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Capitalize gets $2 million from four top VCs on novel freemium idea -- to reunite investors with hundreds of billions in 401(k) assets held by their ex-employer

Founded by a 35 year-old who got his career start at hedge funds, the New York City firm will make sure your rollovers take place, paperlessly -- at least for you

Author Brooke Southall November 3, 2020 at 10:07 PM
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Gaurav Sharma: We'll find your money, make sure you get an IRA right for you, and we won't stop til it's done.

401(k) Stories

Brian Murphy

Brian Murphy

November 4, 2020 — 5:48 AM
Umm...Houston, we have a problem. I'll lay out what I think are the issues here - perhaps someone associated with Capitalize can respond if they see fit. Capitalize will likely be viewed as an RIA by regulators (SEC & DOL). I believe in order to "recommend" an IRA over a client just continuing the hold her assets within the pre-existing 401(k), the advisor needs to document the economics of such advice - ie) is it cheaper to retain the 401(k) or move it to an IRA - and likely present it back to the client for approval before assets are moved. Now, throw in a business model that is based on referral compensation from IRA providers and things get really sticky, really fast. Add on the following issue. In a 401(k) plan there is a "default option" - let's say for a big company that happens to be a series of extremely low cost target date funds that the unsophisticated client is invested in. Rollover the money and it likely ends up in cash. Then what? Is Capitalize advising the client on what investment(s) to make in the new IRA? If not, it's hard to make the economic case that end result leaves the client better off than he/she would be in the old 401(k). In all cases, a fiduciary (which I believe Capitalize will be) has to work in the BEST INTEREST of his/her client. Seems to me there's a rather large conundrum here. FWIW there was a company running a similar business maybe 15 years ago that eventually folded into another organization - Rollover Systems, now Retirement Clearing House (https://rch1.com/).


November 4, 2020 — 4:03 PM
Brilliant curation!

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