4 ms·

Show HN: OctaveWealth – Smart, flat-fee 401k

42 points by dmmalam 11y ago

dmmalam 11y ago
Founder here, happy to take any qs. We started this because we were sick of percent based fees eroding our investment growth. We also wanted access to more sophisticated investment options which until now have not been available via high end personal wealth managers.
OliverJones 11y ago
You state the problem space clearly -- many employees don't choose to take advantage of tax-deferred retirement plans. To whom do you have access for investment? DFA has a great portfolio of so-called "unmanaged" index funds. They have a low burden, much of it not front-loaded. And they've been around a long time. There are other similar funds. How do you avoid the Zenefits craziness as you grow?
- dmmalam 11y ago
  re investments, we can include several fund families, including Vanguard and DFA. However most customers prefer our Octave portfolios which are built using best of breed funds from multiple providers, using a sophisticated optimization process. re craziness, our team already has tons of experience managing billions of dollars at scale. I wrote a large part of the portfolio management system that manages BlackRock's iShares, and my cofounder was responsible for trading $6B/day of flow for large pension funds.
boulos 11y ago
Great to see more competition in this space! (Aside: Can you comment on why this is happening now? ForUsAll, Captain401k, Betterment's 401k, now you, etc.) Who is your third-party custodian? Wealthfront uses Apex Clearing and makes this explicit. What ETFs do you allow employees to choose from? Again, others (e.g. Captain 401k) make this explicit. Can employees choose their options in a fine grained manner, or does everyone need to opt-in to your rebalancing and changing of ETF options?
- rik1shah 11y ago
  Hey, thanks for the questions! I'm Rikin, also a founder. We actually have relationships with several custodians - depending on the investment options the company wants to make available in the plan. We don't explicitly list the ETFs because we're not tied to a single fund family (e.g. Vanguard). We pick the best of breed funds for each asset class quarterly - our portfolios currently have ETFs from iShares, Vanguard, Schwabb and PowerShares. We can accommodate requests if employees are after something in particular. And finally, yes, employees can build custom portfolios. Investment flexibility was one of drivers of us starting this, but we make our portfolios/rebalancing the default to encourage participation from inexperienced employees. We don't have any restrictions on the ETFs/funds or even single-stocks that can be added - but we are careful not to unlock funds that aren't risk appropriate.
maxxxxx 11y ago
This makes me wonder: Why do 401k plans exist? Wouldn't it be easier to allow people to put money directly into an IRA of their choice? It looks to me like a direct subsidy to the financial sector and in addition employers have the burden of choosing a plan manager.
- stegosaurus 11y ago
  I'm not familiar with the US, but in the UK, generally pension contributions seem like a total scam to me. As an individual, there is no possible reason why I would want my money to sit in a retirement fund over just having it now. I am perfectly capable of investing it as I please, in housing, in stocks, in gold, in starting a business, without having it artificially withheld from me. There seems to be this idea that I'd just be spending it on booze and fags or something. Individuals generally don't waste all of their money unless they feel saving is hopeless. Pension funds are an arbitrary restriction on that. I can much more readily leverage my intellectual and social capital if I have cash in hand and that will almost certainly result in a better outcome at retirement.
  - kspaans 11y ago
    (Disclosure: Canadian living in the UK) Pension contributions are restricted because they are tax-deferred. You avoid paying income tax on the money you put in the pension. That money will also grow tax free, but you will pay normal income tax on it again when you take it out. The age limits on withdrawals are to incentivize long-term savings, I suppose. It's one way the government can incentivize savings, there definitely could be other ways. If you want to invest your after-tax earnings, you can do that however you please (including investing inside of a tax-free ISA).
  - maxxxxx 11y ago
    I can see the value of a tax deferred savings plan but in the US your employer picks a 401k administrator who then charges fees and gives you a limited selection of investment choices. This is the same nonsense as employer-based health insurance in the US. Your employer picks or gives you limited choices for a plan. Although the employee's future is at stake he has no input in these choices.
kahuna4637 11y ago
For what its worth, the whole idea of giving you all, a team none of my employees know discretion over their 401k seems like a terrible idea. You had my interest until that part. Maybe others are interested but as a CFA Chartholder and someone who manages institutional money to me discretion is often used at precisely the wrong time no matter who is doing it (especially worse when its not your own money or dont have skin in the game). It is interesting though, dont get me wrong. These type of services the country needs more of as the current model is more than broken.
- rik1shah 11y ago
  Thanks for the feedback. To clarify, we are not an active investment manager. We follow a strict investment process and aren’t making changes on a regular basis. Our portfolios have a long term investment objective and are matched to each employee’s personal risk profile. We do not try to time the market. The IRS/DoL requires plan sponsors to monitor plan investments, so we take discretion over this to reduce the burden on the employer and reduce their liability. Our team used to manage institutional money at the largest asset managers, and includes a CFA charter holder. Our portfolios are built using the same quantitative methods used by institutions, and seek efficient, low cost diversification.
Veratyr 11y ago
Only slightly related but why is 401k chosen by the employer in the US? In Australia your Superannuation (basically the same thing) is chosen and controlled by you. After moving to the US it seems to be that each employer you have will give you a 401k plan with a different company and any time you leave you should roll it over to either another 401k or an IRA or something. Is it just me or does this make no sense?

