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How I'm fixing the 401(k)
- rdegges 10y agoI'll be the first to admit that I don't know too much about investment, but isn't the typical advice to pretty much ONLY put your money into the Vanguard Target funds based on your year of retirement? This is some relatively widespread retirement knowledge, and is frequently referenced by the likes of r/personalfinance, r/investing, etc. How does Guideline somehow out perform Vanguard who's been the king of this forever? Serious question.
- wtvanhest 10y agoI'm not an expert on Guideline, but most 401k plans have preset vendors so you might not have the option for vanguard at all.
- busque 10y agoYeah, that's not the case for us. We do have Vanguard funds amongst other low-cost mutual funds. We also have our own investment committee which evaluates and adds funds as appropriate. We have no fund relationships and do not make commission.
- dahdum 10y agoThey do use Vanguard funds, they charge $8/month per employee to the employer to handle the 401k, and the employee pays: Avg. fund expense of 0.10% 0.03% custodial fee Seems like a great choice for a business.
- idunno246 10y agohow does that compare to other fees all in? Obviously the employee cost is really good, but is the typical 1-2% employee fee company just passing that $8 onto you? Especially in lower paying companies, that could add up
- ucaetano 10y ago$8/month = $56/year, divided by Vanguard's 0.0018 equals $31k. So if the employee has in his 401k: - $20k, the equivalent fee is 0.41% - $50k, the equivalent fee is 0.24% - $120k, the equivalent fee is 0.18% - $200k, the equivalent fee is 0.16% - $1M, the equivalent fee is 0.136%
- samb1729 10y agoCould you elaborate on how you got those numbers? You lost me at $56 but I don't understand your percentages either so perhaps I'm missing something here.
- ucaetano 10y agoPercentage = [(56/Capital) + 0.13%] 56 = cost to employer Capital = how much the employer has in the 401k 0.13% = average fund fee So if Capital = 200k Percentage = [56/200k + 0.13%] = 0.028% + 0.13% = 0.16% My guess is that they're focusing on new plans, not allowing rollover from previous plans and not allowing employees to keep the plan after they leave the company. In this situation they're able to have mostly savers with low or very low balances, and they charge on average higher fees than Vanguard and others.
- thedufer 10y ago8 * 12 is 96, not 56.
- ucaetano 10y agoHa, good catch, a typo and lack of sleep propagated through the numbers :)
- mercutio2 10y ago$8/month = $96/year, not $56.
- ucaetano 10y agoCorrecting myself, it's $96, not $56. That bumps up the fees a bit. Sadly, too late to edit it.
- ucaetano 10y agoVanguard funds have on average 0.18% expense, with the industry having much higher than that. How do they use Vanguard funds?
- boulos 10y agoNot all the funds are that high. The .18% vanguard quotes is their real, across customers, result. Their more active funds are higher (like VEXPX at .49%) while their larger scale Admiral funds are often as low as .05% (like VTSAX). Vanguard ETFs offer the same rates as the equivalent Admiral class shares, so services like Wealthfront use those. Wrapping Vanguard is a lot easier these days ;)
- loeg 10y agoInstitutional class expense ratios are much lower than 0.18% average. Also, they can pick the lower cost funds.
- nordsieck 10y agoThey're talking about 401(k), not IRA, which means it has to be managed by a custodian on top of what ever fees a fund charges. Guideline is trying to be the Vanguard of 401(k) custodians. The second hand info I have from a startup (that I worked at) negotiating with a 401(k) provider leads me to believe that are basically 2 common 401(k) setups in the industry. In the least bad case, the company pays a bunch of money to the custodian in exchange for the custodian giving the employees access to good funds (vanguard institutional shares). In the more bad case, the company pays the custodian nothing, and the employees only get access to funds that kick money back to the custodian. As you might be able to guess, these funds typically have quite high fees.
- saryant 10y agoIsn't Vanguard already the Vanguard of 401k custodians? (My 401k is managed by Vanguard)
- nordsieck 10y agoHuh - I hadn't realized they were. Most of guideline's copy focuses on low prices, so I assumed that that's an effective way they could differentiate themselves. I think the important thing to understand about this space is that a custodian is required by law, and that their fees they take are (conceptually) separate from the fees your funds charge.
