With the death of the fiduciary standard and the inception of the SEC’s Regulation B.I. — which opponents liken to a “
United Income is calling on regulators to adopt a higher standard for the rest of the investment industry and is designing systems to help provide a deeper picture of retirement savings. Clients get access to what the firm is calling a “total wealth return,” which includes money that was generated through tax, investment and retirement management. The firm also deducts expected taxes a client will pay from investment account trades and withdrawals, as well as fees on investment related accounts.
“The technology now exists for the marketplace to become a lot clearer about the impact they’re having on wealth management,” says United Income CEO Matt Fellowes. “Once the industry is held to a higher standard of what clients are paying for — not investment returns, but to maintain and drive wealth — they’re going to be a lot more careful about how they’re managing the tax consequences of their trading decisions,” he says, adding that his firm is working with regulators for broader adoption.
“Some of these decisions are simply eroding wealth for clients,” Fellowes says.
The current trajectory of new regulation has been overly focused on the prices of products, he says. Instead of fees and commissions, the rule needs a more holistic approach that takes non-investment fees into account, he says. “What comes next is to try to figure out how the best interest of an individual can be defined, empirically,” Fellowes says. “And, that has to go beyond investment products.”
Being more precise about the impact of fees can have significant consequences. For example, lowering investment fees by 100 basis points saves the average investor $40,000 by retirement,
“We want to make it very clear the wealth management impact we have on our clients both positive and negative,” says Fellowes, who is also the founder of the budgeting app HelloWallet, which was acquired by Morningstar in 2014 and then sold to KeyBank in 2017. “Most of the wealth management marketplace isn’t really measured by how well they build wealth, but how well they provide returns on investments,” he says. “That is a problem.”
The total wealth tool tracks additional wealth generated or lost by the firm by comparing actual account performance with other standard plans or commonly held rules of thumb, according to the firm. Taxes, for example, are tracked through its tax-loss harvesting techniques against standard drawdown accounts at incumbents like Vanguard and Fidelity, according to a spokesman. Tax savings can offset realized gains and up to $3,000 of income each year, says the firm.
As for savings on fees, the tool compares each client’s stated fees from their previous advisor to the fee at United Income and the average industry fee, which is around 1.02% of assets,
Not just taxes, clients care about cost of living, health care quality, crime rates, culture and weather.
The Washington-based firm charges 50 basis points for self-service, while a more advanced package starts at 80 bps and goes as low as 15 bps based on client assets, according to the firm. United Income manages $426 million in assets with eight financial advisors and an average client balance of $875,000, according to the firm.
New technology can provide accurate reporting on non-investment metrics like retirement advice surrounding required minimum distributions, or Medicare; or, tax-efficient techniques like tax loss harvesting and estate planning, Fellowes says. The problem is advisors are simply not incentivized to use them.
“It’s really crazy right now that an advisor is evaluated the same way as a fund manager,” Fellowes says.
The total wealth return tool also depicts the impacts of when clients claim Social Security, according to the firm. United Income compares the lifetime Social Security income generated with a standard claim age of 62 to the lifetime income generated by its optimized claim age. For 82% of clients, the optimal claim age is 70, says the firm, while the other 18% varies from ages 62 to 69.
By showing the client their savings, advisors are adding to their value propositions, Fellowes says, and are more likely to use more advanced planning techniques in the future.
“There’s money left on the table by not focusing on all their non-investment tools at the disposal of advisors to build wealth,” Fellowes says. “We have to start holding people accountable.”
