
Show HN: OctaveWealth – Smart, flat-fee 401k - dmmalam
https://octavewealth.com/
======
Veratyr
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?

------
dmmalam
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
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
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
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
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.

------
kahuna4637
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
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.

------
maxxxxx
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
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.

~~~
stegosaurus
Replying to all below posters:

Yes, I know that there exists a tax deferral. Sometimes employers even match
funds.

The statement I am making is that this seems like a complete scam by the
Government - forcing you to perform suboptimal manoeuvres by withholding your
cash otherwise.

Is it worth participating to reduce taxes? Possibly.

Does it outrage me that I'm treated like a child in this respect? Certainly.

(Why age 55? What if I want to retire at 50? What if I'd rather take a year
out now and work 55-56? What if I want to leave the country? What if tax rates
change?)

~~~
kspaans
That's a good question actually. In Canada you can withdraw from your RRSP
early if you want, but you get hit with something like a 25% "don't do that"
fee. What's the reason for this lock-in? I can't see one other than to try to
encourage you to keep your money in the plan for the long run.