- busque 10y agoHi I'm the founder. The copy is not meant to focus on low prices, but rather low expense for the participant. I understand that might be coming through. You are correct on the custodian fee, that is a pass through and having a custodian is great! Appreciate the feedback!
- tanderson92 10y agoNot for solo 401(k) users; that would be Fidelity. Vanguard doesn't allow access to the lower-cost Admiral share classes for solo 401(k)s.
- cloudjacker 10y ago"Balanced" - We are going to underperform both the stock and bond market for you simultaneously
- Ntrails 10y agoThe default advice should probably be that, but if you look at the old Defined Benefit schemes there are very good reasons that they diversify away from pure equity/bond splits to grow their assets. In fact you should look to the large endowment funds too in terms of what a best practice asset distribution looks like. The "stick it in a low cost tracker" model is fine, and in instances where you get shitty access at shitty fees makes excellent sense. However, Property/Reinsurance/etc are good sources of return which do not correlate as strongly to markets in general (Although property at the very tails tends to). The Aussie super-fund stuff is interesting reading for this stuff as they manage to get the economies of scale required to make access to alternative betas vaguely affordable.
- busque 10y agoHi I'm the CEO of Guideline. This is a common misconception. It's actually the topic for my next blog post. Target Date funds are just funds of funds. Your paying nearly twice the expense ratio for the same underlying funds. They charge the extra fees because they change the fund allocation for you as you age.
- gmnash 10y agoI am looking forward to this upcoming post about why you decided to avoid target date funds. Specifically I am curious how you calculate that target date funds have nearly twice the expense ratio compared to guideline. VFIFX (https://www.google.com/finance?ei=CWOOUpC2CO-bsgfSRw&q=VFIFX https://www.google.com/finance?ei=CWOOUpC2CO-bsgfSRw&q=VFIFX) has an expense ratio of 0.16% while guidelines is 0.13%. Cheaper, yes, but not twice as cheap.
- loeg 10y agoEven in the retail segment, the target date funds don't have "Admiral" options. So you see 0.16% with VFIFX, 0.05% with VTSAX, 0.12% VTIAX, 0.06% VBTLX. A 3-fund of VTSAX/VTIAX/VBTLX can average around 0.08% for the same underlying asset allocation as VFIFX at 0.16%. That's roughly double.
- loeg 10y agoThe target funds have higher fees and are less tax friendly for non-retirement accounts. In a 401(k), if they have low institutional fees, sure. Basically, with component funds, you can always implement a target date glide path. You can't get the component funds usefully out of a target date.
- voiper1 10y agoExcellent! Even betterment, the only robo-investor I see with a 401(k) offering seems to charge 60basis points instead of a monthly fee. Best of luck fixing the retirement world!
- cloudjacker 10y agoThe problem with disintermediating is that it means you can't make any money either. Looking forward to the blog article when some blockchain community is undercutting your 0.13%
- AjithAntony 10y agoYeah, what is the secret sauce that lets them be profitable on only 3bp and provide a fund expense of only 10bp? All the roboadvisors are a 15-25bp wrap and ~16bp funds fees. A 401k provider is naturally more costly since there are compliance issues.
- busque 10y agoNo secret sauce. We are a SaaS company, not an AUM fee based company. We are not a robo advisor. We focus on retirement, tax advantaged accounts not cash accounts. Compliance issues are perfect problems for computers to solve ;)
- ryporter 10y agoOr, Vanguard could lower their already low prices. Fund managers are already locked in a race to the bottom on fund fees.
