Money Monday with Brian James

Episode Transcript

Speaker 1 (00:00):
Often for what's developing. This is just developing out of
the Middle East now right now, it's developing.

Speaker 2 (00:06):
Fifty five KRC the talk station AATO six fifty five
k r c D talk station. Happy Monday always made happier,
at least from my perspective. Money Money with Brian James
from Allwar with Financial Joints. The program. We talk about
well investments and strategies and thinking about retirement and talking
to financial planners about that and thinking about how much

(00:28):
money you do here? Is that what we do, That's
what we're supposed to do. Get people incentivized to sit
down and give some thoughtful planning for their future.

Speaker 1 (00:36):
That's a good idea. Let's talk about that.

Speaker 2 (00:38):
I like that, Amen, get yourself a fee based financial
planner because that means they have a fiduciary obligation to
work for you and maximize the return on your investments.
With that speaking, you're going to have to start from
the very beginning in little tiny points that a fourth
grader can understand. Because all I have is a headline

(00:59):
from Bloomberg subscription only service. Bloomberg Blackrock puts private equity
and credit into four oh one K funds. What does
this mean for your average investor? Does it impact us?
What is this all about? Brian James?

Speaker 3 (01:12):
Yeah, so I sort of anticipated that the questions might
come up that way, and so that's the research that
I did this morning in wonderful addition to that. So, yeah,
when we normally think of our four to oh one
K as our investments and things, we are thinking of stocks, bonds,
mutual funds, those kinds of things. Those are what are
referred to as publicly traded, meaning pretty much anybody can
buy and sell all the time. You can log in online.

(01:33):
Back in the day we looked it up in the
newspaper whatever. But the closing prices and the daily the minute,
the minute changes, all that stuff is publicly available, ready.

Speaker 1 (01:41):
At your fingertips.

Speaker 3 (01:42):
And so now the change is Blackrock is going to
be integrating private equity and private credit investments into four
oh one K target date funds by mid twenty twenty six.
So obviously the differing word there is private versus public.
So what does that actually mean. A private equity or
private credit is literally that it's a private arrangement set
up by you know, a small group of people to

(02:05):
either support a business. Right, you might see you might
see some business that's developing out there, a new restaurant
or just something that you know, a small industrial company
or something like that. A lot of times those are
owned by private equity organizations. The difference is there's there's
a little there's a little more risk involved. There can
be there's a reason that they need they want to
keep it private. Oftentimes they're not big enough or they're

(02:28):
just not stable ready to deal with larger financial institutions
and it's just not an option. But they can be
really lucrative too, given the fact that these are small companies,
and they can shoot for the moon and go ten
x or they can go negative ten x. That's just
kind of the difference in the in the risk there

(02:48):
that we need to be mindful of in terms of
private versus public.

Speaker 2 (02:53):
Okay, so in a real world context, there was an
article in the Wall Street Journal about this company that
is manufacturing from wood waste, this new ultra light wood
which is as strong as steel, and it's got all
these different potential applications. One, it's wood waste, so that's
readily available and unlimited supply basically, but that it's lighter,

(03:16):
it's you can use thinner amounts. You could put it
like carbon fiber, pretty much turn it into anything. And
it's sounded like this is just guaranteed to make millions
and millions of dollars and it's a private company right now.
So to the extent I could get a slice of that,
that would be private equity.

Speaker 3 (03:32):
Correct, Yeah, because you're simply you know, if you know
the organizers of this, you're somehow connected to the group
that's putting it together, and then yeah, that's how you
get invited into the fold to be a part of this.
So what Blackrock is doing, and several others as well,
it's just black Rocks in the headline. What they're doing
is making it available, making it possible for people to
participate in these markets, just by putting it inside mutual funds.

(03:56):
So the catchphrase is they're democratizing private equity. So hopefully
there's not a ton of detail yet about how they're
going to do this, but hopefully there's somebody out there
vetting these opportunities the one you just described, Yeah, that
sounds great. The risks there is what if some big
company decides, you know what, that's a great idea, and
with our scale, we can do it a heck of
a lot cheaper. Well, and there's there are ample stories

(04:16):
out there of some little company came up with a
great idea and got blown out of the water by
a big company. Look we're bought out, Yes, exactly which
and and honestly, that can be.

Speaker 1 (04:25):
That's a great point. That's a good thing. That can be.

Speaker 3 (04:28):
That's a good thing, and it can be the ultimate goal.
I want to build something that some other company goes,
you know what, we could build from scratch, or we
could just buy these things.

Speaker 1 (04:35):
That can be the exit strategy. But it can go
the other direction too, all right.

