Scott Colangelo: Guaranteed Income as 401(k)'s Fourth Pillar

[0:00] Scott Colangelo: Hello everybody and welcome to another episode [0:02] JD: of the greatest 401k show in history. [0:05] Scott Colangelo: I said to myself, wow, what a great show. [0:08] JD: The host, J.D. carlson is an amazing guy. So wonderful. Then there's silent J, Justin McNeil. What a wonderful guy. Really incredible. [0:20] Scott Colangelo: If you like spreadsheets, they got this [0:22] JD: guy, nerdy Chad, and he is always bringing nuggets. Such amazing nuggets. Yeah, he is. [0:29] Scott Colangelo: And as always, everybody's favorite retireholic robe guy. [0:32] JD: So great. So sit back and enjoy as this is retireholics. Like you said, we are the retireholics and we're going to do a special episode today. And when I say special, I mean we're going to take one topic and we're going to go deep on that one topic. Never done this before, but Scott was eavesdropping in on a past show of ours. We talked briefly about guaranteed income. He private messaged me and said, hey, we should do something pre the national association of Plan Advisors conference where we really kind of do a deep dive. So I'm actually excited to do this because I think this would be a good test run. I think this is something we could try in the future instead of just spending five, seven minutes on something. I think this is really cool opportunity to, to really, you know, overturn every stone, so to speak. But let's still intro our guest. Justin, you take it away. Let everyone know who's here. [1:34] Justin: He's back for round two. Ladies and gents, joining us from Overland park with where he lives with his wife, three kids. Well, actually sounds like they might be [1:42] Scott Colangelo: out of the house, Scott, is that correct? Yeah, we're empty nesters now. Dang, that's. No, that's got to be be a [1:48] Justin: little rough when he's not helping people save for retirement. [1:51] JD: He fancies himself playing basketball and golf, [1:53] Justin: but in his own very words, he's [1:55] JD: not very good at either. [1:57] Justin: Still got the best looking head bald head in the industry and thankfully this [2:02] JD: time around he dressed down to kind [2:03] Scott Colangelo: of match with us. [2:04] Justin: So. But Scott, a little bit different from the last intro. I don't know if you've seen recent shows this year. We are wanting to hear a little [2:10] JD: bit more from you and what your [2:11] Scott Colangelo: thoughts are on a few things. [2:12] Justin: So I'm going to give you a couple rapid fire questions. You can respond with one to three word responses. Seems simple enough. [2:19] Scott Colangelo: Yeah, do it. [2:21] JD: I love this part. I love this part. [2:23] Scott Colangelo: Thank you jd. Which celebrity would play you in a movie? Oh my God. I would probably choose someone funny like Steve Carell, right? [2:37] Justin: Team Apple or Team Android? Team Android. [2:40] Scott Colangelo: Apple all the way. [2:41] Justin: There you go. [2:43] JD: You. [2:43] Scott Colangelo: If money was not an object or an issue or whatever, probably isn't for you. [2:47] Justin: But what's your dream car? [2:51] Scott Colangelo: Bentley. [2:53] JD: And what kind of car do you drive? [2:56] Scott Colangelo: Bentley. [2:59] Justin: Yes. [3:02] JD: Sorry, Justin. I know this isn't right there. [3:05] Justin: Definitely helping. [3:06] JD: I did not even think to ask that. [3:08] Justin: Which decade had the best music? [3:11] Scott Colangelo: Seventies. Whoa. Seventies. Wow. Look at the TV screen behind me. It's totally discounted. [3:21] Justin: All right, I missed this one last week, so we got to bring it back. If I selected three chat bar personnel and you selected which one had the hottest sister of these three, who would it be? Nate Moody. Nate Moody or Nate Moody? [3:34] Scott Colangelo: That's gotta be Nate. [3:36] JD: Yeah. [3:38] Justin: Anyways, ladies and gentlemen, please welcome back [3:40] Scott Colangelo: to the show the chairman and managing [3:41] Justin: partner of Prime Capital Financial, Mr. Scott Colangelo. [3:47] JD: Thank you, Scott. We're going to play some drinking games on this show. So we've kind of sip from a beer, but. And I don't usually remind the guests, it's been a while since I've done this, but I feel like the guests have been falling off a little in some past episodes. So if you acro. Sin. If you say an initialism or an acronym. My name excluded. You must drink from your penalty drink. It needs to be hard alcohol, a very stiff drink. What do you have on hand? [4:13] Scott Colangelo: Well, it's in the. It's in the room next to me. I'd have to get off the camera [4:16] JD: and go, can you call. You can't call one of your servants or your minions to go do that. [4:22] Scott Colangelo: I'm in an apartment. We're building a place here, so I don't even have a. I don't even have a home here. [4:29] JD: I feel like I can go grab some. Make a. Everyone, thank you for tuning in. We're psyched that you're here. And don't listen to Chad. Chad says no one cares about guaranteed income. That's not true. I know you all do. Let me know in the chat bar. Do you care about it, yes or no? While we wait for Scott to get his penalty drink. Moody cares about it. Classic robe guy. He's always on the fence. What are we seeing there? Income is the outcome. Okay, Frank, slow your roll, buddy. More than anything in this world, I [5:10] Justin: feel like there might be some skin in the game from some of these people. [5:15] JD: I'd rather have high income than guaranteed income. I don't know that high income could pass out. He really did have to go dig that baby out. Well, I'm gonna kind of go without. No, I can't go with that. True. [5:26] Justin: It's. [5:26] JD: It's in the wind. All right, let's. I wanted. He's like. He's like, we're building a. We're building a small apartment. It's 10,000 square feet. I need to get out to the other side to the. The bar. Let's kind of set the table. And I'm gonna state the obvious accumulation. Obviously, our industry for the last 50 years, we all know this, been working really hard at it. I would say doing a pretty damn good job. And continues to evolve and improve in terms of helping people save money for their retirement. Decumulation is something that we've definitely kind of ignored as an industry. It's going to set a lot of the tone for, for tonight. But I would also like everyone to kind of get in the headspace. That decumulation to me is a lot more complicated because you don't know how long you're going to live. You don't know how much money to pull from it. You don't know what future taxes may be. I mean, there's just a lot of. You don't know what the markets are going to do. So there's a lot of variables moving around which can make it very difficult to plan in retirement, how to draw from your money. So, Scott, I mentioned this. I'm seeing a full court press from you and your team. You've got some beautiful videos out there. If people haven't seen it, I would encourage them to go to LinkedIn and check them out. And I'm not kissing your ass. You've done a great job with some of those. I saw Janya come out with one today. I see Wolney posting on there. There's this kind of unified message, and it kind of starts with, hey, as an industry, we've pushed the envelope in the past quite a few times to great success. When participants were not participating at the levels that we knew they needed to do, we implemented automatic enrollment. We also then implemented automatic increases or annual increases when we weren't sure about their investments. We came out with qualified default investment alternatives and gave them target date funds. And these were. I think your pitch is. I want to let you finish. It is not steal it all away from you, but is that these are tough decisions that as an industry, we had to push them on. And so you're thinking maybe this is that next frontier. So give us that pitch for the people who haven't seen it or heard it. [7:43] Scott Colangelo: Yeah. I mean, in Our firm, we call it closing the loop. And we feel like there's been three really similar things that have happened. And like, you, you mentioned participation was terrible. I remember those tough conversations with plan sponsors when we had automatic enrollment, and we would talk to them, and they're like, wait a minute. You want me to force people in the plan? I mean, they thought it was very [8:03] JD: Big Brother, like, very Big Brother. They're scared of it. Yeah. [8:06] Scott Colangelo: They looked at you with like you had three eyeballs. And, and I, and I give the early adopters a great deal of credit for having sort of the gumption to make a decision that they thought would help participants. Of course, you always expect the worst. You think, God, if we do this, our employees are all going to get angry. And of course, they didn't. And it largely solved participation. And then I remember going back to the same plan sponsors and going, hey, we. You need to, you know, increase it and fix the actual savings rate now. And, and do auto escalate. And they're like, you want me to take more out of their paycheck every year? And, you know, and these participants, they're, you know, they're five years in. All of a sudden, they're saving 12% a year. And I never even knew. Right. And so those were tough conversations. The third one was you referenced the qualified default Investment alternative. I did not use the acronym. And they, and they, you know, and it was, you know, now you're, you're trying to solve for participants just not being diversified and invested properly. And so in all three of those cases, the, the, the participant could opt out, so they had an out. And so in all three of them largely solved the problem. Do I think target dates are perfect? No. I mean, they don't account for risk and other things, but they're better than what participants were doing before, and it largely helped performance. And if you really look at those three things, balances have really ballooned the last 10, 12, 15 years relative to where we were. And savings rates are much higher, participation rates are much higher. But now, to your point, this decumulation thing's real. And when retirement plans, you go back to when ERISA was first founded and fundamentally, think about it, you can always [9:42] JD: finish