- ucaetano 10y agoAny info on what funds do they offer? The site is completely void of any useful information, and I find it very hard to believe that they can offer good funds with costs lower than Vanguard, when this is such a scale-sensitive industry. [Edit] $8/month = $56/year, divided by Vanguard's 0.0018 equals $31k. So if the employee has in his 401k: - $20k, the equivalent fee is 0.41% - $50k, the equivalent fee is 0.24% - $120k, the equivalent fee is 0.18% - $200k, the equivalent fee is 0.16% - $1M, the equivalent fee is 0.136%
- birken 10y agoVanguard has fees in addition to their funds' individual fees if they manage the 401k for a small business, though my guess is they are less than $8/month/person. Having used Vanguard's site to manage my Google 401k, I can say it wasn't (and still isn't) the most usable website in the world, and I have no doubt the plan administration also isn't the most usable thing in the world. Then again, Google was normally pretty smart about which vendors they chose and they used Vanguard (and might still use --- I have no idea). It is interesting that Guideline's whole blog post was about low cost and almost certainly Vanguard is a less expensive option (in addition to being secure and battle tested and they also probably have hired some lawyers). When I watched Captain401's (YC company, https://captain401.com https://captain401.com) presentation about their similar product, their whole pitch was about how much easier their service made administration and setup of the plan.
- twiceaday 10y agoStill do.
- ucaetano 10y agoSame here (and Google continues to use it), but given how little time I spend managing my 401k, if I had the option of getting a very user-friendly product for an additional 0.01% fee, I wouldn't take it.
- busque 10y agoActually, Vanguard is not less expensive. We use the same funds. You pay the same price for the funds in Guideline as you would if you bought them in a Vanguard plan. We don't make money on AUM, ever. We compete on being a full service 401(k) provider, that is not the case for Vanguard. You would still need all the third party services for fiduciary, compliance etc, and you would have very high startup costs and not to mention the lack of payroll integrations. And yes, we have super slick onboarding for employees and an 8 minute sign-up process for the business all without charging AUM based fees.
- boulos 10y agoThey don't state which Vanguard funds you'll have access to (though they explicitly say they just use passive ones), but apparently there is an option to have the employee do a custom allocation within their menu of funds. Given the .10% expected fee for the underlying mutual funds I'm guessing they're assuming investor class (like VTIAX), which is pretty fair! A one-time, $500 setup fee, and $8/month per employee is pretty great. The .03% custodial fee to the employee isn't bad either. Again the big hurdle for a small startup / business is even being able to offer these (contacting Fidelity and Vanguard is sadly awful as a small person without company history or at least 20 employees). Glad to see competition in this space!
- theli0nheart 10y agoI have my company 401k with Vanguard, and I'm a single founder. I do have a single-k, so it may only be harder to set it up if you have two or more employees.
- boulos 10y agoYes. The Small Business Plan (not the single one) is harder / more annoying. It's also improved a lot in the last five years, but the fact is that Vanguard / Fidelity still don't really compete for this business (yet) and are happy to have these folks figure out the recordation, ERISA, etc. issues. Do you have any revenue / income yet? Did you raise funding and thus are paying yourself a salary? I'm genuinely curious about single-person 401k plans in the absence of real revenue...
- theli0nheart 10y ago> Do you have any revenue / income yet? Did you raise funding and thus are paying yourself a salary? I'm genuinely curious about single-person 401k plans in the absence of real revenue... I've been running the business full-time since 2010. I'm paying myself a salary and haven't taken any funding. I don't have plans to scale massively or hire employees. As far as I recall, I don't think Vanguard cared one way or the other about how much revenue the company was making. It's been a while since I set it up though. :)
- ryporter 10y agoGuideline isn't actually "fixing" your 401(k). They are primarily just competing on price. Employers can already get a decent 401(k) from Vanguard, which obviously offers access to their low-cost funds. Guideline doesn't appear to be offering anything fundamentally new (in contrast to, for example, robo-advisors). If I were setting up a 401(k) plan for a company, I'd probably just go with Vanguard, with full confidence that my provider will not undergo any "growing pains" or even cease to exist in 5 years.
- whack 10y agoWhat does the plan-administration-fee look like at Vanguard? Minimizing this number seems to be Guideline's primary value proposition.
- Someone1234 10y agoMinimizing the number and actually TELLING you the number. Can anyone here even figure out what Vanguard charges? I cannot.
