Greg Smith
Photograph by Scott Eells — Bloomberg via Getty Images
By Stephen Gandel
June 22, 2015

Greg Smith is on a mission to fix the nation’s 401(k) problem. And this time he says he’s not going to quit.

Three years ago, Smith famously announced in a harshly worded New York Times Op-Ed that he was leaving Goldman Sachs. He accused the Wall Street powerhouse of regularly ripping off its clients, who traders often derided as “muppets.” He also said he was good at ping-pong.

Smith published a book with the same title as the Op-Ed about six months later, in which he offered some details, but not much, of misconduct at Goldman (GS) and elsewhere. (Goldman denied the charges.) And then Smith mostly disappeared.

Now he’s back. And this time, he’s taking on a much more intractable foe, the nation’s troubled retirement system. Last month, Smith joined Blooom, an Overland Park, Kansas-based firm that is looking to help people improve the performance of their retirement accounts. He will serve as the firm’s president.

Americans have a collective $4.6 trillion socked away in 401(k) plans, which have become the nation’s go-to retirement savings vehicle. That’s up from $1.7 trillion a decade-and-a-half ago. Recently, Fidelity detailed what it takes to save as much as $1,000,000 in a 401(k) account. It ain’t easy.

In fact, the average 401(k) account has just over $91,000 in it, not nearly enough to retire on. At the same time, many Americans have more than one retirement account, so that stat may be misleading. Still, Boston College’s Center for Retirement Research recently estimated that 52% of Americans are at risk of not having enough to maintain their living standards in retirement.

Smith said he was initially interested in working with public pension funds when he first left Goldman. Some of the funds had been his clients. And one of his points in his book was that Wall Street often treats its clients differently, reserving the best products and investment ideas for hedge funds, which were deemed the smart money. Pension funds and mutual funds, Smith said, often got the worst products at the worst prices.

He said he signed on as an informal advisor to then-mayoral candidate Bill de Blasio and drew up a plan to improve the investment choices and lower fees for New York City’s pension funds. Smith largely believes investors are better off in lower fee index funds. But he said that he quickly realized that the investment process in which New York and other places wind up paying high fees is as much about politics as it is about getting better returns.

Instead, Smith has set his sights on the 401(k) business, where he said individuals have the ability to choose for themselves but often aren’t given the tools to figure out where to put their money. Smith says the biggest problem is that investors have too many options, with little description of what those options are or how they differ from one another. Smith carries around a screenshot on his phone of the investment selection page for the retirement plans available to workers at Baltimore’s public schools. Among the investment options are ultra, heritage, and equity market neutral, with no description of what those investments actually are. There is one investment option that just says “Veedot.” Smith says he still hasn’t figured out what that is supposed to be. (It’s a stock fund managed by American Century.)

“People log onto their retirement accounts get bewildered and then make no choice at at all,” says Smith. “Or it’s essentially a game of eeny, meeny, miny, moe.”

About nine months ago, Smith says he saw a presentation given by Chris Costello, Blooom’s founder, at a conference. He liked the simple visual displays the company created for its clients.

Blooom’s main offering is a service that, for $15 a month, will take control of your 401(k) and manage it for you. (The fee drops to $1 a month for 401(k) accounts of less than $20,000.) The company uses a computer program to devise an asset allocation (bonds vs. stocks, for example) for each of its clients. It then looks at the investment options in your 401(k) plan, deciphers what they are, and separates those choices into categories. Blooom then, essentially, picks out the fund in each category with the lowest fees and puts your money there. Blooom’s investing algorithm doesn’t seem to take into account how those particular investments have performed. But I guess the assumption is the lowest cost option will be an index fund, so performance really doesn’t matter.

Right now, Blooom charges $15 a month for each 401(k) account you have, but Costello says the company is working on an offering that will manage all of your 401(k)s together for one fee. The company now manages $80 million in retirement account assets, up from close to zero last fall.

Blooom’s service does seem to address one of the problems with 401(k) plans, which is that companies have abdicated the responsibility of providing a plan for their employees and have instead forced us all to be DYI investment managers, a job that few of us have the time or knowledge to perform adequately. The question is whether something like Blooom is enough to truly fix the problems with 401(k) plans.

If your company offers a crappy 401(k) plan, Blooom can’t change that. It can steer you to the best options, but it can’t force your company to change its plan provider or up their match. Blooom’s Costello has a quick retort for criticism that his company’s service just heaps more fees on top of a system that is already too costly for investors. The Obama Administration has recently targeted high fees as a problem with 401(k) plans. Costello says that even after Blooom’s monthly charge, the company’s clients’ expenses drop because Blooom is able to identify the lowest cost funds, which isn’t always self-evident.

Smith agrees that everyone giving investment advice should be a fiduciary, something the Obama Administration is pushing for as well. But Smith says a decent allocation, even if it is spread among a bunch of less than perfect investment options, is a huge step in the right direction for most people. And Smith says he is happy with his switch from perhaps the most sought-after employer in finance to a company that most people have yet to hear of.

“A lot of what Wall Street does is to get people to trade things back and forth just to generate fees,” says Smith. “We’re not just trying to get people to trade more stocks with a fancy app. This is about helping people better their lives.”

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