II. Brokerage Retirement Platforms are Pipelines
Consumers need the education and training to benefit from a true platform. Absent an informed consumer and consumer choice of platforms; platforms will operate more like a pipeline. Brokerage retirement platforms are really pipelines; the broker intermediary limits the available products and adds redundant costs to consumers.
In Part I, (Blog Post – Brokerage Retirement Platforms are Pipelines) we introduced retirement savers to a study by Van Alstyne, Parker and Choudary, “Pipelines, Platforms, and the New Rules of Strategy,” which clearly presents the important distinctions between pipelines and platforms and is a must read. They identify the main “platform” players and their roles in the following diagram. The broker intermediary is the grey circle and may also be the producer. For the consumer – the retirement saver – to effectively participate and benefit in the platform they must have the education and training to effectively participate in the “value and data exchange and feedback” process.
Let’s say you want to rent a car? There are multiple platforms available to you. Two things are important; first you can choose from multiple competing platforms – Kayak, TripAdvisor, National and many more. Second, and perhaps more important, as your ability to seamlessly compare platforms, you know what you are looking for – large car / small car, economy car / luxury car, one-way rental / return to the same location, and fixed dates / flexible dates. Your “knowledge” as a consumer is not the same knowledge as the producer (Nation, Avis, Hertz, etc.) The producer knows how much air should be in each tire and what is the residual value of each individual model after 12 or 24 months; the consumer knows the criteria that “matters to them.”
The important thing is that the rental car consumer participates in the exchange process – through the platform – as an active participant. At the same time if you “just want a car” you can use a travel agent and / or the pop-up suggestion from an airline or hotel; recognizing that this may be a more expensive alternative.
In comparison does the 401(k) retirement saver “the consumer” have the ability to pick the platform that best meets their needs? No, the company/ employee benefit consultant / brokerage industry troika does and substitutes advice for education to the detriment of the employee saving for their retirement.
And more importantly, retirement savers have historically not accepted the responsibility to effectively participate in the “value and data exchange and feedback” process by having the education and training they need.
The dichotomy is striking, an individual may meticulously research the different car rental offerings – saving $80 on a four-day rental; and this same individual completely ignores the investment selection in their 401(k) – costing them an average of $300,000 per household at retirement according to the study by DEMOS, ‘The Retirement Savings Drain: Hidden and Excessive Costs in 401(k)’s”.
Paying the same attention to their retirement savings – most families largest investment – and using technology and tools comparable to those used renting a car, results in significantly more savings at retirement.
Case Study: LPL Financial
While not available to the beginning of next year, let’s look at the publicly available information on LPL Financial’s “new platform” as described in RIAbiz.
Using Labor Department as leverage, LPL cuts itself in as middleman between branded fund giants — including Fidelity, Legg Mason and Putnam — and its advisors’ clients — in exchange for semi-exclusive shelf space positioning…”
The word “platform” is used twenty times in this article; but reading the above article and a second article by Van Alstyne, Parker and Choudary in the Harvard Business Review, “6 Reasons Platforms Fail” one quickly sees that this LPL Financial offering is a “pipeline” – control and efficiency – rather than a “platform:”
“Platform businesses bring together producers and consumers in high-value exchanges. Their chief assets are information and interactions, which together are also the source of the value they create and their competitive advantage.”
Here are the first three reasons Van Alstyne, Parker and Choudary identify as the cause of platform failure:
- Failure to optimize “openness”
- Failure to engage developers (Producers i.e. mutual fund companies)
- Failure to share the surplus
In no way do we expect LPL Financial to lose money on this re-named offering; but this initiative needs to be recognized for what it is: a re-named pipeline that will in all likelihood be very profitable for LPL Financial but not retail savers.
What is the Value and Data Exchange Check the Ticker Provides Consumers and Producers?
- Check the Ticker provides the transparent tools and training to seamlessly access and compare S.E.C. publicly available regulated information necessary to evaluate retirement investment alternatives.
- Historically, S.E.C. regulated data was only available in cumbersome, often confusing written prospectuses that took hours to sort through. Every retail retirement investor can now have training on easy to use Check the Ticker tools to readily understand key S.E.C. disclosures – audited performance, portfolio turnover, “load-adjusted” returns and other key SEC disclosures. For the first time, consumers can understand and compare the concept of no load returns and “load-adjusted” returns and understand performance after all expenses, including intermediary advisor fees.
- Participation in a “feedback” process is only possible through informed choice. A “high value exchange” permits retail investors the ability to use real data to verify:
- Who is the top Target Date Money Manager for their selected maturity?
- Are they better off with a balanced fund and growth fund, based on key criteria or a Target Date Fund?
- How do fees, portfolio turnover, dividend yields on top US core retirement money managers, filing S.E.C. audited performance, compare to recommended options at an advisor centric pipeline?
- How to evaluate the performance and expenses of using an advisor or “robo” advisor recommended passive fund – sold with a commission from a “broker-labeled” platform, in comparison to an active balanced fund and growth fund or passive funds purchased directly from an S.E.C. registered mutual fund company?
Check the Ticker – The Virtual Retirement Platform
Check the Ticker training and online tools present the first virtual platform that brings consumers (retirement investors) and producers (S.E.C. registered money managers / mutual fund companies) in a “high value” exchange.