- deleted 10y ago[deleted]
- winter_blue 10y agoIt $20 per year for an individual 401(k) account (commonly used by owners of small businesses).[1] One could assume the rates for regular employer 401(k)s are similar. That's slightly less than Guideline's 0.03% fee, for accounts with large balances. A $100k account would pay Guideline $30/year, and a $1mil account would pay $300/year. Although most Americans probably don't have that much in their 401(k)s. Considering a lot of people will have low balances, Vanguard and Guideline cost almost the same. I think the decision for a small business now comes down to just three factors: 1. Does Guidelines have a better website/app user interface, and better customer service? 2. Vanguard is a well-established company. Guideline is small and new. 3. From the business side of things, is Guidelines easier to work with compared to Vanguard? I.e. with things setting things up, adding new employee accounts, etc. I'd go with Vanguard just based on factor 2: because they're well-established and fairly trustworthy, and being investor-owned, they're not trying to profit off of their investors. [1] See: https://investor.vanguard.com/what-we-offer/small-business/individual-401k https://investor.vanguard.com/what-we-offer/small-business/i...
- dmmalam 10y agoOctaveWealth [1] YCS12 is also a full stack flat fee 401k. We provide a very flexible investment menu, with our own Octave Target Risk ETF Portfolios, in addition to Vanguard Mutuals, and fully custom. The Octave portfolios are built inhouse using best of breed Exchange Traded Funds from multiple providers. [1] http://octavewealth.com http://octavewealth.com
- wj 10y agoI don't know how I missed you having been in the 401(k) industry for so long as well as following the YC graduating classes. I'd love to talk to you for a few minutes sometime.
- dforrestwilson 10y agoI am all for improvement in the space, but is this actually an improvement? The premise is to remove wrappers and other fee add-ons, but the product itself is a wrapper for third-party investment funds, which raises the cost of managing a 401k. Vanguard can manage your company's 401k directly at a lower cost: https://investor.vanguard.com/what-we-offer/small-business/overview https://investor.vanguard.com/what-we-offer/small-business/o... Perhaps I am misunderstanding...
- whack 10y agoI skimmed through your link, but don't see any numbers on what Vanguard's plan-administration-fee. They did mention the low average expense ratio on their funds, but that's different from the plan-administration-fees which Guideline seems to be optimizing for.
- busque 10y agoYes, you are in fact misunderstanding the point. We don't wrap anything. We use the same Vanguard funds as you would find in a Vanguard plan. It's the exact same costs. We don't make money based on AUM fees. You're also forgetting about all the other services you need in a 401(k), fiduciary, compliance, education etc. Not available via Vangaurd you have to hire it out and pay AUM fees.
- vostok 10y agoWhat's with charging a custodian fee to the employee? I've worked at multiple employers that don't do that.
- busque 10y agoThis is a passed on fee, not charged by Guideline, not marked-up in anyway. We are just being transparent instead of wrapping it in the expense ratio like everyone else. It's very important to have an established custodian.
- jbtule 10y agoThat's interesting, does that mean you don't receive any compensation from that expense ratio, like sub transfer agent fees?
- busque 10y agoCorrect. If fees are due to Guideline, we use them to pay down the .03 custodial fees. :)
- vostok 10y agoMy plan does not wrap this fee into the expense ratio. For example I hold the same fund in the my 401(k) and in my personal account. I am charged 5bps for both of them.
- brianwawok 10y agoI think this is huge. Retirement is totally full of people reaching in for nothing. It started with "we will manage your money with secret investments, for 2% fee and 20% if we beat a benchmark". With enough math and science, people moved into index funds. Except index funds through a 401k can easily be 1%+ extra fees. This is an awesome way to avoid that. The only irony, is that the founder made taskrabbit, which is part of the gig aka no retirement for you economy. Only other people who can afford task rabbit have a 401k, not the actual doers.
- roymurdock 10y agoSeems like the founder is pretty in-tune with macroeconomic trends and is getting out ahead of them to build solid companies in large, no-frills markets. Steady employment on the decline? Create a marketplace for contractors and odd-job-doers who need to scrape together some rent money. Retirement plans getting the fat squeezed out of their returns in a ZIRP world? Cut down unnecessary costs that may have been overlooked previously.