your thought, but, oh, he grabbed it when they heard these people. [9:47] Scott Colangelo: What, what will happen is that, you know, when, when you had the, you know, foundation of retirement plans being launched back in the early 80s, people were living at that time. You know, my grandfather retired at 61, died at 62. Okay. And. And, you know, the average Age of death back then was 64. It's 83ish now. Okay. I mean, it's almost, it's almost gone up 20 years in 40 years. Right? So in fact it is gone, has gone 20 years and 40 years. So to go and not address, you know, the decumulation phase, the income phase, and leave it to participants. Our point to our clients is you made those three tough decisions before. If you don't make the fourth one, the first three were sort of all for. [10:30] JD: I wanna, I wanna, I'm not gonna push you too on this, but so I wanna put a pin in for it for a little bit later. Caus the opt out concept is something that I'd like us to spend some time on because I think that's a, that's a big move. But before we get to that one, I want to ask, and maybe I'll take you off the hot seat for a moment and we'll ask Chad what we hear these. The advocates of this solution say that when you poll participants, when you ask them if they want this, they overwhelmingly say yes. I've made jokes about this in the past, but if you ask someone, hey, would you like guaranteed money for the rest of your life from your 4K plan? I'm pretty sure people are going to say yes. But Chad, if you were to say to them, hey, would you like to have a higher fee structure over time and be able to potentially have insurance on your 401k plan to protect you, to give you these guaranteed payments? And there were some details and nuances involved. What would their answers look like? [11:39] Justin: I think their answer would still be yes, because to Nate's point in the chat bar, there's a need, there's an issue, there's a problem there. And that's a general fear. I read something recently that said people had a bigger fear of running out of money than they did not saving enough money. And that one hit me a little bit. It got me to think deeper. Back to our conversations five, seven years ago, jd about guaranteed income. The conversations we were constantly having were why are we creating guaranteed income solutions for people that haven't saved enough to have that make any meaningful dent in what they need in retirement? You take someone that's saved $30,000 and you put them in a guaranteed income solution that pays them $414 a month? Well, $414 a month is not moving the needle for people in retirement age. But nonetheless, they're more worried about, will I run out of money? Even if the money's not enough to live off. [12:31] JD: I'll actually, I'm going to go, I'm going to take the opposite stance to Scott a few times tonight, but I'll jump on the bandwagon right now and say sometimes we look at that through a richer lens and you don't realize that people who don't make a lot of money, like, hey, getting $500 a month is something that they can kind of focus on. And if you combine that with their Social Security and maybe their spouse or the person they're living with has some type of income coming in as well, like $500, $400 a month that is guaranteed forever is, is something that I've kind of lacked that before. And shame on me, like, no, no, no. People like that, too. It doesn't have to always be a big number that's coming. [13:13] Justin: Doesn't. But it has to create a meaningful dent into their obligations and the rising health care costs and other things they're having. It comes back to Scott's first three. You have to do those first three in order to make number four meaningful, in my opinion. So we've got to keep starting with what we've been pushing as an industry, which is bridge this coverage gap, get people to save more. But I think the truth of the matter is, J.D. we've started to see a shift in the behavioral finance side of this where they feel like they're doing enough now. People are getting auto enrolled, they're getting auto escalated. Companies are instilling matches. They're. We're trying to force more money into plans. So I think that that is becoming less of a worry for the average worker. And now it really is starting to shift to this. Well, I'm seeing what's going on with my parents, like, how are they going to survive if they leave live till 90? So now they're thinking about this decumulation, which they never did in the past. [14:06] JD: Scott, can you add some color to the concept of these surveys and the people saying they want it? You spent a lot of time thinking about this, so give us some more context to how much these people want this. [14:20] Scott Colangelo: Yeah, and I think that there's a narrative that's wildly off base, like, you know, people can't afford to retire. It's, you know, there's a crisis. Listen, most people would, you know, Pete, there's a large portion of people in retirement plans that Social Security and even a small amount from the 401k will more than replace their income. And there's also something else to think about. That they put it in with a tax deduction and then their income coming out will be below levels where they'll pay income tax. So what people don't understand is these money, these money is going in as a tax deduction and coming out tax free, even though it's not a Roth. Because they're not interested. [14:57] JD: Yeah. They're not on the lower levels. Yeah, yeah. [15:00] Scott Colangelo: I mean, it really is. And that's a large, large portion of it out there. And I do think that there's some, there's just a lot of. Just people talking generalities that candidly are practically true. [15:13] JD: There was some. There were. I thought there was an interesting comment in the chat bar where that someone said it's not necessarily about the low income and the high income so much. It's kind of about everyone in between. You feel like that's hitting on something. [15:27] Scott Colangelo: Yeah, I mean, I think there's a. I think the people in the high income are probably the ones that get hit the most. But you can make an argument. Definitely, definitely the low income, I think is, especially with auto enroll and auto escalation. They're, they're in way better shape than they've ever been. I, we see a lot of them retiring with more than what they were making. And if they're smart and it's invested and they let it grow over time, they don't spend too much in the first few years or their sequence of returns doesn't suck. Like the first year or two is brutal. When they take withdrawals, they're, they're probably in great shape. Listen, these, these guaranteed products, a version of the ones that we like to use, that's to keep that money in their pocket and keep, keep them owning their balance and keep them invested still in the market. [16:08] JD: We'll get to that. [16:09] Scott Colangelo: Yeah, we're gonna get to that. Yeah. And I, but I do think that what they're doing is that that guarantee just takes that sequence of returns risk away. You know what I mean? Early. [16:17] JD: Yeah, sure. Okay. Well, so I think we can all agree to that. But here's the kicker. Here's the interesting thing. We say all these participants want this, and we've talked about this on the show in the past. Hancock came out with guaranteed income for life 10 years ago. [16:37] Justin: I want to drink for it because I used to love to say giffle 15 years ago. [16:43] JD: And, you know, no one bid it. You know, like they put in all their materials, they tried to promote it and the participants just didn't sign up for this. Now I know that when Income America started and this whole push, I know you all looked at all the things that had failed before and really tried to solve a lot of those problems. But can you. We'll move on from this, this subject and I want to talk about the opt in, but the fact of the matter is it doesn't seem like a lot of these participants grab this opportunity when it's presented to them. So give me some thoughts on that. [17:18] Scott Colangelo: In what aspect specifically they're not signing [17:21] JD: up for it, Scott. Like, I mean they're not. [17:23] Scott Colangelo: It's, it's not any different than anything else. It does need to be a default that has an opt out because I don't think you're going to get massive utilization in any solution without default. Target dates would have never. [17:35] JD: Fair enough, fair enough. [17:36] Scott Colangelo: Now but we know the target dates make sense. This is really a consultant issue and consultants not taking this serious and not, you know, and serious and maybe not understanding how to do it or maybe they don't understand the products. I, I will say that, you know, these, these insurance products are wildly complex and to take in retirement people, a lot of them have never worked in this space. They've been fiduciaries, they worked on plans and all of a sudden like what the hell is, is a. I won't say the acronym, you know, a single premium versus a, you know, versus a guaranteed lifetime, which all about it, versus some of these blend products. Like yeah. And then, you know, and they're wildly complex like. But getting back to your original question, it is a, it needs to be a default at a certain age and if they want to opt out, they can opt out. [18:21] JD: Well, that's, that's the, that's the next heated debate. I actually want to get that. This is the big one. [18:26] Scott Colangelo: Yeah. [18:26] JD: So it's a great transition is the opt in. But I love your answer because you're absolutely right, which is J.D. no one would have chosen anything in foreign game plans on their own if we didn't kind of push them towards it. And I, So I stand corrected. You're totally right. They wouldn't be in target day funds. They wouldn't do these things if we didn't kind of force them into it. But I have been a pretty vocal antagonist to this opt in thing. Now granted, most of the time I've, I've shouted against this. I've been drunk on a Thursday night, so maybe I didn't have all my wherewithals, but, but I just drank a lot of vodka in my free time and. [19:09] Scott Colangelo: Had to push it. [19:11] JD: But I felt like that that was a step too far. I was like, oh my God. The people that want to push this product, this solution, and I'm going to be really bad, bad boy here, want