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Oct

2024

Understanding the Risks of ESG Investing

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Key Points

• Companies today face material risks pertaining to environmental, social, and governance factors.

• Many investors now assess company performance in terms of sustainability, in addition to financial factors.

• Nonetheless, investors may find it challenging to assess which companies meet ESG targets, due to inconsistent frameworks, inaccurate reporting, or false claims.

• Lack of clarity around ESG standards can lead to greenwashing (the practice of claiming to meet ESG standards when you don’t).

• Companies which fail to implement effective ESG strategies may face regulatory, reputational, and financial risks.

ESG investing strategies continue to garner strong interest among investors, as well as corporate executives and governments. As recent climate and geo-political events have underscored, companies today face a range of risk factors that may be mitigated by embracing certain environmental, social, and governance standards.

And while many organizations have established methods for evaluating and scoring companies on how well they meet certain ESG benchmarks, there is still no globally accepted set of standards for evaluating and rating company performance according to ESG criteria.

Thus, investors face two potential types of risk when it comes to ESG investing. First, companies today face material challenges in regard to environmental, social, and governance factors, which require ongoing remediation.

But, owing to the lack of widely accepted ESG frameworks and metrics, it can be challenging for companies to evaluate their own progress to ESG targets — and likewise for investors to then evaluate which companies meet ESG targets and which don’t.

Despite the inconsistencies in how various ESG criteria are applied from company to company, however, industry research suggests that ESG funds are competitive with funds that adhere to more conventional strategies.

The State of ESG Standards

In the last 10 years or more, the need to identify and solve for ESG risk factors has prompted numerous organizations to try to develop ESG criteria companies must meet, as well as ways of measuring and disclosing whether they’ve attained specific ESG targets.

In theory, companies that fail to meet certain ESG criteria (e.g., efficient energy use, pollution mitigation, diversity targets, transparency in accounting) would be able to improve their efforts, and thereby mitigate those risk factors.

But the persistent challenge here has been a lack of agreement about how to define and measure — and therefore uphold — meaningful positive strides in terms of key environmental, social, and goverance factors.

A Range of Criteria

ESG criteria and metrics are almost impossible to describe, owing to the wide assortment of public and private (e.g., proprietary) frameworks.

These include the United Nations’ 17 Sustainable Development Goals, a set of non-binding principles that some organizations use as guidelines, as well as frameworks for reporting and disclosures developed by other non-profits, like the Global Reporting Initiative (GRI) and IFRS Sustainability Disclosure Standards. In addition, some financial companies themselves have their own proprietary measures.

In recent years, for example, the Securities and Exchange Commission (SEC), which oversees the securities industry in the U.S., has undertaken the task of combating the practice of so-called greenwashing by permitting financial firms to label funds “ESG” only when the vast majority of holdings (80%) includes ESG investments.

In addition, in March of 2024 the SEC announced a set of climate-disclosure rules that would apply to all U.S. companies of a certain size. But — in a testament to an industry riven by discord on how sustainable investing should be defined — just a month after issuing new rules that would standardize companies’ climate disclosures, the SEC responded to a spate of criticism and temporarily stayed the ruling.

ESG vs. Conventional Strategies

Conventional strategies tend to focus on financial and industry metrics such as profit and loss statements, competitive analysis, and so forth. ESG investing introduces new categories with which to evaluate companies beyond their financials. While ESG is a type of sustainable investing strategy, the term ESG is more specific, in that companies must focus on positive environmental, social, and governance outcomes.

The benefit of ESG and other impact investing strategies is it can help investors put their money towards ethical companies doing good in the world. Again, as noted above, ESG funds may offer returns that are comparable to conventional funds.

5 Risks of Investing in ESG Stocks

As noted, despite the steady interest in socially responsible investing strategies like ESG, the quality and consistency of reporting frameworks and metrics has lagged behind.

Industries and agencies need to establish agreement about ESG frameworks, implementation, disclosures, reporting, and compliance. Given the current hurdles, investors should bear in mind relevant risk factors.