- lsiebert 10y agoI am actually becoming a bigger fan of etfs. Generally lower fees, can set a limit instead of buying/selling at end of day blind, and you actually get the dividends from the stocks for a dividend etf. I am not at all clear why you wouldn't do this if you are just tracking an index.
- ASinclair 10y agoMutual funds still throw off dividends. It's just common to reinvest them. If you're investing for the long haul then being able to set limit orders isn't really that important. Being able to buy/sell fractional shares is pretty nice.
- brianwawok 10y agoETFs have Dividends too. Maybe a tiny difference, but not entirely sure. ETF gets prorated divident vs mutual fund is all or none on dividend day?
- koolba 10y agoWow those are some razor thin margins! If you can pull this off it's going to be both huge (from an AUM perspective) and a big win for the 1,000s of companies that want to setup 401(k) plans but are either scared off by the complexity or fee structure. I do wonder if profitability can be sustained. With an average account size of $50K, you're looking at $50K x .03% + 9 x 12 = $123 per year of revenue per participant. I'm sure there's a scale factor to dilute the common expenses on your end, but a few hours of customer service (per participant) will eat through all of that. Either way, best of luck, this looks awesome!
- busque 10y agoThanks for your support. I'm the founder of Guideline, Kevin. I just want to be clear. The .03 custodian fees is not paid to Guideline. That is a direct Custodian cost. We work everyday to lower all participant fees. This is our primary goal. Scale is reachable and the business economic are solid ;), thank you for the post!
- boulos 10y agoWait, really? Guideline's only revenue is the $500 setup (like the custodian cost is this mostly going directly to expenses?) and the $8/employee per month? That seems like a dangerously small SAM to me. Any large employer will want to negotiate the $8/employee. And there are only so many small employees in the US. How does this work out?
- busque 10y agoYes really. In 2010 there were 27.9 million small businesses in the US. https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf 401(k) is just the first product we launched, not our last. We are a retirement company.
- sharkmerry 10y ago>>> In 2010 there were 27.9 million small businesses Quite misleading no? The link you provided says 78.5 of those 27.9 Million are Nonemployer (business without employees). So 21.9 million of these businesses are single person businesses (many of which could be side/lifestyle businesses) which I would presume only present $96/year in revenue if they do sign up.
- wj 10y agoCongratulations on launching! I'm particularly impressed you are doing the recordkeeping in addition to advisory. I look forward to crossing paths with you someday. I'm also starting a company in the 401(k) space though focusing completely on the educational aspect. While making it easier for both the employer and employee is something to strive for I believe education is a component that many overlook and is of particular importance for the less highly compensated employees who don't contribute enough to their 401(k). "Financial wellness" is the industry buzzword but for me that means getting people financially prepared for all of the big life events between the day they start work and the day they retire. A participant with a budget, emergency fund, and a plan for their financial goals is going to be less stressed and more able to focus on the long-term goal of retirement.
- jqueryin 10y agoTo the guideline team: I noticed you don't have an SSL cert setup on your root domain: https://guideline.com https://guideline.com. You should probably set this up and then you can have it redirect to your www subdomain. I hit this page by accident when trying manually dropping your blog subdomain to visit the site.
- scandox 10y agoI'd love to come up with a genuinely transformative retirement savings system for the European market too. I built pensions systems in Ireland and the UK for years and my assessment was that the system was completely crazy from a contributors point of view - at least since DC (defined contribution) became the main paradigm. Previously when DB (defined benefit) was a thing it was crazy from a company's point of view. And always the extraordinary fees concealed in labyrinthine complexity and regulation.
- donalhunt 10y agoplease do! Europe has failed to deliver on a single market for this type of stuff. :(
- nix0n 10y agoCan I get a 401(k) as an individual, or is this still only for employers?
- TheCoelacanth 10y agoFor a solo 401(k), you probably don't need the administrative stuff that they are providing on top of Vanguard, so you could cut out the middle man and go straight to Vanguard. Of course, you do have to be self-employed to qualify legally to have a solo 401(k).