to profit from it and benefit from it. And I'm a capitalist, I'm all for that, by the way. They're never going to get this to take hold. That's been proven. So the only way their business model is going to work is if they default these people into it. They take an opt out approach. And I was like, are we really going to automatically default people into a solution that has a higher level of fees on there that they're never going to be able to understand? That seemed way too fucking far for me. So. And I understand that the business model that you tried to create is probably going to fall flat on its fucking face if you don't do that. But challenge me, like, tell me I'm wrong here, that it's going to be totally okay for us to opt in all these people and I guess do it from a fiduciary lens, you know, [20:16] Scott Colangelo: like, yeah, just understand that every major thing that's happened has been a result of, you know, regulatory, I mean the, you know, auto and auto enroll auto, escalate auto and the qualified default investment [20:29] JD: alternatives we needed, we needed the blessing from the government. [20:32] Scott Colangelo: That's right. And they all transformed the industry. And the Secure act is, is making it like, hey, here's, here's your free pass. Now. You know, there's challenges in my opinion, when we get into actual products and stuff. But the reality is. Thank you. The reality is that, that it has to be driven by the regulatory aspect first, which has happened now. There's a massive education shortfall of these. And if you look at it, our point to plan sponsors is if you do the first three and you don't do the last one, you literally, they're going to make one bad decision and all the years of work and everything you did has been destroyed. You wasted it. So if the worst case is you help them get in, you help them save enough, you help them invest properly and you help guarantee their income for the rest of their life in our version, without giving their money away, without them, you know, forfeiting their principal like, and then, and they can opt out in any one of those scenarios. What, you know, I don't, I don't understand why we wouldn't want that in every single plan and then we wouldn't want to close that loop and make sure that people on all four fronts. And we can argue, we can have and they're texturing will argue about products and it's expensive and this and that. The reality is it's a problem and to. To use plans to solve it. Who can be institutionally priced and far more effective on pricing than these people going out and working with an advisor who sells them a complete shit annuity product on the open market as opposed to having very good fiduciaries and consultants. [22:02] JD: My final product, my final topic will be the involvement of the advisor. So we'll get there. Let me try to bring Silent Jay in and I just want you to think honestly, don't agree with me. Don't agree with the pro guarantee. Like think of yourself and think of the plans you sell and the advisors you work with and the participants in those plans. Do you think a world in which they're automatically put into these solutions unless they opt out? We can always opt out. Is it is an okay space. Like how do you feel about that? [22:36] Justin: I think if you're giving the participants the ability to have flexibility there, then yeah, it's perfectly fine. And I think that that is the key. You know, you can't people into something. The reason given an option out. [22:47] Scott Colangelo: What's that, Chad? [22:49] JD: I was just gonna. [22:49] Justin: I mean I gotta give you Captain Obvious here. Nobody's going to opt out once they're pushed in. [22:56] JD: They don't. [22:57] Justin: Look guys, they don't. [22:58] JD: We already know that. We already know this 90% going to do it. So Scott, let me ask you something related because I know that you're passionate about this where I'm talking tonight. Kind of thinking about your product. And your product to me is pretty good from what I understand about it. We'll dive into the fees and type of things. Is someone coaching you via text or do one of your children need. [23:24] Scott Colangelo: No, I texted my wife to bring my charger just in case. Okay, looks like it's getting low. [23:29] JD: Tell her to bring your. Tell her to can grab the phone again and text her and tell her to bring you a bottle of whiskey if she could. Oh, there you go. Oh, there we go. [23:35] Scott Colangelo: Don't worry. [23:35] JD: Okay, good, good, good. Start drinking from that one on your right when you have a penalty and not the beer. [23:41] Scott Colangelo: Okay, what was your question again? [23:42] JD: Yeah, so my question is not all these products are the same. I've been thinking tonight mostly focusing on your product. Shame on me because I think your product. We're going to talk about this, the fee transparency that how it all works and I want to get into that. But now here we are talking about having people opt out and Chad just made a great point. You know, 80 to 90% of them are just going to go with the flow. They're just not going to make a choice so they're going to get defaulted in. And I think you've said this on LinkedIn and some of these products that we might put in place may not be good for them. So maybe touch about the fact that not, not all these guaranteed income solutions are the same. [24:22] Justin: Yeah. [24:22] Scott Colangelo: And by the way, like I've, I've designed four different products with different partners and, and they're all, they all have different, you know, little features and benefits. [24:30] JD: Even those are different. [24:31] Scott Colangelo: Even those are different. But the, but the idea when, when we, when I've been asked to help with design or we've created a product, it's just not up for sale. I'm like, we're gonna disclose everything. It will be explicitly priced. We are not. Would it be easy? It's so funny because I've had people say to me when they look at products we're involved in and they go, well, yeah, you're gonna say, you know, this product's better because you, you helped make it. I go, we helped make it and we had the choice to build it without fee disclosure or with fee disclosures and we chose with fee disclosure. You know what I mean? So don't, don't use that. Like I, it's just such a. I, sorry. It's a completely moronic point of view to say, well you created this. [25:12] JD: Yeah, I think, I think we can get past all that. I'm not even worried about that. I'm just worried about the bigger point that hey, we will be shitty. Products may be put in front of these plan sponsors and these participants. [25:23] Scott Colangelo: Right. I think generally, by the way, like some of the products that are implicitly priced and aren't showing their fees, I don't think they're bad products. I've never said that. I just have a beef with the lack of disclosure. Transparent. What are we doing? We're going back 30 years, like we're going to do this shit again, you know, so the reality is like, it's not that I think that they have viable products. I think that they, you know, they're disclosing what they're making then disclosing also the features and benefits. Then you understand the cost for the benefits you're getting. And so I don't have any problem with if people don't like a market based solution. Like us, that has a guaranteed income for life. And you know, our belief is just give the participant the control. In other words, don't give the money to an insurance company and it's gone. Okay. And then they keep it, keep it [26:08] JD: in your account, keep it in your [26:10] Scott Colangelo: investments and then change your kids lives, your grandkids lives. Like, you know, all of a sudden you're dead and it's gone and it's like, hey, I could get a guaranteed income. If the market does well, it will grow. [26:23] JD: We're going to get, we're going to get to your product. I want to get or at least to, you know, America. I do, I do want to talk about it a little bit because I think it will help us to like see the specifics. And that's the whole point of tonight is kind of drill down into the details. Okay, but what I wanted you to. I guess let me jump on your bandwagon here in terms of. So do you see a future or a current. A presence of retirement plan advisors being educated on the different guaranteed options. Because we all know the plan sponsors and the participants are not going to do their homework to understand this stuff. So I'm guessing you think, hey, advisors need to get well versed in this stuff and then they'll be the ones to recommend the solutions that they think are right and prudent. [27:14] Scott Colangelo: Yeah, I think, you know, I think I would. The advisors and consultants need to take this serious. These plan. I mean it is going to happen every single time there's been regulatory change. The, the tidal wave comes. And so this is going to people, they doubt it, they're wrong. I'm sorry. This will be the default of choice in the next seven years, five years. [27:37] JD: I need to soak that, I need to soak that in for a second. [27:40] Scott Colangelo: But think about target dates. Think about how long it took for target dates to have that explosion in assets. And then once it happened, it was like bam, you know. [27:47] Justin: And so when you, when you say the default, I gotta understand that better and I need to make sure others do. [27:52] JD: You're not. [27:53] Justin: Are you saying that we default to this at a certain age? Horizon to retire? I think it's important that other people know that. [28:02] JD: No, I had that here. We can go there now. I, I don't. [28:06] Justin: Yeah, hold on. Does that vary by the individual or is it set? [28:09] Scott Colangelo: No, I think you know the way. What we've been doing with our plans is it depends the plan sponsor can choose. So they could say at age 55, because I know their balances start to get down or 65, 60 or 65, whatever they choose, that's their choice. We try to tell them, you know, you don't want to do it younger than that. I don't want them paying fees for a guarantee they don't need. You know what I mean? So at that age you start to get the balances bigger. You're within 10 years of retirement to guarantee that balance and then have an annual step up number. So if the market's good, you get the next number. If