Speaker 2 (04:39):
So in my hypothetical scenario, I've actually got access to
invest in this they let's say they do sell out.
They sell it for a billion dollars or something, and
that allocation that purchase price is divided amongst the various
initial investors. I presume that's how the scenario would play out.
So whatever pile of cash I got from that would
go into my four oh one K. Would that be

(04:59):
considered pre tax like four to one k contributions are
now under a non roth product or how would that
be treated? And does this happen?

Speaker 1 (05:06):
Yeah?

Speaker 3 (05:07):
Right, now you're getting to the fund stuff, right, this
is what makes everything complication.

Speaker 1 (05:11):
Yeah.

Speaker 3 (05:12):
So not not only that, but but the other thing
you didn't mention in there is this is happening inside
of a mutual fund, inside your four oh one K.
So all that's really happening now is they're kind of
throwing the doors open. But how is this actually going
to work with regard to reporting. So one of the
big things that we didn't touch on yet was if
I'm a small company and I'm a private equity funded organization,

(05:32):
then that means I don't have daily pricing, So how
do I know what this thing is worth? So Blackrock
says they're gonna they're gonna put maybe maybe twenty percent,
and then more aggressive funds twenty percent could go into
private markets. So that's twenty percent of your fund where
there isn't a daily valuation. Yeah, So it's not going
to be a conglomeration of a little businesses up and
down the street that you drive by on the way

(05:52):
back and forth to work. These You're gonna have to
be places that have some ability to price their value regularly. Otherwise,
how do you have any idea what you're mutual foot
inside your four oh one.

Speaker 1 (06:02):
K is worth.

Speaker 3 (06:02):
Now to mention required minimum distributions, that's a whole other animal.

Speaker 2 (06:06):
Well, and I have to assume or presume that these
would be limited to some entities that actually do put
these financial projections together, so you would know the value.
Otherwise you, as a financial planner, would have to go
out into the world and acquire that information in order
to provide guidance to your client or whether or not
they're making money.

Speaker 1 (06:25):
Right, that's the exact point. So hopefully there's a go between.

Speaker 3 (06:28):
But as we know, in four oh one k situations,
which again that's the whole point of this article, that's
where they're talking about putting these things, there's very rarely
an advisor in the middle. A matter of fact, the
company itself. A lot of people don't know this. The
employer itself is a fiduciary.

Speaker 2 (06:42):
Right.

Speaker 3 (06:42):
You could be a company that makes widgets, you make
do hickeys, and you sell them to other do hickey
making companies. You have nothing to do with financial advice.
But if you offer your employees of four oh one k,
you are indeed a fiduciary, just like me here at
all worth, where I sit here and do financial plans
all day, every day. So you have a duty to
make sure you're your employees have what they need and
have some level of advice. But there is very rarely

(07:05):
an individual person that's going to sit in between the
employee participant and that four one okay to say you
should do this, you should not do that.

Speaker 1 (07:12):
Right, all right?

Speaker 2 (07:13):
Well, if the risk of going over a little bit
in this segment. The other article, and I'm not sure
if it's a corollary to this Blackrock and private equity,
but headline from Bloomberg again, and I don't have any
details on it, Congress will open private markets to everyone
next year. What's this one all about, Brian James?

Speaker 1 (07:29):
Well, it is very similar.

Speaker 3 (07:30):
So the whole point of this, so where we started
was just blackrocks a little corner of the world there, right.
The reason where this is coming from is by the
end of twenty six Congress is expected to relax the
rules for private market access, which is the exact same
thing we're talking about. What this means is that non
accredited investors could be allowed to invest in private equity.
So that's a big fuzzy word. Let's talk about what
that actually means. An accredited investor is somebody who, if

(07:53):
you're an individual, you have earned two hundred thousand dollars.

Speaker 1 (07:56):
For each of the past two years.

Speaker 3 (07:58):
Where if there's a spouse or spousal equivalent is whether
the words work in the mix that it's three hundred
thousand or you're worth over a million dollars. That's the
definition of an accredited investor. It doesn't say that you
know anything about money. You know anyth about investments, is
just how much income and what's your networth? So those
are the rules where they're starting to say that private
equity may no longer require that to happen. And again,

(08:20):
this is all being spun in a manner of democratizing
investment opportunities.

Speaker 1 (08:23):
Okay, and I find no problem with that.

Speaker 2 (08:25):
I mean, if I have money and I want to
invest it in private market, I should be allowed to
do it regardless of what my annual salary is sort
of demands asking the question why is the current rule
in place? Why is it limited to people with worth
of a million dollars or making salary of two hundred
or three fifty depending upon marital status.