- ydt 10y agoIf you're a straight 1099 / sole proprietor as an individual you can set up a SEP IRA. If you establish an LLC you can create a simple-IRA. Both of these allow you contribute money tax deferred and are much easier to manage than a 401k. Plus, you can trade them like any other brokerage account.
- loeg 10y agoSolo 401(k)s have higher contribution limits and allow you to save more of your business income tax-advantaged. The fees may be worth it.
- peter303 10y agoA variable annuity behaves like a 401K, but has no contribution or income limits. Nor an RMD. Some have low fees (.25%) and some are ripoffs.
- peter303 10y agoAn index fund of growth (no-dividend) companies will have very low taxes until you sell it decades later.
- loeg 10y agoYes, you can create a solo 401(k) for 1099 income. It's a different sort of thing than what Guideline offers, though.
- JustInvest 10y agoIt actually looks like Guideline is a better deal for having Vanguard funds in your 401(k) than even having Vanguard itself manage it. I can't find Vanguard's administration fees on their site (not a good sign), but they also got sued for overcharging in their 401(k) plan that they had setup with Anthem: "Plaintiffs also allege excessive fees paid to Vanguard for record-keeping services. Over the period 2010-13, the plan paid approximately $80-$94 per participant for record keeping, both through hard-dollar and revenue-sharing fees; in September 2013, the expense was lowered to a flat annual $42 fee per participant. However, the “outside limit” of a reasonable fee for the plan would have been $30, according to the complaint." http://www.investmentnews.com/article/20160105/FREE/160109974/new-401-k-suit-targets-vanguard-fund-fees http://www.investmentnews.com/article/20160105/FREE/16010997...
- JustInvest 10y agoGuideline is charging $8 per participant -- a much better deal than the numbers quoted above.
- thedufer 10y ago8/month is not better than 42/year. If these numbers are right, vanguard looks cheaper.
- irishcoffee 10y agoYTD Vanguard has charged me 27 dollars in fees. So like 5-6 bucks a month. Sample size n=1 yes, vanguard is cheaper.
- logicalmind 10y agoTangential question, but is anyone else worried that the rules of 401(k)'s can be changed at a later time. History has shown that retirement funds are highly valuable sources of money that companies and governments eventually eat away at. Pensions funds were eventually raided by companies. And social security has been used for alternate means by the government. Is there anything that prevents the government from changing the rules of 401(k) plans at a later time that allow them to be misappropriated as well?
- jbtule 10y agoIn 401k plans, employee money is employee money. They can make rules so that you can raid your own retirement, but not your employer.
- ceejayoz 10y agoThey've the power to add taxes to 401(k)/IRA withdrawals in the future. I think it's unlikely - it'd be political death to whoever proposed it - but it's theoretically within their abilities.
- logicalmind 10y agoThey could realistically change the tax structure or even the retirement age(s) at which you could withdraw the funds. But if there were another mega-stressor to the financial system in the future, it seems that this pool of trillions of dollars would be ripe for the picking. Let's face it, lobbyists get what they want. Not the people. So if the bank's risky investments cause a panic and the only thing preventing an economic meltdown is the re-purposing of 401k funds....well...
- ceejayoz 10y agoIf we get to the point of nationalizing private bank account balances, we've all got bigger issues than retirement.
- Bedon292 10y agoThis is pretty awesome. If only there was a way to convince my employer this is the right thing to do. I am around 2% between expense ratio and management fees. Kind of a drag to know something like this is available and not being used...
- busque 10y agoThis is terrible. Email us at hello@guideline and we'll see if we can help with your employer.
- cowsandmilk 10y agoWhat is the advantage of having a 401(k) instead of a SEP-IRA? My company has stayed small and we are all happy with our SEP-IRA. Our employer contribution seems to be larger than that allowed by a 401(k). I really don't understand why a small company would want a 401(k) over a SEP-IRA.
- deleted 10y ago[deleted]
- thetest3r 10y agoWhat about https://octavewealth.com/ https://octavewealth.com/? They seem like a better option.
