Ex-Goldman Sachs Banker Revamps 401(k) Accounts in New Job

Apr06, 2016

KANSAS CITY — Greg Smith was making his pitch, just as he did back in the day when he was a striving young sales trader at Goldman Sachs.

“There are people out there who are putting their financial interests ahead of yours,” said Mr. Smith, who four years ago shook up Wall Street when he accused his employers at Goldman of taking advantage of investors in a letter of resignation published in The New York Times. “You could be paying a fee of over 1 percent in your 401(k) — while the person next to you could be paying 10 times less.”

While Mr. Smith’s earnest, somewhat preachy demeanor has not changed much, what and to whom he sells certainly has. No longer does he travel the world, promoting complex derivative bets to some of the sharpest investors around.

Instead, here he was in this city trying to persuade a skeptical audience of middle managers at a credit union to hand over the keys to their 401(k) plans to Blooom, the financial start-up he joined a year ago.

Over the span of your working life, you could save more than $100,000 by paying less in fees, Mr. Smith promised, striding back and forth in the sun-filled conference hall at the corporate headquarters of Mazuma Credit Union, which serves five counties in Kansas and Missouri.

“It’s a no brainer,” he said.

Mr. Smith is far from the only person from an entrenched Wall Street firm to flee to the Wild West of new financial technology companies.

But few have left with as much theatrical flair as Mr. Smith. Having known him before he made his big splash, I was curious about how he was managing his post-Goldman life and went to this city to see for myself.

In his spiel to Mazuma, Mr. Smith did not say that mutual fund companies were treating 401(k) savers like muppets, but he might as well have.

After all, the essence of Mr. Smith’s original complaint was that Goldman Sachs, in pursuit of quick and easy profits, had come to regard its everyday client as a ready mark. An idiot and fool to be manipulated by someone else, was how Mr. Smith described the sentiment in the book he subsequently wrote, “Why I Left Goldman Sachs.”

On Goldman’s trading floor in London, where Mr. Smith worked when he resigned in 2012, these unsuspecting clients were frequently referred to as muppets, Mr. Smith claimed.

And with that revelation, he turned an obscure bit of trader slang into a global symbol for the many who believed that Goldman was putting the company’s financial interests ahead of its partners in business.

Goldman Sachs rejected the notion. But even among the many who believed that the company had become short-term greedy, there were those who viewed Mr. Smith’s critique as bitter and self-serving.

Indeed, when the book came out, reviewers sniffed, and sales were mediocre at best.

Soon, people had stopped talking about muppets and Greg Smith altogether.

For a while, in 2013 and 2014, Mr. Smith was not sure what to do next.

“My parents wanted me to get a job,” Mr. Smith said as he drank a beer at a hotel bar here.

He spent some time in Washington, advising the Democratic Senators Carl Levin of Michigan and Jeff Merkley of Oregon on regulatory issues connected to Dodd-Frank legislation.

And he hit the paid speech circuit, although it became clear that a career as a public advocate for proper financial and fiduciary practices was not going to happen.

Then Mr. Smith came upon the notion of championing the rights of the 90 million Americans who have around $7 trillion saved in 401(k) retirement plans through their companies.

The pool of money was huge, but with the average plan size about $91,000, Mr. Smith saw these savers as getting short shrift from the mutual fund giants and the companies that sponsored the plans.

That these mostly unsophisticated savers ended up in higher-fee or higher-risk funds without knowing any better galled him, he said.

In 2014, he met Chris Costello, a former investment adviser based here who had just co-founded Blooom, a financial technology start-up that uses an algorithm to guide 401(k) savers into the cheapest, most appropriate funds available to them.

Mr. Smith was impressed and soon joined as president overseeing marketing and business development. He also came in as an investor, and just a few months ago, he pulled up stakes in New York and moved here.

Mr. Smith, 37, grew up in Johannesburg, went to Stanford and spent 12 years working for Goldman in New York and London.

But there is something unjaded, if not cornfed, about him that makes him a perfect fit for Kansas.

At Blooom’s office on the city’s outskirts, rock tunes fill the air, quants — the math wizards wearing Royals baseball caps — pound away at their computer keyboards and a beer tap and Ping-Pong table stand at the ready.

Sitting in a conference room, Mr. Smith cites a striking statistic while explaining why he is convinced that Blooom, whose assets have grown to $225 million from $54 million over the last year, can hit it big.

Of the 90 million people who have 401(k) plans, more than 83 million will simply guess randomly when it comes to selecting the funds that a Vanguard or a Fidelity offers them, he pointed out.

“The difference between picking a high- or low-fee fund could add two to three years to your retirement,” Mr. Smith said.

When I told him that I counted myself in the camp of 401(k) guessers and was curious to see what Blooom could do for my sad little retirement plan, he responded enthusiastically.

“Great idea! Let’s do it, man,” he said.

So I did what 2,300 clients have done before me: I handed over the password to my Vanguard retirement account, paid Blooom a Netflix-style fee of $15 a month and got out of the way.

Mr. Smith gave me the news with a sympathetic shake of his head: 28 percent of my portfolio was earning next to zero in a pricey bond fund, and I had no international exposure.

Moreover, the funds that I blindly selected when I signed up for my plan 15 years ago charged me 0.51 percent in fees.

Within minutes, the algorithm had done its work, putting 98 percent of my portfolio into a mix of globally diversified stock funds, with the rest going to bonds.

But what really got Mr. Smith going were the savings coming my way.

“Look, man,” he said, pointing his finger excitedly at the flower in full bloom on my computer screen. “Your fees are now 0.20 — that is an annual savings of $775 a year.”

It’s too soon to tell whether these kinds of robo-investing operations will serve investors well over the long term, or whether Blooom will survive in the harshly competitive world of finance.

But this much is also true: When I left Blooom that day, no one could say I was a muppet.

This article originally appeared in the New York Times, written by Landon Thomas, Jr. 

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