It has been a busy week so far dissecting new, disingenuous marketing strategies touted by Wall Street. Seems just about everyone is now the “white knight” for the middle class retirement investor who is routinely giving up 1/3 to 1/2 of every dollar they save to redundant intermediaries. However, the “financial poseur” marketing strategies are by far the worst and most deceptive.
We set the tone, by pulling from Ritholz’s Wealth Management’s latest additional advisors, Anthony and Dina Isola, as reported here by Josh Brown. One of Mr. Isola’s latest Blog posts is on “Financial Poseurs.” We see Ms. Isola’s definition here in her tweet about a “financial poseur”:
As Mr. Isola warned in his post on “Financial Poseurs”:
“In the end, don’t be deceived by well groomed pretenders. Most of what you see and hear in the mainstream media is plain old marketing. This stuff is designed to generate revenue for investment firms and certain individuals, and not much more.”
Financial education and financial literacy have been provided by financial advisors for the past two decades. The lack of transparency and this clearcut conflict of interest has caused the billions of dollars in unnecessary losses to America’s middle class. We do agree with Mr. Isola that teachers’ 403B plans are by far the worst offenders, however more of the same conflicted financial education, the same costly, ineffective distribution model, will not protect them or other nonprofits forced into costly 403b plans.
Mr. Isola is a “poseur”. For the past decade his firm, ATI Investment Consulting Inc, has sold investment product, along with their embedded fees, for an additional annual fee of 1 percent, assets under management. (Disclosed on page five on the linked to ATI Investment Consulting Inc SEC-filed disclosure). It doesn’t matter if you call yourself a broker or an “advisor”, if you are selling financial products, without providing audited annual investment performance at the SEC, detailing all costs and fees- you are simply selling product for double the fee. His fees might be a tad less, but it is the same predatory business model and “financial education” that has been in the workplace for years.
The Week of December 1, 2015′s Financial Poseur #2
We link back to our Blog Post of just over a year ago: “Wall Street, Hillary and a Disingenuous Revolution”.
Aspiration.com Financial Poseur Clause #1: “Your fee? Your choice. Pay what is fair.” As we reviewed in the Blog Post, linked to above, the fees in the Aspiration recommended mutual fund are so high, there isn’t any room for another fee.
Aspiration.com Financial Poseur Clause “#2: “Wall Street works hard for the Super Rich. Now there is an investment firm for the rest of us.”
Aspiration is pushing a type of mutual fund that not only lacks transparency, it underperforms the traditional balanced and growth fund options, with less risk and far lower fixed management fees. Further, while Aspiration is “offering something special” for the poor middle class, most large institutional investors are abandoning these high-fee, poorly transparent strategies, as reported this week in the Financial Times, “Mutual Hedge Funds Shunned by Investors.” (Subscription Required.)
Here are just a few of the warnings with the type of fund offered by Aspiration from the November 27, 2015 FT article:
The investment industry’s RIA Biz reported this week, that Aspiration is now adding a “sustainable” mutual fund for all those millennials that want to invest in the right thing. We admire the thought of adding such a fund, Aspiration REDWX. However, if Aspiration truly had the interests of the millennials in mind they would offer this investment advice:
1. Do not invest in any mutual fund that charges a 12-b-1 fee, which REDWX does of .25%.
2. Do not invest in any mutual fund that charges over .61% annual expense ratio. The new Aspiration Fund REDWX charges over 1.81%.
3. Do not invest in any mutual fund unless you have a minimum of five years annual audited returns at the SEC and defined, transparent investment strategy. This fund began November 16, 2015.
Remember millennials, you have the power of compounding on your side. If you risk your money on an unproven strategy and lose out to better proven options, you have lost that advantage.
Aspiration’s high fee, high risk offers for millennials represent the new “financial poseur” as the RIA Biz article attests:
Aspiration.com was founded by a former Clinton aide, Andrei Cherney. He describes his team:
“Our backgrounds stretch from Wall Street to the White House. We are investment professionals, Silicon Valley startup entrepreneurs, and financial fraud prosecutors.” They state they are building a 21st Century investment firm for the middle class.
The middle class won’t be fooled twice. They have suffered. Three decades ago the middle class had defined benefit pensions, profit sharing, stock options and 401k’s. Today the middle class has in the workplace— poorly performing 401k’s, 403B’s and ongoing nonsense from Wall Street. Offering non-transparent investing strategies to millennials, at the exact moment the “rich” are abandoning them, is in one word “unconscionable”.
“Don’t Be Deceived by Well Groomed Pretenders”
Middle class here is your guide to how to handle “well groomed pretenders”:
1. Select a fiduciary money manager who files regular audited performance with the SEC and does not need to tell you how they are doing you a big favor by allowing you access to what only the rich could get access to. This is code word for “run the other way”, since the “rich” have wised up and no longer want to touch the product, after years of underperforming their benchmark.
2. Select a fiduciary money manager whose annual expense ratio is less than .65% and has low turnover, representing a defined investment strategy, with a history of outperforming their benchmark.
3. Never, but never, pay an intermediary to sell you product, such as an annual 12b-1 in Aspiration.com’s two offered funds.
4. Do not let your fiduciary money manager train you on how to invest, within or outside the workplace. That is a material conflict of interest,
Focus on the fiduciary manager who has a proven track record with a minimum of five years audited performance that outperforms their relevant index. Remember, low management fees matter and take care to avoid the intermediary and “well groomed pretender” by going direct.
Backgrounds that stretch from Wall Street to Silicon Valley to the White House might be best to avoid if this is the best they offer for the stagnant and shrinking middle class.