- jogjayr 10y agoTangential question: why are 401ks employer-managed at all? Why can't they work like IRAs? That is, I create a Vanguard account, put money in it, take a deduction at the end of the year? If there's an employer match, give your company the account number to do a direct deposit. Or better yet, combine IRAs and 401ks and just let everyone deduct up to $20k (or something else that's appropriate) to put into a retirement account you can't access till you're 59.5?
- wj 10y agoA short answer is that they are replacing employer pension plans so that is how the tax code was constructed. What you first propose would create a lot more administrative overhead for the employer and payroll company. However I could see that as a genuine business opportunity in the future, or at least a feature for a company list Gusto to implement.
- jogjayr 10y agoThanks for the historical context. I guess it kind of made sense to structure it that way at the time. > What you first propose would create a lot more administrative overhead for the employer and payroll company. Could you please explain how? I understand it will involve changes to existing processes, calculating withholding etc. But if the company is saved the trouble of finding a plan, administering it (or paying someone to) I would have thought it would be less work overall?
- wj 10y agoRight now your employer makes a deduction from each paycheck and then one ACH payment (across all employees) to the custodian which the recordkeeper then invests at the participant's direction. You way involves the employer making a deduction from each paycheck and then making an ACH payment for each employee to the institution of the employee's choosing. For a large company that is thousands of additional transfers. The way a company like Gusto could maybe do this is to store an employee's IRA account information like they do their bank information for direct deposit. Also, FYI, when buying mutual funds through your 401(k) you aren't charged any fees for trading. Through my IRAs at least I get charged a commission for every purchase. With payroll deductions those would add up.
- rileymat2 10y agoThe problem with retirement is not the fees. It is that the whole structure is inappropriate for a single person who can live between 0 and 40 years after retirement. Either you need way too much or you will run the risk of running short. A traditional benefit like a pension is way more appropriate as there less variability in the large population.
- boulos 10y agoPeople are happy to sell you variable or fixed annuities. You're asking someone to cover the risk of your longevity though, so expect to have that work out in their favor not yours.
- rileymat2 10y agoThey are quite happy, the fees on those make the 401k industry look like Boy Scouts.
- deleted 10y ago[deleted]
- fundedfounder 10y agoI'm glad to see a startup working to minimize fees in a 401(k) plan. I'm a bit confused by what I see on https://www.guideline.com/pricing https://www.guideline.com/pricing, though. How can you claim "No AUM Fees" if participants still pay 0.13%? Also, do participants pay the 0.03% fee monthly, annually, or something else? What about the 0.10% fee?
- busque 10y agoThe 0.13% is not paid to Guideline. The .10% is the average fund fee (the cost of the mutual fund from the manager, Vanguard for instance) and the .03% custodial charge that is a direct pass through for us. Not marked up in any way. It is important to have a great custodian.
- nunez 10y agoI wouldn't care about 401(k) fees if they provided a bigger return. The problem is that they don't. At all. None of those managed plans provide a bigger return over a long time horizon than a three-headed fund (50% index, 25% bonds, 25% international indices).
- siilats 10y agoFinance PhD here who also administers and custodies my own 401k plan. 1. Treasuries have 6% volatility, stock market has 18% so your optimal modern portfolio theory portfolio should have 3 times treasuries and 1 times stock. 2. This will give you annualized volatility of around 9%. If you want the 18% volatility that the stock market offers you need to leverage 2x (your portfolio is mostly treasuries). 3. You can use treasury futures to leverage, you make money every 3 months on the roll. There is free roll analysis that gives you the leverage costs on CME website. 4. Your 401k plan is just a 70 page pdf file that you sign. The small business CEO should be the custodian and the fiduciary and just a. sign the 401k pdf trust document. b. open vanguard account on the trust name. c. keep an excel sheet of everyones contributions or have vanguard create sub accounts. 5. Its incredibly risky having a 0.03% custodian. DAO and bitcoin come to mind. Whats the fiduciary bond amount that Guideline has? Max €500k so if someone hacks their vanguard omnibus account and wires the money out they are done.