries, with tools and transparency that empower the retirement investor to take charge. Aspiration is an intermediary and has chosen a poorly performing, high fee money manager for investors-which is simply status quo.  They are asking investors to join their “revolution” without disclosing holdings, portfolio turnover, strategies, derivative use, past performance, all in costs…this is status quo Wall Street, gouging the little guy.

 

Their fund (ASPFX) is charging exorbitant expenses, 3.01%, which includes a 12B-1 fee of .25%.  There is not space available for an intermediary fee to Aspiration, after the exorbitant fund expenses.

We agree with Mr. Cherny that there is indeed a role for hedges in retirement investors portfolios, to smooth out volatility.  But packaging a Fund, with 12B-1 fees, and excessively high expense ratios, simply reduces the impact of the hedge.  The retirement investor has immediately lost 25 basis points (12B-1 fee) and 2.76% in gross expense ratios, before trading costs, that is over 3%.  In ASPFX’s first month, the fund (ASPFX) returned 1.70%, per Morningstar.   Morningstar reports the category that this alternate fund is in, averaged performance of 2.786% over the 15 year period.  After Aspiration’s fees, over the 15 year period, the retirement investor would lose over .25%, based on Aspiration fees and past performance of this alternative category.

This implies the Aspiration strategy, based on Morningstar’s benchmarks, and Aspiration’s published fees, that the retirement investor will be paying Aspiration for the right to lose part of their retirement nest egg.  Yes, this is a indeed a revolution-for the 1%, getting investors to invest when the projection out 15 years is a 25 basis point loss, after fees.

Does one think the introduction of this self-serving “revolution” offered by Aspiration, founded by a former Clinton aide, is but mere chance—that it was introduced the same time Politico reported on Wall Street’s love of Hillary?  Email us your response at info@thederivativeproject.com and we will report our survey results.