Five key risks of ESG investing include:

Lack of Support for ESG Standards

Companies can decide to embrace ESG standards and hire third party evaluators, but if their employees and executives aren’t knowledgeable about or in support of using ESG criteria, due diligence and compliance will suffer and the company may not reach its goals.

Weak Monitoring

Related to the lack of support for ESG frameworks and standards, many companies may lack robust systems for implementing, monitoring, and tracking ESG metrics, making it difficult to produce accurate reports and ratings.

Compliance May Not Support ESG Frameworks

Even if a company has a comprehensive set of ESG standards, they may not have a thorough compliance program that keeps tabs on ESG issues — and/or ESG standards aren’t well-integrated into risk evaluation assessments.

Inaccurate Reporting

When a company decides to adhere to a certain set of ESG standards, they also need to install control mechanisms to ensure accurate reporting. The SEC reported that many companies distribute disclosures and marketing materials making them look more sustainable than they really were in practice, or with old information that needed updating, because they didn’t have adequate internal checks and balances.

Lack of Diligence Among Fund Managers

The SEC notes that portfolio managers need to review company policies and procedures in regard to ESG factors before investing in that firm.

Why Companies May Want to Reduce ESG Risks

Not only are the above risks to investors, they pose risks to the company as well:

• Strategic: The idea behind ESG is that the three pillars measure a company’s overall commitment to making positive strides in those areas. If a company fails to implement ESG strategies it could affect their long-term prospects.

• Regulatory: Failure to comply with regulations, such as those that reduce environmental risks and prevent illicit practices, can directly impact a company’s ability to do business and meet shareholder expectations.

• Reputational: If a company misleads investors, consumers, and other stakeholders, it could taint their reputation and can lead to financial losses.

• Financial: It has been shown that strong ESG metrics may help a company financially. Not only can false ESG reporting lead to fines, failure to implement ESG plans can mean a company hasn’t maximized their chance to offset certain risks and increase profits.

How ESG Mitigates Some Risk Factors

While there are risks involved with ESG-focused investing, companies that seek to embrace ESG standards may also mitigate some risk factors for investors.

Investors may benefit by investing in companies that are proactively addressing the challenges of a changing world. For example, implementing a regular risk-assessment review process may help companies identify and plan for emerging risks that may include:

• Environmental: Preventing pollution and other hazards, complying with regulations, mitigating and adapting to climate risks, investing in renewable energy and energy-efficient systems.

• Social: Maintaining a diverse workforce, building relationships with communities, governments, and other stakeholders.

• Governance: Maintaining a strong leadership culture, preventing fraud and illicit activity, supporting transparency in accounting and management practices.

With this in mind, investors may research companies or funds to assess if they’re meeting their own commitments. What are their reporting and disclosure practices? Are they using one of the more well-known standards? Is their information verified by a third party?

The Takeaway

Understanding ESG risks can help investors make more informed decisions about their investment choices. Investors interested in putting their money into sustainable companies can use existing ESG metrics to evaluate the best options, but should be aware of the potential downsides.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

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Oct

2024

What Is a National Bank?

By Julia Califano | money, Money & Life | Comments Off

A national bank is a large commercial bank that is supervised by the Office of the Comptroller of the Currency (OCC), which is an independent bureau of the U.S. Treasury. National banks, which include some of the best-known banks, can operate in any state, making them distinct from state-chartered banks. They play a pivotal role in the U.S. economy by offering a wide range of services — including savings and checking accounts, credit cards, and loans — on a national scale. Here’s a closer look at what national banks are and how they work.

Key Points

• National banks are chartered and regulated by the Office of the Comptroller of the Currency (OCC), an independent bureau of the U.S. Treasury.

• Today’s national banking system was largely shaped by the National Banking Acts of 1863 and 1864.

• Unlike state-chartered banks, national banks can operate in any state.

• National banks offer financial services like savings and checking accounts, credit cards, and loans, and investment products.

• National banks are crucial for the U.S. economy, facilitating interstate commerce and promoting economic growth.

Understanding National Banks

To understand national banks, it helps to know how they are officially defined, how our current system of banking came to be, and how national banks are regulated today.

