Named one of Forbes Magazine’s “30 Under 30”, former Special Assistant to President Obama Elizabeth Kelly is an established proponent of lower fees and better investment options. Elizabeth joins Scott Puritz in an all star panel to offer her insights on how to make retirement investing safer.

As a White House Special Assistant to President Obama, Elizabeth Kelly played a key role in making the “fiduciary rule” a reality. Currently, Elizabeth is Chief of Staff for United Income, where she utilizes her wealth of knowledge to continue her steadfast dedication to transforming the retirement investment industry.



Scott: First, I’d like to turn the floor over to Elizabeth Kelly. Elizabeth is currently the Chief of Staff for United Income, which is a high powered start up that is part of this wave of innovation that’s trying to finally transform the financial services industry into something that is more pro-consumer, with greater transparency, lower fees, and dramatically better investment products. She came from a stint at the White House where she was a special assistant to POTUS, himself, and with a very broad portfolio that included all of economic security, retirement, and she played a key role in passage of the fiduciary rule. By even the standards of Washington D.C., Elizabeth has amazing academic credentials. She’s a Duke undergraduate and polished off with Yale Law School, and if that wasn’t enough she got a Masters at Oxford. So, with that, let me turn the floor over to Elizabeth.

Elizabeth: Well, thank you, Scott, for the very kind introduction and to you, Julia, and the entire Rebalance and Hera Hub teams. I’m excited to be here. I always enjoy talking about saving for retirement and financial education especially when there’s a movie viewing involved. I confess this is actually my second time seeing those clips. I actually watched it the instant it posted on a Saturday night, which probably gives you a window into my level of nerdiness, but anyway, I encourage your full viewing.”Wizard of Lies,” presents a stark scenario, where an investment manager was blatantly lying and ripping off his clients in violation of many federal laws enough to accrue him 150 year prison sentence, but as Scott said, the sad reality is that many investment advisors are currently ripping off their clients in a way that’s perfectly legal. Charging higher fees than necessary and steering them towards products that may not be in their best interest.

There’s two basic types of financial advisors. There’s broker dealers who are held to a suitability standard and there’s registered investment advisors, or RAAs, who are held to a best interest or fiduciary standard. What’s the difference between those two standards? The way I like to put it is that if I’m held to a suitability standard, I can’t put grandma in tech stocks or something that’s clearly inappropriate given her level of risk tolerance, however, I can put her in a mutual fund that charges her higher fees, no the best available option, but provides me as the advisor higher commission. The best interest standard would require me to put her in the comparable lower fee investment that would be better for her returns.

So, basically, advisors that are not fiduciaries, like broker dealers, may be paid more if they recommend one product over another to their customers; the basic conflict of interest that you’ll hear a lot about tonight. On average, conflict of interest results in annual losses of 1% to affected investors. This doesn’t sound like a lot, but it can add up. So one percentage point lower return could reduce your savings by more than a quarter over 35 years, typical investment horizon. In other words, instead of a ten thousand dollar retirement investment growing to more than 38 thousand over this period, you’d end up with just 27,500. Collectively, this adds up to 17 billion dollars of losses by retirement savers every year Scott said.

The good news is that on Friday, June 9th, the fiduciary or conflict of interest rule requiring advisors to provide advice to their clients in their best interest will go into effect. For the last three years I was fortunate to work closely with Phyllis Borzi, and her terrific team at the Department of Labor, as they worked around the clock to put into effect these protections for retirement savers despite substantial opposition from the financial services industry and many politicians. I’ll let Phyllis do the honors of telling you more about the rule and the process and politics behind it, but before I turn it over to her I want to leave you with a few questions I’d encourage you to ask your financial advisor, even your 401(k) plan administrator.

The first one is, are you a fiduciary? Are you committed to recommending vestments that are in my best interest for both my tax preferred and taxable accounts? Tax preferred ones are things like Roth IRA, IRA, your 401k, whereas your brokerage account would be taxable. The fiduciary rule only applies to those tax deferred retirement savings accounts, so you’re going to want to make sure even after Friday that you’re getting best interest advice on both.

The second is, what are the total fees I’m paying? First off, what fees am I paying on my underlying investments? What’s the expense ratio on the fund? The average is about .64%, but Vanguard, BlackRock, others have offerings that can be as low as five basis points or eight basis points. That’s .05 to .08%. The thrift savings plan that many of you may be in if you’re federal government employees or have been at some point in time, most of their offerings are from .02% to .04% is their highest offering.

There’s no reason to be paying .64% and definitely no reason to be paying upwards of 1% fee that many actively managed funds charge. And then I’d encourage you not to look just at expense ratio, but also at the other fees you might be charged. Things like 12b-1 fees that are charged by the fund to cover marketing or distribution costs. Load fees that you may incur if you’re selling funds. Redemption fees if you sell the fund too soon. Just make sure you’re digging into all of this and that your financial advisor is giving you a full picture. You may also be paying management fees, advisory fees, even a registered investment advisor may charge one to one and a half percent a year, which starts to add up very quickly, so I encourage you to dig into that.

The last question that I’d encourage you to ask is, what changes you should expect to see in light of Friday’s rule and it going into effect. A number of large corporations have announced substantial changes to their practices. The majority of which we think are for the good, but you’re going to want to understand what that is. I know this can be a tough conversation. Often times financial advisors are people who you’ve had relationships with for many years, one of my favorite stories is there was an academic who did a lot of work on the fiduciary ruling and encouraged his mother to switch financial advisors because he discovered that she was in completely inappropriate funds. She was paying too much, and he goes to his mother and tells her such and she says, “I can’t switch financial advisors, I’d have to switch temples.”

All that to say, I understand it’s a tough conversation, but it’s obviously very important for your financial future, so I encourage you all to take on that responsibility. And with that, I’ll turn it over to Phyllis.