Howard: “The key differentiator for us is clearly our mathematical approach and loss protection methodology. In 2000 and 2002, we sat out the majority of that market based on the odds that the market was clearly going down. We sat out of all of 2008 and came back in 2009. If you are minimizing your losses in bad markets, your recovery time is nothing.
Hortz: I saw on your website that your HCM 401(k) Optimizer has been granted ‘Certified Computer Model’ status by DALBAR. Why is that significant and how does that help advisors in the retirement plans market?
Howard: “Being Dalbar certified as a ‘computer model’ means that the 401k Optimizer is totally computer generated and meets the detailed requirements of ERISA for fiduciary relief. In other words, it clearly verifies that there is no human emotion or conflicts of interest that are placed into what happens inside the Optimizer. Your investment selections and portfolio management are all done objectively by math. Per the DOL, this will reduce fiduciary liability for both plan sponsors and financial advisors as outlined under ERISA Section 408(g).
Hortz: Why does the Department of Labor support computer models, which inherently is supporting the use algorithms?
Howard: “The Department of Labor’s concern is to prevent conflicts of interest on investment advice, that there is no subjectivity to the advice given to plan participants. In a computer model, investment advice is all based upon math, upon the computer generating and managing the participant’s retirement portfolio. Even under the current DOL review process, I think it is safe to say that the computer model provision is already in there, in black and white, and they want to keep it as a key component for 401k participant safety.
Hortz: “You transitioned your business from an advisor with retail clients to where you started working exclusively with other advisors with your risk management programs. In helping advisors who want to evolve their business model or way of operating, what advice would you give them from your experience?”
Howard: “At our firm we never wanted to be a jack-of-all-trades. We wanted to be a master of one - manage money with down-side protection using disciplined methodologies that work. It’s hard to evolve and innovate in your business if you are spread out in so many different areas…. If I was to give advice to an advisor, I would say specialize in something. Specialize working with small business owners, doctors, a particular type of money management. That focus will drive you to discover new ideas and ways to work with your target clients in new and powerful ways.
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