Definition of a National Bank

In the U.S., a national bank is defined as a financial institution chartered and regulated by the federal government. National banks operate under a charter granted by the Office of the Comptroller of the Currency (OCC), an agency within the U.S. Department of the Treasury. They can legally operate in any state.

National banks are members of the Federal Reserve System and authorized to provide a wide spectrum of banking services, including lending, taking deposits, and managing financial transactions. National banks typically serve a national clientele, offering services across multiple states, making them key players in interstate commerce.

National banks include both online banks and traditional banks (the latter also being known as brick-and-mortar banks), and typically have “National” in their names or “N.A.” (for National Association) listed after their names.

The OOC maintains a current list of all active national banks in the U.S. If you don’t see your bank on the list, it is likely a state-chartered bank vs. a national one.

History and Origins

Now that you know the national bank definition, consider how it came to be. The national banking system as it’s recognized today was shaped by the National Banking Acts of 1863 and 1864, which were enacted to create a system of national banks, establish a national currency, and offer greater financial stability during the Civil War. Here is some detail on how this unfolded:

• In the decades prior to the Civil War, regulation of banks was in the hands of the individual states, and each bank issued its own currency. Banks were required to get a charter from their state government. But increasing demand for banks led to corruption, with petitioners often bribing state legislators to obtain a charter.

• To reduce corruption and to make the process of opening a bank easier, many states enacted free banking laws. This meant that virtually anyone could open a bank, provided they met certain basic criteria, like having a certain minimum amount of capital and depositing bonds (or another type of security) with the state government to back the notes issued by the bank.

• To create a more organized system, Congress passed the National Banking Act in 1863 (originally known as the National Currency Act). Under this system, banks could only issue a new kind of paper money —- national currency —- backed by government bonds. The Act also established the OCC to regulate national banks.

While the National Bank Act has evolved over the years, it continues to provide the basic governing framework for the operation and regulation of national banks in the U.S. today.

Regulatory Framework

Here are some important points about how national banks are regulated:

• National banks in the U.S. are regulated by the OCC, which oversees their operations and ensures compliance with federal banking laws. As of 2024, the OCC oversees 1,040 national banks.

• National banks are also members of the Federal Reserve System, which enables them to borrow from the central banking system to meet reserve requirements or to address a temporary funding problem.

• In addition, national banks must belong to (and pay premiums to) the Federal Deposit Insurance Corporation (FDIC). This FDIC offers protection to account holders by insuring bank accounts up to $250,000 per depositor, per account category, per insured financial institution. (Co-owners of joint accounts at the same bank are each insured up to $250,000.)

This regulatory framework ensures that national banks remain financially sound, protect consumer interests, and follow guidelines for safe and effective banking practices.

Advantages of National Banks

National banks provide a number of benefits that make them attractive to customers. These include:

• Stability. National banks must meet stringent regulatory requirements, including maintaining sufficient capital reserves, which reduces the risk of bank failure.

• Oversight: Because they are supervised by the OCC and are members of the Federal Reserve System, national banks are held to high operational and ethical standards. This oversight reduces the risk of fraud and mismanagement.

• Broad accessibility. If you have an account at a national bank, you can likely find branches and/or in-network ATMs throughout the U.S. and, in some cases, overseas.

• Wide range of services. National banks often offer multiple checking and savings accounts as well as a variety of loan products. Some also offer investment services. A national bank can be a good fit for those who prefer to do all of their banking in one place.

These are the key features that set national banks apart from others.

National Banks vs State-Chartered Banks

The key difference between national banks and state-chartered banks is whether their charter was granted by the state government or the federal government. The OCC charters national banks; the state banking departments charter state banks.

National banks typically operate across state lines, providing a broader range of services on a national level. State-chartered banks, on the other hand, often serve local or regional markets, focusing on the needs of their specific communities.

Regardless of whether a bank is national or state-chartered, the way banking regulations work is quite similar. In addition, both national and state-chartered banks offer FDIC-insured deposits.

Becoming a National Bank

Becoming a national bank requires a financial institution to meet specific criteria and undergo a rigorous approval process. Here’s a look at the steps involved.

