Jerry Bramlett is the president, CEO and founder of The 401(k) Company. The Austin, Texas firm has $5 billion in assets under management and 140 clients.

401kWire: What services does The 401(k) Company provide?

Bramlett: 100% of our clients are in a fully bundled arrangement with us.

401kWire: Have you thought about services other than bundled plans?

Bramlett: We've been approached numerous times to do back-office recordkeeping, but we're not interested.

401kWire: Why not?

Bramlett: Recordkeeping is a thankless job. All the major recordkeeping platforms that are growing derive income from a distributed investment product. You just can't compete by charging a per head fee.

401kWire: Do you provide advice?

Bramlett: I think advice is extremely overvalued. The truth of the matter is that nobody knows what the hell is going to happen in the future. You take Warren Buffet, you take a guy running a Janus fund, you take a hundred more and you'll get hundred different predictions. The best asset allocators in the world were Long Term Capital Management, and those Nobel prize winners were so good that they almost cratered the whole system. Now those geniuses couldn't figure it out, but Financial Engines can? mPower can? Rational Engines can? The very best you can do is to prudently allocate and diversify.

401kWire: Don't participants need some kind of guidance?

Bramlett: People do need advice, but the ones that need it most won't use it. Education materials are extremely underutilized. The person with a $20,000 account balance, who's really going to be struggling at retirement, won't log on to an Internet site and start inputting information. We give a 10 question risk assessment test as part of our plan. Very few people who go to the site are motivated enough to actually complete the test.

401kWire: Isn't advice of value to motivated people?

Bramlett: If your motivated, guess what? The tools are out there for free. Advice is built around the Internet concept, and the biggest danger to advice providers is the Internet itself, where everything is free. In order to survive, you've really got to add value to what's out there for free.

401kWire: You don't feel the current providers are adding value?

Bramlett: Not really. Look at Financial Engines. On their site, they've got a little slider. You move the slider to increase the amount of money you'll have at retirement. If you want to jack up the amount, you slide that baby all the way across. You know what happens? Almost every single time, the site dumps you into one fund. When I saw that at a demo, I said "You can't put that in the hands of the employees and say 'Start sliding away.'" Where are they going to wind up? Right now, they'll have all their retirement money in in a tech fund. 35 bucks a head for that? We can't get people to pay $12 a head for administration, and people pay $35 a head for advice?

401kWire: Does that mean you won't be adding advice?

Bramlett: Well, you've gotta have something. Advice is the new hype. You get an RFP that asks what your doing about advice, and you've got to say something.

401kWire: What do you plan to say?

Bramlett: I've got to be a little careful here. We're having serious discussions with Morningstar. I believe they're the front-runner from the advice standpoint.

401kWire: Why?

Bramlett: Three reasons. If I have to say something, I want a recognizeable name. Morningstar is recognizeable.

Second, Morningstar doesn't charge as much as the other services, which are funded by venture capital. Morningstar already has some revenue.

Third, and maybe most important, Morningstar has real content. I think that, over time, these advice providers will become Web content providers. I want to know about their content, not about their optimizer that any Joe Blow can buy on the street.

401kWire: Is there any hope for improvement?

Bramlett: Advice can only get so good because there's so little that people actually know. Its hard to make significant advances in the quality of advice because no one knows what's going to happen.

In three or four years, people will be giving away the same advice that today costs 35 bucks a head. They'll give it away just to get people to their site.

The Internet comes into play here. I was giving a presentation the other day, and the head of human resources said 'Sometimes I think we do such a poor job of picking investments, we should just give the employees the Internet.' He didn't say give them self-directed brokerage, he didn't say give them a mutual fund window, he said give them the Internet. There's a sense that the Internet is a gateway to all these tools and to all these investments, that everything is happening at the desktop. You can do it yourself, you have the power. Main Street knows more than Wall Street.

401kWire: If advice is no help, what can participants do?

Bramlett: In my opinion, there's only four or five different pre-set allocation models that have any validity. 80% of the world in can fit into those models. When we do a plan, as much as 75% of the participants go into models.

401(q&a) with Jerry Bramlett will be continued shortly on the 401kWire.com.

 

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