This post was originally published on Defense Entrepreneurs Forum’s Whiteboard blog.
On Sunday, 26 October, the Defense Entrepreneurs Forum hosted an innovation competition sponsored by the United States Naval Institute. $5,000 in prizes were awarded after the eight contestants made their pitches. We will feature the one-pagers from the competition over the next few days.
Contestant: Ben Bines, HBS Student, Former F/A-18 pilot
Thesis: Creating a catalyst for military members that drives them to engage in proper wealth management strategies early in their careers will result in increased career satisfaction and hence higher retention and recruiting rates.
Our military has a problem; members are not comfortable creating and executing personalized investment plans that can help them create long term wealth.
Often our members rely on too little information to make potentially life-altering decisions. If the government can find a way to unlock this wasted potential, the results could be significant for its members. The question we need to ask ourselves is why isn’t this happening without intervention?
We submit that the answer can be traced to three facts:
- The financial services industry is incentivized to be confusing, resulting in less sophisticated users not investing, over/underinvesting and/or investing without a holistic plan.
- The financial industry’s professional advice fee structures (typically 1% of assets being managed) are too costly for most peoples’ financial needs and are set up to cut out lower net worth families, thereby exacerbating point 1.
- The government has only attempted to engage this issue from the retirement account (TSP) perspective, not the holistic strategy perspective.
The idea that a person can create value through very long term investing in a broad market based portfolio that reflect an individual’s personal situation and risk tolerance is well known, however, this fact does not seem to equate to this strategy being well implemented. Why?
We believe the disconnect results from two factors.
- People tend to give up because of the perceived execution complexities.
- People take a segmented view on their portfolios and accept the simplicity of cookie cutter investment strategies (target date retirement funds) that result in under or over exposed positions. The misunderstood exposure results from these strategies’ attempts to control costs by relying on bucketing dissimilar individuals based solely on retirement time horizon.
The fact is the investment world is simply too complex for the average person to feel confident that the decisions they are making are based on a complete understanding of the financial tools they are employing. The financial costs of misallocating short, medium and long term funds based on miscalculated or misunderstood short, medium, and long term cash flow requirements results in forced selling and emotional investing, which destroy enormous amounts of wealth accumulation potential.
So how can we help create the cost effective catalyst that gets people over the execution hump and provides individualized portfolio strategies without asking our members to become trained financial professionals?
We believe the answer lies in merging education and execution services via virtual meeting technology with trusted, proven financial institutional partnerships. We will create a process which will allow us to walk individuals through the setup and initial execution stages of their investment plan using a fiduciary relationship standard that gets them going down the correct wealth management path. We’ll couple that with robust financial planning software that allows them to easily track goals, sets reminder, and provides easily understood instructions when it’s time to make adjustments. By getting our people confidently through the uncomfortable stages where many give up, we’ll add enormous potential value to our members’ and the military.