42 points by dmmalam 11y ago

Founder here, happy to take any qs. We started this because we were sick of percent based fees eroding our investment growth. We also wanted access to more sophisticated investment options which until now have not been available via high end personal wealth managers.

OliverJones 11y ago

You state the problem space clearly -- many employees don't choose to take advantage of tax-deferred retirement plans. To whom do you have access for investment? DFA has a great portfolio of so-called "unmanaged" index funds. They have a low burden, much of it not front-loaded. And they've been around a long time. There are other similar funds. How do you avoid the Zenefits craziness as you grow?

dmmalam 11y ago
re investments, we can include several fund families, including Vanguard and DFA. However most customers prefer our Octave portfolios which are built using best of breed funds from multiple providers, using a sophisticated optimization process. re craziness, our team already has tons of experience managing billions of dollars at scale. I wrote a large part of the portfolio management system that manages BlackRock's iShares, and my cofounder was responsible for trading $6B/day of flow for large pension funds.

boulos 11y ago

Great to see more competition in this space! (Aside: Can you comment on why this is happening now? ForUsAll, Captain401k, Betterment's 401k, now you, etc.) Who is your third-party custodian? Wealthfront uses Apex Clearing and makes this explicit. What ETFs do you allow employees to choose from? Again, others (e.g. Captain 401k) make this explicit. Can employees choose their options in a fine grained manner, or does everyone need to opt-in to your rebalancing and changing of ETF options?

rik1shah 11y ago
Hey, thanks for the questions! I'm Rikin, also a founder. We actually have relationships with several custodians - depending on the investment options the company wants to make available in the plan. We don't explicitly list the ETFs because we're not tied to a single fund family (e.g. Vanguard). We pick the best of breed funds for each asset class quarterly - our portfolios currently have ETFs from iShares, Vanguard, Schwabb and PowerShares. We can accommodate requests if employees are after something in particular. And finally, yes, employees can build custom portfolios. Investment flexibility was one of drivers of us starting this, but we make our portfolios/rebalancing the default to encourage participation from inexperienced employees. We don't have any restrictions on the ETFs/funds or even single-stocks that can be added - but we are careful not to unlock funds that aren't risk appropriate.

maxxxxx 11y ago

This makes me wonder: Why do 401k plans exist? Wouldn't it be easier to allow people to put money directly into an IRA of their choice? It looks to me like a direct subsidy to the financial sector and in addition employers have the burden of choosing a plan manager.

stegosaurus 11y ago
I'm not familiar with the US, but in the UK, generally pension contributions seem like a total scam to me. As an individual, there is no possible reason why I would want my money to sit in a retirement fund over just having it now. I am perfectly capable of investing it as I please, in housing, in stocks, in gold, in starting a business, without having it artificially withheld from me. There seems to be this idea that I'd just be spending it on booze and fags or something. Individuals generally don't waste all of their money unless they feel saving is hopeless. Pension funds are an arbitrary restriction on that. I can much more readily leverage my intellectual and social capital if I have cash in hand and that will almost certainly result in a better outcome at retirement.
- kspaans 11y ago
  (Disclosure: Canadian living in the UK) Pension contributions are restricted because they are tax-deferred. You avoid paying income tax on the money you put in the pension. That money will also grow tax free, but you will pay normal income tax on it again when you take it out. The age limits on withdrawals are to incentivize long-term savings, I suppose. It's one way the government can incentivize savings, there definitely could be other ways. If you want to invest your after-tax earnings, you can do that however you please (including investing inside of a tax-free ISA).
- maxxxxx 11y ago
  I can see the value of a tax deferred savings plan but in the US your employer picks a 401k administrator who then charges fees and gives you a limited selection of investment choices. This is the same nonsense as employer-based health insurance in the US. Your employer picks or gives you limited choices for a plan. Although the employee's future is at stake he has no input in these choices.

kahuna4637 11y ago

For what its worth, the whole idea of giving you all, a team none of my employees know discretion over their 401k seems like a terrible idea. You had my interest until that part. Maybe others are interested but as a CFA Chartholder and someone who manages institutional money to me discretion is often used at precisely the wrong time no matter who is doing it (especially worse when its not your own money or dont have skin in the game). It is interesting though, dont get me wrong. These type of services the country needs more of as the current model is more than broken.

rik1shah 11y ago
Thanks for the feedback. To clarify, we are not an active investment manager. We follow a strict investment process and aren’t making changes on a regular basis. Our portfolios have a long term investment objective and are matched to each employee’s personal risk profile. We do not try to time the market. The IRS/DoL requires plan sponsors to monitor plan investments, so we take discretion over this to reduce the burden on the employer and reduce their liability. Our team used to manage institutional money at the largest asset managers, and includes a CFA charter holder. Our portfolios are built using the same quantitative methods used by institutions, and seek efficient, low cost diversification.

Veratyr 11y ago

Only slightly related but why is 401k chosen by the employer in the US? In Australia your Superannuation (basically the same thing) is chosen and controlled by you. After moving to the US it seems to be that each employer you have will give you a 401k plan with a different company and any time you leave you should roll it over to either another 401k or an IRA or something. Is it just me or does this make no sense?