the market's good, it never goes down. It has that high water mark. So I think that, so how we're doing it is you have a low cost target date fund or a good target date fund, you know, and it takes you to a certain age. And then at a certain age, people default into, you know, the guarantee. [28:56] JD: The plan sponsor may choose 55 or whatever it is. And even at 65, it's great. [29:02] Scott Colangelo: It's better than not doing anything. You know what I mean? [29:05] JD: You helped me understand that it is when you get to the point where your account balance is big enough, well, you're at an age that you, because what you're really trying to buy here, everyone, maybe I'm staying the obvious is downside protection. I mean, that's what you're buying, right? Am I right? I mean, that's it. [29:22] Scott Colangelo: Listen, here's the funny thing. I've had all kinds of clients use these products through the years. When you have a, when you have a guaranteed product like guaranteed lifetime withdrawal benefit, they, when the market goes down, they don't, they, they don't even call. If I have somebody in a mutual fund account and the account goes down, they call because they know they have the guarantee. And so people can argue all day long, oh my God, you're going to pay an additional 90 basis points or whatever the hell it is to have the guarantee. You know what, think about, just, let's just go back to March 9th of 09. We hit the market low, right? Financial crisis. We hit the market low, market's down 56% S P, whatever. October 9th, the markets hits its previous high. So it breaks through. So October 9th of 09, the same year, people forget about the financial crisis. Six months later or seven months later, we're back above where the financial crisis start. There was like you, there were so many people that got out of the market. That rebound is a 76 rebound. Okay? There were people. Net outflows in equity funds stayed until November of 2011. [30:27] JD: I know, okay, to be true yeah, yeah. [30:29] Scott Colangelo: So we. And so people are like, oh, you're gonna lose them 90 basis points. I'm like, they lost 300% over, like, you know, two and a half years. I'm like, I remember that. [30:38] JD: That was a while ago. But we saw all those stats that backed that up. People got out and they never pulled the trigger to get back in. And, yeah, they missed all of that. Let's talk. So you talk about. So fees to me. Yes, go ahead. Can I. [30:51] Justin: Before we transition off this, because I felt like it was relevant on this section. It's of kind. [30:55] JD: Scott. [30:55] Justin: Can I ask. I feel confident in saying this solution is needed, and I think that it's the right solution for the vast majority of people in 401k plans when they reach a certain age. But when we look at the way we hold fiduciary standards in our industry, do you think currently with legislation, there is an issue, there's a risk for a plan spot sponsor that chooses this as a default when they reach that age because there's so much heavy pressure on cost. There's so much heavy pressure. [31:29] JD: Yeah. What's. Are you saying? What's. What's Schlichter gonna think about this or Schlichter 2.0? [31:33] Justin: What do plan sponsors do? Let's just say that every solution is the same and they're all good and they're all needed. What does a plan sponsor have to. To fight in headwind from lawsuit from Schlichters, from others when they look at this and come after. [31:48] JD: Great question. [31:49] Scott Colangelo: Just. Just documentation. I mean, you have to document. It tells you clearly The SECURE Act 1.0 said you can do it. SECURE. [31:56] JD: That's an acronym. 2.0. 2.0 is not, but 1.0 is. So one drink. [32:02] Scott Colangelo: So the second version outlines specifically what. What you have to do. You know, you got to make sure you review financials, do this, make sure they're, you know, and so all you have to do is have documentation. The fee, the cost of it is if you document that you had a process, then you document. We understand we're paying this, and this is the benefits we're getting. You're bulletproof. The Secure act makes it very clear on that. That doesn't mean that consultants don't have a job to do, have an opportunity. Right. [32:32] JD: No, I mean, he's giving you the classic answer. This is what Fred Reich has been telling us for 30 years is like, hey, you want to protect yourself? You document your choices and so you can back them up. And clearly, in this case, there's a value that's being delivered. I would argue this is not like me, but I would argue they almost more protected because the fact that you're getting guaranteed income for life is like a real value that's kind of hard to, to put a number on. [33:01] Justin: Let's acknowledge that that benefit that we're describing there is not a benefit that they're typically going to receive while a participant in the plan. We'll get, we'll get to that portability at some point. [33:11] JD: Point. [33:11] Justin: Right, but this is an expense. While they're a participant and the benefit, [33:15] Scott Colangelo: the benefit while they're in the plan, they're getting the annual step up on a lot of these products, not just ours, market based products. [33:22] Justin: They're not paying for the step up. They could have gone with some other solution for that. They're, they're paying like Katie said, for the downside protection. [33:28] JD: Right, well the step up is part of the downside protection. [33:33] Justin: Stay within the product. [33:35] Scott Colangelo: Well, you'll get, stay in the problem. [33:36] JD: We'll get the portability. [33:38] Scott Colangelo: And by the way, as far as this liability thing, I can just tell you, you brought up Schlichter. I'm not going to mention names. I can tell you I've had outreach of firms that are extremely aware of the implicitly priced products right now and are just waiting for money to go into those. Big into those. Okay, here's the argument. So they're going to sue somebody and they're going to sit in court and, and I had an attorney who actually and sued the insurance companies and has won like 75 cases. He called and talked to me, he said, hey, I love what you're saying. You need to keep beating that drum. And he did it against stable value funds and stuff like that. But he said, he goes, this is what's going to happen, Scott. He was, you're going to put somebody in the stand to be a plan sponsor and you go, why'd you choose this product? Well, it's a big name. They're solid, strong financials. They provide a guaranteed participants. What did you pay? I don't know. Literally, that's literally what's going to happen. And so, and that's what really bothers me about it. I think the other products have value. It drives me nuts. I know. [34:42] JD: Okay, this is a great segue. Okay. This is. Yeah, this is why we need you here right now. [34:46] Scott Colangelo: I know what they're making. I mean like I know because we've designed those products. When I would worked at Ohio National I know how they use. [34:52] JD: This is my favorite, this is my favorite subject. So I love, I love talking about fees and money and all this stuff. So let's talk fees. So and, and do it in the concept that, you know, we're all listening in, we all want to learn how this works, you know. So first of all, we can kind of package it around the is it still five for life thing. I know that you guys came out, it was like six years ago or [35:16] Scott Colangelo: something, but yeah, we, ours is called five for Life. The one we designed for Mission Square is called something different. [35:23] JD: Okay, well the one we just empower [35:25] Scott Colangelo: don't, you know for Life in it. [35:27] JD: I'd love for you to kind of touch on, on your fee structure, which I think covers somewhere around 1% or less than that or some a little less than that. But also help us understand like in general how these fee structures are. And tell me I'm wrong. One of the thing that the, the people against this are like, okay, if you've got this 1% fee or 90 basis points or 80 basis points or whatever it is, this is this drag on my account now, right? I'm a, I'm a 55 year old with half a million dollars in my account. I'm for the next 10 years till I turn 65, I go into this thing. The only quote unquote negative or headwind is I got to pay this fee now, which, you know, with compound, you know, returns. And if the market's up, you know, it could be a significant number with half a million dollars. So help us understand what the fee structure looks like. Am I way off base on this 90 bips or whatever? [36:21] Scott Colangelo: Yeah. So listen, here's what's going to happen. First of all, the fees are going to come down, okay? As more money goes in. And I'll give you an example. Our first year it was like income America was priced at 1%. It had a one time step up. At age 65, we've had several hundred million dollars go into it. We reprice it annually, okay. Our product is not owned by the insurance company we set up, put it with a trust company and then we shop the insurers. So it gives us the ability. You think the insurance companies are ever going to lower their prices? No. So we make it market based and they have to go out and shop it and stuff. So what happens is if. So our first year it was 65 was the step up. We then renegotiated the fees as all this money went in, they lowered it to 90 basis points from 100 and added an annual step up, which is a 25 basis point enhancement. So we essentially got 35 basis points of savings two years into our product. We'll do that again this next year. We'll shop the insurers again. We'll end up getting that down to that 50, 55 basis point range, which will be a sixth of a retail annuity. I mean, these things are going to be. And they're already amazing. They're already like less than a third of a retail annuity. I mean, the pricing we got is insane for a startup and we have great partners that did that. So the fee is just going to continue to get compressed and the only way you're going to get fee compression is if you have fee transparency. Those two do not happen. You can't have decompression if you don't know what the hell you're paying, you know. So [37:46] JD: questions on this fee structure, guys, before I dominate this whole thing, by [37:50] Scott Colangelo: the way, that's structure. I