1. Application for a federal charter: Institutions that want to operate as national banks must apply for a charter from the OCC. The application process involves submitting detailed information about the bank’s business plan, management structure, and financial health.

2. Meeting capital requirements: National banks must meet minimum capital requirements, which ensure they have enough reserves to provide a safety net for their operations.

3. Applying for FDIC insurance: Final approval for an application to establish a national bank is not issued until the OCC receives written confirmation by the FDIC that the accounts of the bank will be insured by the FDIC.

These steps are necessary to make sure that a bank is qualified as a national entity.

The Role of National Banks

National banks play three critical roles in the U.S. economy:

• Providing financial services. National banks provide a wide range of essential financial services to individuals and businesses, including checking and savings accounts, loans, mortgages, and credit cards, investment products, and wealth management services.

• Facilitating interstate commerce. With their federal charters, national banks provide banking services to businesses and consumers throughout the U.S., facilitating transactions that drive economic activity on a national scale.

• Promoting economic growth. Without access to credit, many businesses would not be able to launch and grow. In addition, individuals would be unable to finance their education, cars, and homes. As a result, national banks play a crucial role in providing the credit necessary for economic growth.

In these ways, national banks play a crucial role in the U.S. economy and daily life.

Recommended: Guide to Commercial Banking

The Takeaway

Chartered under federal law, national banks play a vital role in the national economy. They offer a range of financial services to their customers, provide capital to support economic growth, and facilitate commerce across state lines.

National banks generally have more resources and a wider reach than state-chartered banks, which tend to offer more personalized, community-focused services. Which type of bank is the right fit for you will depend on your needs and personal preferences.

If you think a national bank would suit your needs, see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Are national banks safer than state-chartered banks?

Whether a bank is national or state-chartered, it must adhere to strict regulations. National banks are chartered, regulated, and supervised by the OCC to ensure they conform to national laws. State banks are chartered and regulated under state laws and are supervised by a state agency. Both types of banks are insured by the Federal Deposit Insurance Corporation (FDIC), which protects deposits up to $250,000 per depositor, per account category, per insured institution.

What are the major national banks in the United States?

The four largest banks in the U.S — each with over $1 trillion in assets — are:

• JPMorganChase

• Bank of America

• Wells Fargo

• Citibank

As national banks, these institutions are able to operate across state lines and offer a wide range of services, including checking and savings accounts, credit cards, mortgages, and investment options. National banks are chartered and regulated by the federal government, which allows them to provide banking services on a national scale.

How are national banks regulated differently than state banks?

National banks must adhere to a uniform set of federal regulations, including membership in the Federal Reserve System. State banks, on the other hand, follow state-specific regulations, which can vary by jurisdiction. Both types of banks are insured by the Federal Deposit Insurance Corporation (FDIC).

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Oct

2024

Financial Consulting Services 101

By Rebecca Lake | Budgeting & Goals, Growing Wealth, invest, Investing | Comments Off

When you need help putting together a solid plan for your money, you might seek out financial consulting services. A financial consultant can offer advice and guidance on things like investing, retirement planning, and building wealth. You may also hear financial consultants referred to as financial advisors, as the terms are often used interchangeably, though there may be some slight differences.

What is financial consulting designed to do? In simple terms, it’s all about helping clients formulate a strategy for managing their money. What working with a personal finance consultant looks like for you can depend on your situation and goals.

Key Points

• Broadly speaking, financial consultants help clients identify strategies to help them reach financial goals.

• Services offered by financial consultants may include investment management, estate planning, tax planning, and retirement planning, among others.

• Financial consultants and financial advisors may hold certificates or designations that reflect advanced training, such as Certified Financial Planner (CFP) or Accredited Financial Planner (AFP).

• Choosing the right consultant requires evaluating the scope of services they offer, their professional certifications and designations, their fee structure, and more.

What Is a Financial Consultant?

Broadly speaking, a financial consultant is someone who offers advice about money – be it retirement planning or buying stocks or other securities – in a professional capacity. A financial consultant may work independently or be employed by a financial consulting firm, and they may offer services online or in-person.