Speaker 3 (08:41):
Those rules have been in place for decades upon decades.
I'm going to go ahead, I'm going to take a
stab here. Somebody might know the history better than me,
but I'm going to go ahead and say that a
lot of this was wald off years ago because it
was just a kept for the people who could truly
you get into it, of course, And I will also
say technology plays a rule a role here. So in
other words, thirty forty years ago, if I am a

(09:03):
you know, a company that wants to woo private equity
and bring dollars in, I don't want to have to
spread it across hundreds of thousands or millions of people
with a couple thousand dollars inside of a mutual fund,
because I have to track and deal with all that
and report to them all and follow all those rules. Well,
technology has made a lot of that a lot, a lot,
a lot easier. It's not unsimilar to where exchange traded
funds came evolved out of mutual funds. So I think

(09:26):
that the technology the ability to track the different shareholders
and report to everybody, since this is again not publicly
traded stuff. This is stuff where you just have to
wait for an accounting for them to say here's what
it's worth. And sometimes that's only once a year. The
need is to get that information out to each every
tiny little shareholder. So I think those hurdles have been cleared,
and now it gets a little easier.

Speaker 2 (09:45):
Okay, I guess it's a complicated thing investing in private market,
some for the reasons you've obviously stated. But then again,
let's say the company has improved and it's you know,
it's worth more in your slice however it's expressed. I
guess is are are they considered shares in this type
of arrangement or is it depend on the arrangement.

Speaker 1 (10:04):
Well, it very much depends on the arrangement. Right.

Speaker 3 (10:06):
So when we were talking about black Rock a little
bit ago, that whole point was you inside their target
date funds. Those target date funds, those are the set
it and forget it options inside your four oh one
K and that was specifically that announcement. That's where it's
going to be available. So in that case, you would
simply own shares of a mutual fund that in turn
owns shares of some private equity firms. The more broader
range here, Yes, you still own shares. You'll still own

(10:28):
a certain number of shares of a private equity type arrangement.
You might be a limited partner and you are subject
to whatever the general partner, who's kind of the boss
of the whole thing, does, But there are still shares
that are divided out by however much you put into
the arrangement.

Speaker 2 (10:43):
So and that's how you end up getting the money out.
Let's say, okay, I want to sell I need that money,
or I'm retiring, I want that money. Those have to
be sold, but they are sold on a private market,
as opposed to being posted on the or just being
easily dumped on a stock exchange.

Speaker 3 (10:56):
That's correct, and a private market basically means again it's
not out there, it's posted for sale to the entire
world like the overall stock market is. It basically means
that all the other partners are informed that one of
the partners wants to sell out and they can either
buy it that they can pick up those shares and
get you out at that time, or you might be
stuck with them. A lot of times there's a lock
up here where you can only get out once a

(11:16):
year's and sometimes they actually have the opposite where they
can come back and do a capital call where they
require you to put more money.

Speaker 2 (11:22):
In okay, And that's actually where I thought the rule
came from. Having a certain amount of financial ability. The
million dollar a worth because that could happen, and if
people invest and they don't have the resources to pay
that kind of price, they're going to find themselves in
a financial world of hurt, like a protectionism type measure
to save.

Speaker 3 (11:42):
It, and you could wind up if you don't have
the ability to put more in. The fund itself might
be okay with that, but that means your shares are
going to be deluded. If everybody has doubled their investment
after that capital call, now you have half as much
as you did, proportionally fair enough.

Speaker 2 (11:54):
I think you. Thank you very much for walking me
through that no idea about what we started, and I
feel a lot more smarter. I spill smarter now. Brian
James will continue to find out some new crypto rules
that're unveiled by some Republican senators. That's going to be next.
It's eight eighteen fifty five k stee talk station and
plum type plumbing. You deserve better, They know you deserve better,
and plumb tight delivers on better. Treat every call like

(12:15):
a neighbor asking for help. That's why there might go
to plumbers. Plum Type Plumbing plumbing done right every single time,
no service, fees, free estimates a plus with a better
business bureau. I have enjoyed the service of plum Type
many times over the years and I can confidently recommend them.
And if you have to get your tank your tank
water heater installed, why not go tankless? Plum Type the
tri States number one installer tankless water heaters for money savings,

(12:37):
for space savings, and on average they last a lot
longer than your traditional tank. So coupled with the fact
that you never run out of hot water period translate
sewer line repair. They offer that a plump tite don't
have to dig up your lawn to fix that sewer
line for all plumbing projects. Call Plumb Type Plumbing five
one three seven two seven tight te five on three seven,

(12:57):
seven eighty four eighty three online It's plumb Tight dot.

Speaker 1 (13:00):
Com fifty five KRC.

Speaker 2 (13:03):
Iheartly thinking about parcit talk station Brian Tummas with all
Worth Financials, Brian James H. I've always view crypto is
like the peace of God. It passes my human understanding
and so I don't understand it. But what is this legislation,
this bill which apparently is going to define when crypto
is a commodity or a security? I guess it could
be either. What does this mean generally speaking?

Speaker 1 (13:24):
Brian?