can explain it to you. Good. What'd you say? [37:54] Justin: No, I guess what I, I hadn't thought about. And shame on me if this is not a normal daily thought process. I'm, I'm not thinking about this stuff often, Scott. But sure, I get the fact that you're shopping the insurer and putting this in a trust. Not something that ever crossed my mind. Perhaps it should have. But I'm like, that's awesome. And probably not the route many others are going. [38:16] Scott Colangelo: We did it with two insurers. So the risk is split so that participants protected if something happens to one of them and then we turn around and, and do another one, you know, and then, and then we shop them and we can replace the insurer. We can go get market pricing like we have from Pack Life and other companies and we use that and go back to our current insurance. They're going to do it for this. You guys need to match that. And they've been great. [38:38] JD: But your partners were why it was Nationwide and what, Lincoln or something Transit? [38:45] Scott Colangelo: Nationwide and Lincoln, they've been awesome partners. They've been amazing to work with so well, they are. [38:51] JD: Nationwide is on your side. [38:55] Scott Colangelo: The other thing is on fees, just so you understand the difference. You're paying specifically for the guarantee and a guaranteed lifetime withdrawal benefit in the single premium. It's. You're essentially forfeiting your principal. [39:07] JD: Here's my money. [39:08] Scott Colangelo: Yeah, there. Here's your money. They make, they give you payments for life. [39:11] Justin: Yeah. [39:12] Scott Colangelo: If you, if you retire at 65, you die at 82. Your average return depending on product is like net returns like 1.6 to 1.8% a year. And so what are they doing with that money? They're investing it in, you know, in their general account, real estate portfolios, bonds. Maybe they're more conservative company, maybe they just buy insured bonds, but they're, they're certainly getting a better rate of return than that and it's sizably more than what we're charging. You know what I mean? And that's the beef I have. They're like, if you want to say it's all guaranteed, that's fine. Tell people what you're making. That's all we're saying. Just tell them what you're. [39:45] JD: I do think it's attractive. I do think the step ups and to be in the market is definitely attractive. To feel like, hey, I can still kind of ratchet up my account when the markets are doing well, but, but I'm paying this fee whether in the future it's 50 basis points or it's currently, you know, whatever it is, 80 or 90 or whatever. Like at least I can understand that and wrap my brain around that. [40:08] Scott Colangelo: Right. [40:09] JD: So that's. By the way, that's fair. [40:11] Justin: But when we talking about the fee, by the way, and I made the point of aren't we paying for the guarantee guaranteed income on the back end, [40:19] Scott Colangelo: which is what you're going to get [40:20] Justin: when you're not a part of the plan. Scott, you just said. Exactly what I said was the truth back in that statement. The participant expense during that stretch of time that they're within the plan is about that downside protection, the guaranteed income they're going to get in retirement. So it's a, it's a plan expense. But typically the participant is going to be out of the plan expense when they're, they're getting the benefit of the solution. You're offering. Offering. [40:44] JD: Well, I guess I don't want to go to. Let's save. No, yeah, because let's say portability. Because we need. Go ahead Scott. Respond to his. [40:51] Scott Colangelo: I'm just gonna say that. I'm just thinking like Ella, what you're, that's not accurate. What you're doing is the fee. Like say we default them at 65, they retire at 67, they may have that fee they're paying for those two years, but they're also getting this their lock in the guarantee. So if you have a, the worst thing that happens to any participant is you have a bad market when they start Taking income, the sequence of returns is the most important thing. American Century has done all these studies on it. It's, it's factual. So if, if the value goes down this first year. So having the guarantee and the way that it works is it steps up even after you start taking the guarantee. So if you're so that guarantee, you say you know you're paying for it before and you're paying, you know, the reality is you're paying for something that you're, you're getting something for. All they're doing is buying options essentially against the market. So if the market goes down, insurance company can guarantee your balance. It's not complicated. And so that's why the price goes down as we have more money in it, because if the volume of options you buy, you can actually reduce the cost. [41:46] JD: So yeah, someone said annuities are good, fees are bad. That's fair enough. I think that's a fair take on. Everyone has had such scrutiny over annuities because of the high fees. Scotts are telling us, look, these fees are going to first of all be transparent right now, secondly, go down over time and again, I'm not here to like wave the flag for you, but those are all very comfortable. Comforting to hear from me. [42:12] Justin: Can I ask you my real quick, jd My conversation with Heather in the chat bar was essentially, is this a solution that people need? Is there a problem? Is it a solution? The answer is yes, yes, absolutely. [42:26] JD: No doubt how to get go. [42:28] Justin: I know, but. So she was saying she was having trouble putting people into it. And I said it shouldn't. There should be no trouble putting people into it. It should be trouble, trouble finding the right solution, then making sure that we get to the right solution. So fees are a. Fees are a part of what is needed to get people to the right solution. And Scott's point is this continues to grow and expenses continue to come down. If we know it's right, then we need to continue to figure out what works now and what will work in the future. And I think what Scott's laying out is that we have something that's working now and as we get more money into it, it will continue to compress. And at some point, maybe fees aren't as big of an issue as we're trying to make them now. As we get more money in those [43:09] JD: solutions, you're always going to need these fees. And this kind of brings me to my next question is, and I apologize, Scott, to put you on the spot here, but like, I feel like it's fair for me to, like, want to know these things, to know, like, what plan sponsors and participants are getting involved in. And so if anyone wants to ask me about the revenue of my company and the profitability of my company and the overhead of my company, I'm happy to share that with people, especially advisors, who are trying to vet out whether they want to work with us. Maybe they want to understand our stability. Hey, JD. [43:44] Scott Colangelo: JD. What's the revenue of our company? [43:46] JD: Just over 5 million this year. [43:49] Justin: Okay. [43:49] Scott Colangelo: What's the stability of our company? What's my revenue sharing that I'm getting? [43:56] JD: Zero. You get 25% of everything you sell and a base salary. I will. I'm transparent with all this stuff. [44:02] Scott Colangelo: Yeah. [44:02] JD: And so what. What I want to know is, like, what does this look like for income America as a company or any other company that's kind of trying to prop up a solution? Is this hundreds of millions of dollars in revenue in 2036? You're. This was your idea. You came up with this, the name and everything. You must be running the numbers through your head. Like, how successful will it be for you, the company? [44:27] Scott Colangelo: We have probably, I think we have about eight basis points that we get. [44:31] JD: That's your kind of your revenue after everyone's been paid for what's going on. [44:35] Scott Colangelo: And I mean, I want to get this. I want to get this to 100 billion in assets. That'd be $80 million. [44:39] JD: Thank you very much. [44:40] Scott Colangelo: So you're. [44:40] JD: Thank you. To be. [44:41] Scott Colangelo: To be clear, Scott, you are a non profit, right? [44:47] JD: Hey, Scott. [44:48] Scott Colangelo: Right? [44:48] JD: Scott, from the. From the bottom of my heart, thank you for answering that question. [44:56] Justin: So refreshing. [44:57] JD: How many disruptors that are venture capital backed with hundreds of millions of dollars struggle to answer those questions for me. So I appreciate struggle. [45:05] Justin: They just won't admit it. [45:07] Scott Colangelo: J. [45:07] Justin: Usually it's a we want to sell to the insurance company or we want to. Scott's like, no, I want to build this baby. And I want to be profitable, by the way. [45:18] JD: No, no, no. I'm gonna say this for you and we're gonna play games. Bentley is like $48,000. [45:24] Scott Colangelo: Okay? [45:25] JD: Not the Bentley. It's not everything. I'm. I'm gonna say this for Scott on his behalf. If you can create a good thing for people that does good stuff and make some money at the same time, even good money. God bless you. Like, that's the country we live in. That's what we're trying. That's what we're all trying to do. I feel that's the entrepreneur me. All Right, let's play a game. Scott. We're gonna play a. We haven't done any fun stuff yet. Robey, you want to just keep going on the topic? All right, we'll play that game. [46:06] Justin: This is the non roby wheel now. [46:08] JD: All right, let's also play while I drink this. Brandon. Let's do the good old fin talk segment. Scott. This is where we look at social media. [46:24] Scott Colangelo: You guys. [46:25] JD: I just go ahead and play the first and I'm excited. I came up with the logo and the name. Do you want to see it? [46:36] Scott Colangelo: Absolutely, absolutely. I'd love to see it. Go ahead and share it. [46:39] JD: Okay. So it's like a tropical themed pen store. So I was thinking something like Pen Island. [46:54] Scott Colangelo: Pen island is a creative and memorable name, especially with that tropical theme. [46:59] JD: Right. So you like this logo? [47:04] Scott Colangelo: I do. It's simple and catchy and easy to remember. It definitely has a fun vibe that could attract customers. [47:11] JD: Okay, so if you were walking down the