Examples of Financial Consulting Services

Financial consultants can offer a variety of services to their clients. Again, those clients may be individual investors, business owners, or even a non-profit organization. The types of services a financial consultant may offer can include:

• Basic financial planning, such as creating a household budget

• Estate planning

• Tax planning and legacy planning

• Retirement planning

• College planning

• Succession planning for clients who own a business

A financial consultant’s overall goal is to help clients create a comprehensive plan for managing their money. Financial consultants may work with a diverse mix of clients, or niche down to offer their services to a specific demographic or client base, such as dual income couples, with no kids or members of the LGBTQ community.

Financial Consultants vs. Financial Advisors

The terms “financial consultant” and “financial advisor” are often used interchangeably, as their meaning is roughly, but not quite, the same. There are some important differences, including the licensure that each is required to hold in order to practice, and the regulators each operates under. Generally, they both offer financial advice and guidance in a professional capacity, though.

Other Names for Financial Professionals

Financial consultants and financial advisors can go by more specific names, depending on which professional certifications they hold. Certifications and designations signify that a consultant or advisor has completed advanced training and education in a particular area. Here are some of the most common designations for financial professionals:

• Certified Financial Planner (CFP®)

• Chartered Financial Consultant (ChFC)

• Certified Public Accountant (CPA)

• Accredited Financial Planner (AFP)

• Registered Investment Advisor (RIA)

• Certified Annuity Advisor (CAA)

• Certified Financial Consultant (CFC)

• Certified Tax Advisor (CTA)

• Chartered Financial Manager (ChFM)

Navigating the alphabet soup of designations for financial consulting services can be confusing and it helps to understand what type of advice you need.

For instance, if you want to work with an advisor who can help with everything from budgeting to retirement planning, then you might choose a Certified Financial Planner. On the other hand, you might want to work with a registered investment advisor if you’re specifically seeking investment help.

The main thing to know about financial consulting services is that there’s more than one option to choose from. Taking time to research a consultant or advisor’s background and qualifications can make it easier to find the right person to work with when you need consulting services.

When Would You Need Financial Consulting?

Working with a financial consultant is a personal decision. With that in mind, you might start working with a consultant at any time if you feel that you need help managing your finances. If you need more specific examples of when it makes sense to hire a financial consultant, here are a few scenarios to consider:

• Your parents pass away, leaving you $500,000 in assets. You might work with a financial consultant to figure out the best way to maximize your inheritance while minimizing taxes.

• After 15 years of marriage, you and your spouse have decided to divorce. You decide to hire a financial consultant to help you create a plan for managing the assets that you’re leaving the marriage with.

• You’re a parent to a child with special needs who will require long-term care after you’re gone. You reach out to a financial consultant to discuss setting up a trust to pay for their care when the time comes.

Financial consulting services can be an appropriate choice when you have a difficult financial decision to make or you’re trying to navigate a situation that feels overwhelming. Winning the lottery, for instance, could leave you paralyzed with indecision about what to do with the money.

A financial consultant can also help you move through changing life stages. That can include getting married or divorced, having a child, starting or selling a business, or changing careers. Financial consultants can look at the bigger financial picture to help you get through the changes while keeping your long and short-term goals in sight.

Finding the Right Financial Consultant

Finding a financial advisor starts with taking inventory of your needs to determine what kind of advice is appropriate. Once you’ve figured out what kind of help you need, the next step is creating a list of advisors in your area that you might want to work with.

Asking questions can help you get a feel for how an advisor operates. Here are some examples of the types of questions you might want to ask:

• What kind of financial consulting services do you offer?

• Do you hold any professional certifications or designations?

• Do you specialize in working with a particular type of client?

• What is your investment style?

• How are your fees structured and what do you charge for consulting?

• What is your preferred method of communication?

• How often will we meet?

If you’re considering a robo-advisor, then it may be a good idea to look at how the platform manages portfolios, what benefits or features are included, and what you’ll pay for consulting services. Should you choose a robo-advisor vs. financial advisor? There are some pros and cons to consider.