Speaker 3 (13:25):
Yeah, So, so the first and most important thing that
means is that we are finally going to have some
kind of definition as to what this stuff really is
and really what this is. It's kind of a fight
between what regulatory body is going to sit on top
of it and govern it. So the interesting thing though,
is it it's coming in a bipartisan manner, so there
are there are people on both sides who are actually
starting to agree on something for once. So the big

(13:46):
debate is is a is crypto a security? Which basically
means that it's a for profit venture that you that
you enjoined with a few groups onto and again in
the hopes of profit and from the efforts of others.
That's the definite definition of a security, right. That's the
difference between if I own a business and I run
it for a profit, that's different.

Speaker 1 (14:06):
That's not a security.

Speaker 3 (14:07):
But if I buy a stock that is a business
and I'm waiting for other people to make money for me,
that becomes a security.

Speaker 1 (14:12):
Okay.

Speaker 3 (14:12):
Uh, And so that's the big debate. If if it's
a security, then the SEC controls it. The opposite would
be is it a commodity, which means a group called
the CFTC would control it. Democrats prefer the SEC because
there's more oversight, a little more a little more strict.
The CFTC is preferred by Republicans because they think there'll
be a wider playing field, a little more flexibility.

Speaker 1 (14:32):
Hmm, Well, what what is the dollar? The dollar? Dollar
is just pure currency.

Speaker 3 (14:38):
A dollar is the definition, and we are currently the
currency of the entire world.

Speaker 2 (14:42):
But I mean there's there's investment opportunities. People invest in
currencies all the time, don't they.

Speaker 3 (14:47):
Correct, It's a little different from the standpoint of the
dollar is used as a medium of exchange. Crypto generally
is true. This is why there's a big debate. It
acts like a commodity. It's where a commodity is just
something where it's worth what everybody says it's worth.

Speaker 1 (15:02):
Correct. Yeah, Oil pulled out.

Speaker 3 (15:04):
Of the ground in one part of the world is
not much different from oil pulled out of the ground
another part of the world. Same with wheat and any
other type of copper, those kinds of things. That's why
they're all commodity commodity based, and they will go with
whatever the market thinks that those particular things are worth
at any given time, versus a security where somebody will say, Hey,
we're going to invent this new product, we're going to
find this new market, here's how we're going to make money,

(15:25):
and so forth.

Speaker 1 (15:26):
That's the big difference between the two.

Speaker 2 (15:28):
Well, it's kind of like the wild wild West out there.
I get the impression of with regard to crypto, there's
some kind of new cryptocurrency coming out every five minutes,
and I don't know what the regulation is going to
do to change that reality, other than to provide some
sort of oversight monitoring of it so they can collect
tax dollars so they can prevent money laundering. I mean,
I guess I have more questions now than I had

(15:50):
before we started.

Speaker 3 (15:52):
Yeah, I think all of the things really, so there
are no answers right now currently, which is literally why
they're calling this the Crypto Rules of the Road Bill,
because they're just starting to define this thing. So generally speaking,
when Republicans look at this and you have Cynthia Loomis
and Tim Scott. They're looking for clear guidelines that limit
SEC authority the things that they're after. They want to
support the exchanges like Cornbased Kraken Gemini, who have long

(16:15):
pushed for clarity between the SEC and the CFTC, crypto
ad advocacy groups like the Blockchain Association, and they're they're
all supporting the idea that there should be government but
not too much. But on the other hand, those who disagree.
SEC chair Gary Gensler go figure he strongly opposes any
framework that's going to weaken his authority to govern these things.

(16:35):
And he's saying that most digital assets are securities and
they already fall under existing securities laws. We don't need
to set up anything new. And he's supported by people
like Elizabeth Warren and Brad Sherman, and they feel that
crypto poses systemic financial and national security risks because of
the way that you can move money around quickly and
kind of hide it, So there's money launderings concerns, tax

(16:56):
evasion scams, and just a speculative nature of assets has
some people kind of up in arms as to, you know,
whether they want to support this or not.

Speaker 1 (17:04):
All right, Brian James.

Speaker 2 (17:05):
Always appreciate the information and you're helping me understand it.

Speaker 1 (17:10):
At least I can do.

Speaker 2 (17:11):
Good to have you on every Monday here for Monday
Monday with Brian James, Mollworth Financial. Thanks all Worth for
loaning out for a while, and I hope you have
a great week. Brian, all right, you too, have a
go one eight twenty seven right now if you have
KCY the talk station. Interesting investigative story from the Ohio
Press Network president and editor in chief is going to
join us Jack Wins who joins the program talking about
this Ohio family farm in a fight with the county,

(17:33):
fighting for food freedom.

Speaker 1 (17:35):
That'll be next fifty five KRC. The Simply Money Minute
is sponsored by Emory