street and you saw this sign outside of a building, you would go in the building. [47:21] Scott Colangelo: I think it would definitely catch my [47:23] JD: eye and make me curious to see [47:25] Scott Colangelo: what it's all about. [47:26] JD: It's about, it's about pen. [47:33] Scott Colangelo: For sure. If I saw a store with a name like that, I definitely want to [47:37] JD: step inside and see what they offer. Let me, Scott, let me go to you in all seriousness. Artificial intelligence in our industry gonna make a huge difference. Not. What were you. [47:51] Scott Colangelo: Were you at? Yes. What artificial intelligence. So we. I did an exercise recently. I went through and. Oh, that's right. And I had Claude go in and Claude's awesome. Yeah. And. And I said, take my, you know, my 10 biggest clients, look at their current allocation, look at their risk tolerance, see if we're in alignment, see if there's any opportunities with their, you know, dividends and income that are coming out. Would make tax recommendations and see if there's any opportunities for me to offer other services and sell other potential solutions that would be beneficial to them. And I was effing stunned when I got it. It was. Was like 19 seconds later and I'm like. And it was high quality stuff. Now there were some things that were wrong about the tax stuff and everything, [48:44] JD: but [48:47] Scott Colangelo: overwhelmingly it was exceptional. [48:49] JD: So that's you as an individual. Can I ask you as like the leader of Prime Capital, do you see? Well, Prime Capital look totally different two years from now, five years from now. [48:59] Scott Colangelo: Like, yeah, it's going to make us more productive. It's going to allow us to, for our people to make more money. Not Less, you know, I think people are, oh, it's going to cost jobs. We're not viewing it that way. We're viewing it as an opportunity. Opportunity to increase productivity, do more. [49:13] JD: Yeah. [49:13] Scott Colangelo: To drive more about our bottom line. Our bottom line has been growing percentage wise every year and I think a lot of it is these, the tech and the enablement. You have to understand though, the one concern I do have is that organizations have a bunch of different people using different AIs. Get one that you all buy in on because then finish your thought strong in because then it learns internally. If you plan your own corporate version then your questions JD are in the AI. [49:43] JD: My totally mine. Each, each individual using, you know, using Gemini or, or Chad, GBT or Claude. Like that's a great first step but that's really dipping your toe into the water to your point. You're, you're gonna have enterprise level stuff that understands all of the data of your firm and like it's totally different. So yeah, I agree. [50:07] Scott Colangelo: I, I, we had our, our board meeting and I had, I took our deck with all of our financials and I took our board deck, I imported it into Claude. I then told Claude, I want you to go to our website, learn everything you can about Prime Capital Financial, what our strengths are, where we excel, how we sell ourselves. Look at our board deck, look at our financials and find me are the weaknesses that we're not aware of. And I mean it was McKenzie level stuff and it was accurate. I mean it literally read between the lines. It gave fantastic information back to us. So I think if you embrace it, use it logically, use it strategically, I think that my opinion of artificial intelligence, and this is just me coming up with what's bouncing around my end is that right now it's supportive. I think it's going to become adaptive and then I think it's going to be able to see around corners and be intuitive and that will be the, the three stages, I think. And I think right now it's, it's a very, it's a great support tool. It will move to sort of adaptive and I think that that final stage of being intuitive where it can, it can actively start doing things for you without you prompting it. You know what I mean? And yeah, yeah. [51:21] JD: So I don't want to go, yeah, I don't go too deep. Obviously I'm super biased on this. But it, to me it'll literally like, it'll either replace or morph into your SaaS products. I'll drink for that. Like it's it's gonna be. You hear about agents and agentic artificial intelligence, but like it's literally gonna be doing things with your data. And so I don't think people really realize that yet. And it, and we're not talking about what it could do, like we're talking about what it can do right now. Brandon, let's play another fun video and try not to have such a deep discussion after this one. [51:58] Scott Colangelo: Bro, I'm be honest with you. I give two shits about going out [52:00] JD: to the bar, getting drug with you, [52:02] Justin: but going out to the garage and [52:03] JD: getting tore up to nine this country. Oh, count me the in. If you about it, let me know. [52:13] Justin: Ladies. Lived in Texas for a while. [52:15] JD: That's, that's, that's Tom, that's my neighbor. He's right next door over here in front of Scott. You ever drink by yourself in the garage? [52:25] Scott Colangelo: No, it's not a regular habit. [52:30] Justin: The board would have put kicked him to the curb if he had said something differently. [52:34] JD: Right. Anybody in the chat bar ever have a couple, couple too many in the garage? Because I might have. I might have. Let's, let's play the, the next one. Brandon, does that look like a fun retirement? I mean if this isn't my retirement plan, I don't want it. [52:50] Justin: He looks like he's enjoying himself. So if everybody's like, he doesn't have [52:54] Scott Colangelo: to worry about money or anything. [52:56] JD: Scott, what do you think the odds are that that guy has guaranteed income for life? [53:02] Scott Colangelo: Well, yeah, look, he's living his life free and easy. There's nothing to worry about. [53:05] JD: Yeah, play it again, Brandon. You know this guy has guaranteed income for life. Play it again. He's. His check is coming every month. He knows it. Income America, Scott founded started like early 2021. It's been about five years. So what Record keepers are on board. What's your give it a score? Have things gone to your expectations? Give us a. Just a quick update on how things have progressed and where you're at right now. [53:39] Scott Colangelo: Yeah, I mean we're on over 2,000 plans now. We have, we're live on Nationwide, live on Lincoln, live on Empower and have some big ones coming which I can't really, but they're completely portable. We were the ones who came up with, we went to SSC and they had an old software called Rick that they were using with Prudential and I went to them when it was dst. [54:03] JD: Oh, that's another one. He just went back to that. [54:06] Scott Colangelo: No, that's their, that's Their actual. [54:10] JD: That T stands for technologies. I'm positive. [54:14] Scott Colangelo: Jesus. So we, we told them like, we think we can make a. Portability is going to be very important, which Mark Avery wrote in that letter to the industry many years ago. And, and so we talked to them about building a structure where if we do a trust and it has a, you know, a security number because I don't want to say the term. It starts with a C and ends with a P. And then I'll have to drink and it. And then we can track it by the. By the ticker symbol by the Social Security number. And so you can jump from one record keeper to another. And when you log in, it repopulates your guarantee from the prior. [54:49] JD: I want to get the portability. [54:50] Scott Colangelo: So I mean, that's, that's how portable it is. And we have an IRA version and there's another IRA version. Oh, that is going to be. [55:00] Justin: Mark, ring them up. That's two. [55:01] Scott Colangelo: That's going. That. That's going to be a. That will allow advisors to use managed accounts with our. With our guarantee. [55:10] Justin: I know JD's got a question, but I just need to know real quick, average plan size. [55:15] Scott Colangelo: That's a good question. We have some. We have one that's. [55:18] JD: You think he's that deep in the weeds? [55:19] Justin: Well, no, I just assume it's bigger. I just wanted to know. I just kind of felt like. [55:25] Scott Colangelo: Of them are like, you know, 20 million, 100 million, but we have a 1.7 billion coming online, which will be our biggest one to date. [55:33] JD: Did you say. Did you just say a lot of them are small? [55:36] Scott Colangelo: Like 20 million. [55:39] Justin: But that was gonna be. That was gonna be my point. Like, we need to get this into the. [55:45] Scott Colangelo: We have. There's. There's plans that have 9 million. There's plans that have 3. You. [55:50] JD: Our average plan size is $1.5 million. That's so I. [55:58] Scott Colangelo: My battery's about to die on my computer. [56:00] JD: Oh, no, no, no. He's stressing. Okay, well, we've. No, We've only got 45 more minutes. You're fine. Let's go to port. Let's go to portability real quick. I mean. No, I need to ask. What. Chatter's just asking. You said you want no size of plan. The great. The right question is you've got 2,000 plans that it's available to them, but how many of them are actually, like, have some participants in it? Like, are all those 2,000 actually, like, implementing it or is it just an option that's gathering dust? [56:32] Scott Colangelo: No, no, I mean there's, we have over 20, 000 participants utilizing it right now. So I mean we're getting traction the [56:39] Justin: reality on some of them, J.D. [56:40] Scott Colangelo: but we're not. We've done. None of those are default right now. We have a couple. [56:44] JD: Of course not. No, no, not really. [56:46] Scott Colangelo: Because we're, we're. They're writing that the record keepers are building dynamic power. [56:50] Justin: Already has it built for you guys. Right. [56:52] Scott Colangelo: With the power does. Yeah. And power does. I was referencing more that the two, the, A lot of the plans started at nationwide linkage power. Yes. And the other record keepers. Yes. The challenges on a dynamic qda, if you're going to automatically move them at a certain age, the record keeper has to have the technology. [57:11] JD: Would you stop drinking from your beer and drink from your other glass on your acrosin, Scott? [57:19] Justin: This is what we have to deal with. All of the time I've been swinging [57:23] JD: from this damn bottle. When you do an acro San, you go to your hard alcohol. Let's go to portability before he runs out of power. Okay. This was never seen JD So frustrated in my life. This is the, this was the biggest issue I believe that you were confronted with, which is okay, we can build this all great. Make an awesome product. Transparent fees. Yes, yes, yes. But people move jobs like crazy these days. So if, if they can't kind of move this thing around to their individual retirement account or to another four 1k plan, they can't. It's great, great part of this solution because they're, they've got the collective investment trust. [58:05] Scott Colangelo: They're the collective trust. [58:07] JD: Explain to me how portability is going [58:09] Scott Colangelo: to work so that the Nationwide Lincoln Empower, they can jump from one record keeping platform to another or say they. [58:16] JD: Great. Those guys have, those guys have about 5% of market share. Okay, no. [58:20] Scott Colangelo: Empower. [58:20] JD: Sorry. Empower. Empower. [58:21] Scott Colangelo: No, Empower's big. [58:22] JD: Yeah. [58:23] Scott Colangelo: And we have, we have others coming. Just so you know. Yeah. So. And, and so the. But the point is that if a participant say they work at IBM and they've got a job. Oh my God. [58:37] JD: Business machines, International business machines. I don't know. Am I getting that right? [58:42] Scott Colangelo: So they have a. And let's say they have a. They put 500,000 in cash in and it's the guarantees that sticks. Let's say the guarantees locked in at 600. I don't just make it easy. And then they leave there and they go to work at another company, Tesla or something. And they're. And it's one of those Three record keepers that automatically recognizes them and repopulate the guarantee. [59:05] JD: Or can I ask a question that I hadn't even thought about or written down like. Or couldn't I just leave my money in my. [59:14] Scott Colangelo: You could just leave it there. [59:15] JD: Doesn't that solve portability pretty well? [59:18] Justin: But then your future contributions aren't to going growing into that pool. [59:21] JD: Well, whatever. [59:24] Scott Colangelo: Yeah, but the worst case is the guarantee would stay if it stays in the plan. And I think what you're going to see is, you know, assets stay because they're institutionally priced as opposed to going out and having them buy a retail annuity and pay. [59:35] Justin: Do plan sponsors want assets to stay? [59:39] Scott Colangelo: Well, listen, plants, great questions. [59:41] JD: Why do you say no? Why do you say no? [59:43] Scott Colangelo: I think you're wrong. A lot of obligations. [59:45] JD: I do too. [59:46] Scott Colangelo: Scott. [59:46] JD: I'm with you. [59:47] Scott Colangelo: I tell my plan sponsors let them stay because those assets help you have negotiating power and pricing. So. [59:53] Justin: And then, and then continue to send your disclosures and your investment change notices that you now have to track that there, there now is a very difficult process to show that you are trying [1:00:05] JD: to communicate with those in the modern technology world. And when is the last time Schlichter ever sued someone because they weren't sending. Oh, no, we lost them. [1:00:13] Justin: We lost him. He said he's coming back on his [1:00:15] JD: phone, by the way. I was gonna say to him like, hey, if your power goes out, don't worry about it. We're just gonna stay here and talk fucking shit without you. So what do you guys think? He's gone. Are you Chaz? [1:00:30] Scott Colangelo: Nice. Be nice. Where were we? [1:00:36] Justin: Where were we? [1:00:37] JD: Where were we? Fuck. Where were we? John? Oh yeah, you were seeing. You don't want assets in the plan. What? Chad, I'm with. [1:00:46] Justin: No, no, no, that's not what I said. [1:00:48] JD: What is wrong with the world where you don't roll over and whenever you're like, hey, I love this plan. My past employer, great investments, great. It's got guarantee income and I'm going to leave it there. And then from the plan sponsors perspective, they're like, hey, we'd love to keep your $750,000 here. It helps us with pricing and if we got to send a few notices to you every time. That's what I was saying. I'm like, schlich, there's not suing over people. Not. [1:01:16] Justin: This is not important. But people, people transition. They move states, they move locations. It's hard to follow them. You have an obligation as a plan sponsor to follow them. That is difficult let's go into the best interest conversations that we had under the fiduciary rules for a while now. You're an outside advisor. You're looking at this participant. Do you want to advise that participant to leave this in a qualified plan or move it over to an individual retirement account and a potential. I'm not talking about guaranteed income for life being the investment. I'm talking about money being left in a plan right now and the potential costs being lower because they typically are. As long as the advisor compensation is [1:01:55] JD: the same like in that. In the individual retirement account. [1:01:58] Justin: Yes. [1:01:59] JD: All depends. [1:01:59] Justin: As long as the advisor compensation is the same. [1:02:02] JD: You're a micro plan guy, that's what you are. Which I get. But check swing individual retirement accounts can be expensive. [1:02:11] Justin: They can. Of course they can. I'm saying advisor comp is the same. One has a record keeper, one does not. That's straight up. [1:02:19] JD: Fair enough. Apples to apple. I get that. [1:02:21] Justin: We don't need to argue that point. [1:02:22] JD: No, no, no, I stand corrected. You win that one. I don't say that often. You win that. If it's a fair debate. There's obviously more services happening on the 401k side that you should pay fees for. We had a question in the chat bar which I like to pay more attention to that these days. I think it was moody. That said, what about when plan sponsors do a request for proposal and they kind of move their plan and let's talk in school, let's talk in Scott's world they've got $500 million and they want to move from empower to oh, someone that doesn't have, you know, the same solution. [1:02:59] Scott Colangelo: I think that. Let's go back to the core problem originally was that the insurance companies platforms had these products and if they have the product then you have to have it on their record keeping platform. Okay. With our product and by the way not just us, by the other companies that have done collect have done collective trust designs those products. Since it's a ticker based symbol solution, it can be placed on different platforms. And so you, you as long as you can have, as long as you have middle. The middleware connectivity so that the guarantee can follow them around which is what we. [1:03:38] JD: Sorry Scott. I apologize Chad. You know what's happening here too, Mark, Justin, Chad and myself are thinking well you can't, you can't do that. Like you can't make that happen. But not true in the upper market. No, no, no. [1:03:50] Justin: Not true in the brokerage. [1:03:52] JD: Your bigger plans. You want to say you Want certain mutual funds on your platform as well. [1:03:56] Justin: You can get it brought into the core menu. [1:03:58] Scott Colangelo: Yeah, for sure. [1:04:00] Justin: That's not a world we live in, Scott. [1:04:01] JD: But yeah, but again, I wish we knew, I wish we knew the vendors [1:04:05] Scott Colangelo: under, we have plans under a million dollars that use it. I mean, you know what I mean? Like it's, it's simple to add. It's a, it's a ticker symbol. If the record keeper is connected to the middleware, I mean, it's just a matter of them turning it on. Yeah. [1:04:17] JD: And that's the vision is it is [1:04:18] Justin: a concern if they aren't connected to it though. I mean, have you guys come across that yet? [1:04:21] JD: What's. [1:04:22] Scott Colangelo: Yeah, of course. Yeah, but that's our, that's. Listen, you guys asked what, you know, how's the ramp up been? Am I happy with it? No, I'm not. I mean we have a lot of assets. It's not where I thought we would be by now. And the biggest issue is trying to get the record keepers to connect to the middleware. And by the way, we, we came up with the concept, helped design it, everything. And it's now being sold to everyone. So our competitors are using it and I'm fine with that. I want utilization. I want, want the industry to have utilization. So you know, to, to go ahead and you know, other companies are using, [1:04:53] JD: you know, the technology I'm selling that I make to my competitors. [1:04:58] Scott Colangelo: Yeah. [1:04:58] JD: Every, every day. So I'm with you. [1:05:00] Scott Colangelo: And we don't make any income on that. We make zero income on that. They use it. [1:05:03] Justin: You brought the strategy. [1:05:05] JD: Yeah, I'm totally all right with that, but just go chat, go, go. [1:05:09] Justin: There was another question that I just. You're, you're going to the chat bar. Questions. Jd I don't remember who it was, but earlier asked when you see a plan defaulting at a certain age, do they typically default the entire account balance? [1:05:20] Scott Colangelo: Yeah. [1:05:21] Justin: Portion of the account balance. [1:05:22] Scott Colangelo: No, it's a full. It's no different than what you do with, you know, when they default into a target date. It's. Yeah, it just, it goes 100. Yeah. And you, you say, you say, okay, you know, we got you in, we got you saving enough, we got you diversified, grew your balance and now we guaranteed your whole account. And it's, it's market based. There wasn't a guarantee where they had to forfeit their, their balance. It's market still invested in a great. And by the way, that it's a non proprietary. You got to remember that Our competitors products are all their own funds. This has like 27 different funds inside of it and different money managers. And Wilshire picks the funds. So we, we made it. [1:05:58] JD: Sounds like a lot of mouths to feed, man. [1:06:01] Scott Colangelo: No, they all get their portion of whatever their management fee is. [1:06:04] JD: Well, sure. You mean Greg Gray. You mean Greg Gray or Wilshire or Great Gray. [1:06:11] Scott