On the pro side, a robo-advisor can be a less expensive way to get financial consulting services. The typical financial advisor cost is around 1% of assets under management per year. Robo-advisors may cost much less, with some offering services charging a fraction of what a human advisor would.

Of course, there’s a trade-off to consider, since you’re not getting financial advice with a human element behind it. For instance, if market volatility sets in and you’re tempted to sell off stocks in a panic, a robo-advisor wouldn’t be able to talk you through it the way a human advisor could. Taking that into consideration can help you decide which one might be right for you.

The Takeaway

A financial consultant’s job is to help you feel more secure and confident when making decisions about your money. Whether you need a consultant’s services or not can depend on where you are financially right now and where you want to go in the future.

If you’re not investing yet, there’s a simple way to get started. With SoFi Invest, you can open an investment account online in minutes and get on the path to building wealth. You can choose from automated investing or DIY investing to build a portfolio that matches your goals and risk tolerance.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is a financial consultant the same as a financial advisor?

Financial consulting and financial advisory services are typically grouped together, as they generally mean the same thing. A financial consultant or a financial advisor can provide advice about things like investing, retirement planning, and estate planning. The difference is that consultants may offer their services on a one-time basis, while financial advisors may work with clients long-term.

What does a financial consultant cost?

What you’ll pay for financial consulting services can depend largely on the type of professional you’re working with. A typical financial advisor’s fee is around 1% annually, though it’s possible to pay more or less, depending on the kind of services you receive. Robo-advisor financial consulting can cost less, though it does lack the human element.

What does a financial consultant do?

Financial consultants help their clients create a plan for managing money. A financial consultant may work with individual investors, businesses, or organizations to offer financial advice. Financial consulting services may cover a broad scope of topics or concentrate in just one or two areas of financial planning.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN0423016

Oct

2024

The Average 401(k) Balance by Age

By Rebecca Lake | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

Average 401(k) Balance: Overview
Average 401(k) Balance: Under Age 25
Average 401(k) Balance: Ages 25-34
Average 401(k) Balance: Ages 35 to 44
Average 401(k) Balance: Ages 45 – 54
Average 401(k) Balance: Ages 55 to 64
Average 401(k) Balance: Ages 65 and Older
How Much Should I Have in My 401(k)?
Tips for Catching Up If You’re Behind

Key Points

• Establishing the habit of investing in a retirement plan early, even small amounts, may help you benefit from compounding returns.

• Aim to contribute enough to your 401(k) to get the full employer match, so you don’t leave money on the table.

• Automating contributions can make it easier to consistently build retirement funds over time.

• If you’re over 50, making catch-up contributions can boost your retirement savings.

• Paying attention to asset allocations, investment performance, and fees can help you make regular adjustments to target your goals.

What’s the Average 401(k) Balance?

The average 401(k) balance for all ages is $134,128, according to Vanguard’s How America Saves Report 2024. However, the average 401(k) balance by age of someone in their 20s is very different from the balance of someone in their 50s and 60s. That’s why it’s helpful to know how much you should have saved in your 401(k) at different ages.

Seeing what others are saving in their 20s, 30s, 40s, 50s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Average and Median 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average and median 401(k) balance by age, we use data from Vanguard’s How America Saves Report 2024.

It’s important to look at both the average balance amounts, as well as the median amounts. Here’s why: Because there are people who save very little, as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average amount with the median amount — the number in the middle of the savings curve — provides a reality check as to how other retirement savers in your age group may be doing.

Age Group	Average 401(k) Balance	Median 401(k) Balance
Under 25	$7,351	$2,816
25-34	$37,557	$14,933
35-44	$91,281	$35,537
45-54	$168,646	$60,763
55-64	$244,750	$87,571
65+	$272,588	$88,488

Source: Vanguard’s How America Saves Report 2024

Average 401(k) Balance for Ages 25 and Under

• Average 401(k) Balance: $7,351

• Median 401(k) Balance: $2,816

• Key Challenges for Savers: Because they are new to the workforce, this age group is likely to be making lower starting salaries than those who have been working for several years. They may not have the income to put towards a 401(k). In addition, debt often presents a big challenge for younger savers, many of whom may be paying down student loan debt, credit card debt, or both.

