On The Cutting Edge of Finance

What do you do as a small business trying to make your way in an already established industry? You become innovative and one company out of New York City called Betterment has done that. They are helping people build customized portfolios for people that cannot afford the high priced financial advisers. At this time only 14% of employers with fewer than 100 employees offer a 401k plan, according to the Government Accountability Office.

John Stein is the founder and chief of Betterment and believes that retirement should be a fundamental right. Unfortunately very few small businesses offer a retirement plan. One reason is that employees often pay three times as much as workers at larger companies. According to the New York Times, the investment lineup might be rife with conflicts of interest and high-cost, actively managed mutual funds. The problem with “actively managed mutual funds” is that they aren’t truly actively managed. If a stock that mutual fund is invested in is dropping the adviser is under no obligation to move your money out of the stock to preserve your investment. You yourself would have to request the change, which really leaves the question of what is the adviser good for?

Stein has a different approach though, he wants to elevate the 401k plan to the next level and bring automatic management and re-balancing, taking into account rollover from an IRA, possible spousal plans and future Social Security Benefits. The advice the plan is managed on is systematic, putting human error aside and looking to an algorithm. Betterment has built their own enabling the company to keep cost down to .60 percent of plan assets plus the cost of investment.

As a small business do you offer your company a 401k plan, and if not would you consider using one of these innovative financial firms to do so?

Read the full article about Betterment and 401k plans from the New York Times HERE

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