Colangelo: Wilshire is hired to do the screening of the funds. Yeah, I mean, you're all in on this product, like 125, I think with the insurance fee and everything. And that's like a third of what you'd pay in retail. I mean it's really an annuity. [1:06:27] JD: Going down. Yes. We're about to wrap. What? [1:06:30] Justin: Why don't, why don't we. We're on nationwide platform. Why don't we have this in our plan? [1:06:34] Scott Colangelo: I'm gonna put my entire account balance tonight. [1:06:38] JD: I have my entire account balance in one ticker right now. [1:06:43] Justin: Emerging market right now. [1:06:45] JD: I mean, here's what I say. Diversity, people, diversity. I'm all in tech. Yes. Go ahead, John. [1:06:52] Justin: As a fiduciary to that plan, sitting on the committee that we sit on, like we have to take a real look at this. We have, we have a number of employees that are closer to retirement age. That would. [1:07:05] Scott Colangelo: Sure. [1:07:05] Justin: We find great value in this strategy. [1:07:07] Scott Colangelo: We could be the smallest client that they have. [1:07:11] JD: What is our Plan assets, Chad? 4 million. [1:07:14] Justin: 3 million. I was going to say just, just above 4, I think. [1:07:19] JD: I don't think Scott will take us. [1:07:21] Scott Colangelo: We're glad. We'll be glad to have you. [1:07:23] Justin: Yeah. It's on a nationwide platform. [1:07:25] JD: Let's see. I was gonna say, I, I saw that. Brian Graff. Butterbeer. Butterbeer. Brandon, you got that in the deal. I saw Brian Graff commented on a post you made and he said, scott, looking forward to your session at the national association of Plan Advisors. I'm assuming he's referring to that there's an avalanche of baby. Baby boomers. See, I'm getting drunk. Thank you, everyone. Slurring my words. There you are, Brian. You stud. Baby boomers in the process of retiring and not enough advisors to serve them. We know this like we're understaffed as an industry. American workers need a simple and transparent income solution to help them more effectively transition into retirement. It's vital that we figure this out. This is my final question for you before saying thank yous and good nights. That seems a bit like the advisors losing a role of doing financial planning and helping these people do things. That's what Brian was referring to is like, we've got too many people. So just kind of your last comments on, like, this type of solution. Is it. Is it good or bad for advisors who kind of think to themselves, wait, isn't this kind of my job to, like, help people decumulate? [1:08:48] Scott Colangelo: Yeah, and by the way, that's a great point. Listen, fundamentally, I'm an advisor. I believe advisors should be involved. And I do agree that if they're working with an advisor and they can build a good portfolio and be diversified and they can come up with a process to draw, you know, that's not going away. That's not going away. This is a scaled solution to a mass problem. Okay? And that's how it should be used and sold. And we should be honest about it. Are they better working with someone and doing a financial plan and all that? Absolutely. But if. If with. In the absence of that and these millions and millions of participants that don't work with advisors, if they have a 5% guarantee, when we're telling everyone they should draw 4% income, you know what I mean? [1:09:32] JD: They're drawing with this, like, automatic enrollment, like automatic escrow inflation, like qualified default. Let's close the loop. Says Scott. And I was like, yeah, no, you nailed it. You're totally right. Like, yeah, not everyone has a financial advisor. So we need something that's scalable for the entire industry. Okay. A, I like this. I thought this was cool. [1:09:57] Justin: I didn't think I would enjoy the deep dive. [1:09:59] JD: Right. [1:10:00] Justin: Every minute of that. [1:10:01] JD: I'm curious. I would love to hear from our community. Like, what did you. Chad. [1:10:06] Justin: Oh, God, [1:10:09] Scott Colangelo: Scott. [1:10:10] JD: Have you ever seen that one yet? Have you ever seen the movie Powder? Yeah, Powder. So we used to use the actual character and Brandon came up with this beauty and I was supposed to mention it during the show, and I didn't. Thank you, Brandon, for bringing that up. Where was I? I was gonna say, God damn it. I lost my train of thought with beautiful Powder there. There's the old one you were talking [1:10:33] Scott Colangelo: about, the deep dive. The deep dive. [1:10:35] JD: Oh, yeah, the deep dive. I would love to hear from our community. Thank you, Scott. I'd love to hear from our community. Like, we could do this once in a while. Take one real big subject. Get a great guest that really knows it, and just spend the entire, you know, hour and 15 minutes on it. I enjoyed that. Thank you to Rogue Guy. Thank you to Silent J and nerdy Chad. Chad Johansson, AKA I'll Drink Powder. But most thankfully to you, Scott, not a kiss ass moment. I appreciate Your honesty, your straightforwardness tonight. And I also appreciate the fact that you've done well in your career. Like you could just kick back and not do stuff. But no, you're back there making little videos. You're getting Jan on the same strategy, like you're actually. Timeout. Can I ask. Can I ask one last question? [1:11:33] Scott Colangelo: Yeah. [1:11:35] JD: What. [1:11:35] Scott Colangelo: Oh, man. [1:11:36] JD: What was that? That got that commercial that said not [1:11:39] Justin: only am I the CEO, but I'm also a client. [1:11:42] JD: I forget what that was for. Yes, I know. Was that the hair for men haircut? There's no shot at that, by the way. I'm just asking the, the obvious question here. Are you. Are you drinking your own Kool Aid? [1:11:58] Scott Colangelo: Are you putting money. [1:11:59] JD: No way. Scott is not. Have a look, he needs you when [1:12:03] Scott Colangelo: you own a life. Solution. I have. I have a hundred percent of my money in small cap right now. [1:12:10] JD: There you go. There you go. See? See, See? Me and him, all the all. [1:12:15] Scott Colangelo: And you think I'm kidding? You think I'm kidding? [1:12:18] JD: Have the best diversification, man. My son looks at me and my 21 year old son looks at me and laughs at my fucking allocation. Scott, thank you so much. It was awesome to have you here. I hope we didn't push you too hard because we. I really do respect what you're doing. And by the way, I respect your firm. I haven't had a chance to talk to you about this face to face. We've talked about this on Retire Hollow on the show. I know things have changed with Mickey and Mickey makes her own decisions in life and things. We all, we all love Mickey, but Mr. Reese, the man who loves quiche, coming over and spending, you know, some time with you guys doing stuff. I'm. You hiring Genya? [1:12:57] Scott Colangelo: Yeah. [1:12:57] JD: Genius move. Great, great person in our industry. I just want to say to you right now, and I've said this when you haven't been listening. Good, good, good moves, dude. Like, appreciate that you're. You're hiring the right people and doing good things in our industry. So kudos to Prime Capital. [1:13:13] Scott Colangelo: I feel so lucky to have them. I mean, I can't even tell you. I feel like. I feel like a kid, you know, in school, like running off to like recess. I mean, I get to spend time every day with Janya and Fred and, and they, you know, at different levels, they've, They've been mentors to me. I think, I think we've shared things back and forth. But I mean, Fred was my mentor from starting 25, starting 25 years ago. You know, What I mean, so having Fred is, was, was to me such an honor. And Janya and I talked about it the first time we met at Fidelity. She. We. We spoke on stage together at their national sales meeting. There's like 5,000 people in the room. And, and, and at the end of the session, we were up there for like two and a half hours and asked us to analyze them and their strengths and weaknesses. Analyze, empower strengths and weaknesses. You know, where do we see the puck going? And we talked about managed accounts, all kinds of things. I remember looking at her at the end. I said, it was my first time meeting her. I go, you have to make me a promise. She's like, what's that? I go, before our careers are over, let's make a pact. We're going to work together. She goes, okay, yeah. [1:14:18] JD: And we had her on stage with us in Southern California at the very resort where Tiger Wood crashed his first car, Terranea. And she was such an awesome guests to have on the show. She was one of the first ones that thought for Ackerson she should drink a whole shot. And we're like, no, no, you can't just have a little bit. But anyways, we love Jenya, but my point to you was it's kind of like watching a baseball team or a football team draft the right people. And I just felt like I was watching you make those moves and I was like, oh, wow. I like what this guy's doing. So anyways, kudos. [1:14:57] Scott Colangelo: Thank you. I appreciate it. [1:14:58] Justin: Different Jay. There are certain things, people in the industry that you respect so much that you know if they're going to commit One Direction, you're like, I have to trust. [1:15:07] Scott Colangelo: Yeah. [1:15:08] Justin: So unlike a draft where you like, when Janya committed over, I'm going, holy. There's. There are very few people in the this space that I respect as much as I do her and her thought process and her intellect. When I saw her go that direction, I'm like, all right. Obviously, Scott and team are doing some right. [1:15:25] JD: It adds to Scott's brain brand in such a huge way. And, and thank you to all you out there for tuning in to another episode of Retire. Alex, we love you as well. Everyone except Tony Davis and Nate Moody and. But I'm also a client. [1:15:44] Justin: There you go. Hair club for men. [1:15:46] JD: Oh, no. Brandon, Never mind. But we love you, Michael Webb. And yeah, I'm Chris McDavid. What the are you doing here, bro? [1:16:04] Justin: Thank you. [1:16:05] JD: Anyways, thank you to the audience for tuning in. We will see you next time. We are the retire. Alex, we are changing the retirement plan industry one beer at a time. Brandon, play some music and we'll see you next time. Thank you, Scott. Peace out. [1:16:19] Scott Colangelo: Thanks, guys.