• Tips for Savers: While being debt-free is a priority, it’s also crucial to establish the habit of saving now — even if you’re not saving a lot. The point is to save steadily, whether that’s by contributing to your 401(k) or an investment account, and to automate your savings.

By starting early, even small contributions have the potential to grow over time because of the power of compounding returns.

Average 401(k) for Ages 25 to 34

• Average 401(k) Balance: $37,557

• Median 401(k) Balance: $14,933

• Key Challenges for Savers: At this stage, savers may still be repaying student loans, which can take a chunk of their paychecks. At the same time, they may also be making big — and expensive — life changes like getting married or starting a family.

• Tips for Savers: You’ve got a lot of competing financial responsibilities right now, but it’s vital to make saving for your future a priority. Contribute as much as you can to your 401(k). If possible, aim to contribute at least the amount needed to get your employer’s matching contribution, which is essentially free money. And when you get a raise or bonus at work, direct those extra funds into your 401(k) as well.

Average 401(k) for Ages 35 to 44

• Average 401(k) Balance: $91,281

• Median 401(k) Balance: $35,537

• Key Challenges for Savers: While your late 30s and early 40s may be a time when salaries range higher, it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, or starting a business, and it could feel more important to focus on the ‘now’ rather than the future.

• Tips for Savers: Even if you can’t save much more at this stage than you could when you were in your early 30s, you still may be able to increase your savings rate a little. Many 401(k) plans offer the opportunity to automatically increase your contributions each year. If your plan has this feature, take advantage of it. A 1% or 2% increase in savings annually can add up over time. And because the money automatically goes directly into your 401(k), you won’t miss it.

Average 401(k) for Ages 45 to 54

• Average 401(k) Balance: $168,646

• Median 401(k) Balance: $60,763

• Key Challenges for Savers: These can be peak earning years for some individuals. However, at this stage of life, you may also be dealing with the expense of sending your kids to college and helping ailing parents financially.

• Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2024, the regular contribution limit is $23,000, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $30,500. While money may be tight because of family obligations, this may be the perfect moment — and the perfect incentive — to renew your commitment to retirement savings because you can save so much more.

If you max out your 401(k) contributions, you may also want to consider opening an IRA. An individual retirement account is another vehicle to help you save for your future, and depending on the type of IRA you choose, there are potential tax benefits you could take advantage of now or after you retire.

Average 401(k) for Ages 55 to 64

• Average 401(k) balance: $244,750

• Median 401(k) balance: $87,571

• Key Challenges for Savers: As retirement gets closer, this is the time to save even more for retirement than you have been. That said, you may still be paying off your children’s college debt and your mortgage, which can make it tougher to allocate money for your future.

• Tips for Savers: In your early 60s, it may be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement the money in your 401(k). But starting at 62 gives you a lower monthly payout for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a benefit that’s approximately 30% higher than what you’d get at 62. And if you can hold off until age 70 to take Social Security, that can increase your benefit as much as 32% versus taking it at 66.

Average 401(k) for Ages 65 and Older

• Average 401(k) balance: $272,588

• Median 401(k) balance: $88,488

• Key Challenges for Savers: It’s critical to make sure that your savings and investments will last over the course of your retirement, however long that might be. You may be underestimating how much you’ll need. For instance, healthcare costs can rise in retirement since medical problems can become more serious as you get older.

• Tips for Savers: Draw up a retirement budget to determine how much you might need to live on. Be sure to include healthcare, housing, and entertainment and travel. In addition, consider saving money by downsizing to a smaller, less costly home, and continue working full-time or part-time to supplement your retirement savings. And finally, keep regularly saving in retirement accounts such as a traditional or Roth IRA, if you can.

Recommended: When Can I Retire?

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

How Much Should I Have in My 401(k)?

The amount you should have in your 401(k) depends on a number of factors, including your age, income, financial obligations, and other investment accounts you might hold. According to Fidelity’s research on how much is needed to retire , an individual should aim to save about 15% of their income a year (including an employer match) starting at age 25.

