Savvy Millennials Are Paying Zero Fees Before Beating The Market
Most Millennials and Gen Zs plan to start a family at some point, if they haven’t already. They might even be waiting for their first kid to be born tomorrow. Before the baby comes, financial planning and smart investing are critical for peace of mind and a stable future. That goes double if they want to be millionaires down the road and live in comfort.
If you’re a savvy young parent, you’ll likely visit a financial advisor at some point, if you haven’t already. You will be advised on traditional options like 401(k), 529 plans, FSAs and HSAs, among other instruments and options. And these are certainly all important to consider.
Not all of us have in-depth financial industry knowledge. As such, you might walk out feeling with a false sense of comfort. You might unjustifiably feel that your finances are “under control.” At least, your investments are set up for at least “decent” returns, you may think.
What you might not realize, with no sleep, holding a crying baby, is that you’ve likely just been fleeced by Wall Street. When markets go higher in a given year, you might not notice just how high your fees are for having your finances managed. In a down year, you might pay attention, because you’ll still be paying a management fee despite losing your money.
There’s a reason Wall Street always wins, regardless of who loses – it always gets its fees. Up-front fees, back-end fees, financial advisor fees, management fees, hidden fees, you name it. Before you know what happened, as much as 3-4% of your aggregate return is magically shaved off the top. There goes a family vacation or a chunk of your kid’s college fund, well, just because.
One fintech startup is betting big on a radically different – and fundamentally aligned – business model to help middle class parents benefit from elite investment management.
Behind SGIM.com is Mitchell Wonboy, Wall Street insider-turned-entrepreneur, whose inspiring personal story led him to a different vision for the role of financial services for consumers. Mitch and I spoke about the mechanics of Wall Street investment management and what led him to help families plan their finances and investments.
While speaking with Wonboy, it quickly became apparent that his strong values of transparency and fairness are the driving principles behind SGIM.com.
Mitch grew up in Detroit and witnessed firsthand how difficult it is for most Americans to properly prepare for their retirement. Seeing both of his parents struggle to make ends meet was difficult. That combined with poor financial advice and planning impacted his career decisions later in life, leading ultimately to the creation of SGIM.
After graduating from the University of Michigan in 1996, Mitch worked his way up the ranks in large, bulge-bracket banks. Eventually, he was leading a large team managing an aggregate of $10B. As his career progressed, he saw tech innovations transform one area of the business after another, with a notable laggard – wealth management. Mitch saw a massive opportunity in the market, which led to the launch of SGIM last year.
As an entrepreneur growing his company and as a parent, he’s building a culture of transparency, fairness and empowerment. This is informed by his hardscrabble roots and hunger for change, which have long inspired his charitable work in his community and for various Jewish organizations.
Mitch explained what bothers him the most about his industry. “90% of financial advisors buy ETFs and mutual funds for their clients – which anyone can do themselves. Then, they charge a recurring management fee, regardless of performance, for the life of the relationship. And on top of that, you have perpetual manager fees collected by each fund. Investors are paying twice, often without even knowing it. And don’t even get me started on the massive conflicts of interest.”
He said that most people shrug off the lack of fairness of the entrenched business model, given the size and power of financial services behemoths like JP Morgan, Merrill Lynch, Morgan Stanley and UBS to move markets.
The New Kids in Town
Like David to their Goliath, Mitch is optimistic. Fellow fintech innovators, Robin Hood, have seen tremendous growth with self-driven investors. In 2017, they racked up 3M users, many of them Millennial professionals and parents.
In this vein, SGIM recently opened its platform to the public. They now offer everyone to benefit from the same active management that’s produced superior returns. This comes with a surprising $0 in fees up front, until SGIM beats markets by at least 0.25% per quarter.
For Millennials weighed down by student debt, hobbled from investing by negative wage growth, lower fees are welcome. Of course, low fees hardly predict solid returns. In fact, robo-advisors have failed to spread like wildfire largely due to consistently disappointing returns.
Mitch and SGIM co-founder Adam Forbes believe professional asset managers should only be paid for outperforming the market. After all, anyone at all can go and buy mutual funds, index funds and ETFs. These instruments cost between 0.05% and 3.00% in fees, respectively. That said, the higher the underlying management fee is, the more difficult for an investor to generate net positive returns.
Wonboy said, “Reasonably priced investment management is really important for middle class parents. As such, the entrenched system of many layers of fees, prevalent conflicts of interest and poor investment advice are tragic.”
Pushing the envelope is a lifelong habit for Mitch. A lifelong learner, he continues to challenge himself to grow and improve in all areas of life. This includes staying on the bleeding edge of market knowledge and dedicating time to charitable causes.
It is precisely this approach that drives him in a quest to fix a broken system. he is dead set on eliminating the middle men and making elite investment management available for everyone.
And the goal isn’t just superior returns, but equally to empower clients. This is especially true for young parents just starting out. It’s imperative for them to achieve financial stability for themselves and their families. For those same Millennials finally starting families, making, saving and investing more, financial planning and investing is often no strong suit.
As the soon-to-be largest workplace demographic, Millennials bring their heightened sense of fairness and social responsibility to investing decisions. In this vein, Wonboy’s approach wins over both hearts and minds.
SGIM.com may not yet be a household name yet, but it’s already transforming how parents in the 99% manage their investments.