To get a sense of how this looks at various ages, the chart below shows the average 401(k) balance by age, according to Vanguard’s research, as well as Fidelity’s rule of thumb for what your target 401(k) balance should roughly be at that age. Note that these are just guidelines, but they can give you a goal to work toward.

Age Group	Average 401(k) Balance*	Approximate Target 401(k) Balance**
Under 25	$7,351	Less than 1x your salary
25-34	$37,557	1x your salary by age 30
35-44	$91,281	2x your salary by age 35 3x your salary by age 40
45-54	$168,646	4x your salary by age 45 6x your salary by age 50
55-64	$244,750	7x your salary by 55 8x your salary by 60
65+	$272,588	10x your salary by age 67

*Source: Vanguard’s How America Saves Report 2024
**Source: Fidelity Viewpoints: How Much Do I Need to Retire?

Tips for Catching Up If You’re Behind

If your savings aren’t where they should be for your stage of life, take a breath — there are ways to catch up. These seven strategies can help you build your nest egg.

1. Automate your savings.

Automating your 401(k) contributions ensures that the money will go directly from your paycheck into your 401(k). You may also be able to have your contribution amount automatically increased every year, which can help accelerate your savings. Check with your employer to see if this is an option with your 401(k) plan.

2. Maximize 401(k) contributions.

The more you contribute to your 401(k), the more growth you can potentially see. At the very least, aim to contribute enough to qualify for the full employer matching contribution if your company offers one.

3. Make catch-up contributions if you’re eligible.

As mentioned, once you turn age 50, you can contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) may help you grow your account balance faster.

4. Consider opening an IRA.

If you’ve maxed out all your 401(k) contributions, you could open a traditional or Roth IRA to help save even more for retirement. For 2024, those under age 50 can contribute up to $7,000 to an IRA or up to $8,000 if they’re 50 and older.

5. Make sure you have the right asset allocations.

The younger you are, the more time you have to recover from market downturns, so you may choose to be a little more aggressive with your investments. On the other hand, if you have a low risk capacity, you may opt for more conservative investments.

Either way, you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds, to help diversify your portfolio. Just be aware that investing always involves some risk.

6. Pay Attention to Fees.

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the cost of different funds. Specifically, look at the expense ratio for any mutual funds or ETFs offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

7. Conduct an Annual Financial Checkup.

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

The Takeaway

The average and median 401(k) balances and the target amounts noted above reflect some important realities for different age groups. Some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but also the choices you make.

For instance, starting early and saving regularly can help your money grow. Contributing as much as possible to your 401(k) and getting an employer match are also smart strategies to pursue, if you’re able to. And opening an IRA or an investment account are other potential ways to help you save for the future.

With forethought and planning, you can put, and keep, your retirement goals on track.

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FAQ

What is a good 401(k) balance?

A good 401(k) balance is different for everyone and depends on their age, specific financial situation, and goals. The general rule of thumb is to have 401(k) savings that’s equivalent to your salary by age 30, three times your salary by age 40, six times your salary by age 50, 8 times your salary by age 60, and 10 times your salary by age 67.

How much do most people retire with?

According to the Federal Reserve’s most recent Survey of Consumer Finances, the average 401(k)/IRA account balance for adults ages 55 to 64 was $204,000. Keep in mind, however, that when it comes to savings, one rule of thumb, according to Fidelity, is for an individual to have 8 times their salary saved by age 60 and 10 times their salary saved by age 67.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q324-047

Oct

2024

What Is an Authorized Signer on a Bank Account?

By Rebecca Lake | Family Finances, money, Money & Life | Comments Off

An authorized signer is a person who has access to a bank account but doesn’t actually own the funds in the account. Their limited rights to the account differentiate an authorized signer from, say, a joint owner.

It could make sense to add an authorized signer to personal or business bank accounts if you’d like someone else to have access either for convenience or in case you’re unable to manage the account yourself. Here’s a closer look at what it means to be an authorized signer on a bank account and how to add one.

Key Points

• An authorized signer can conduct transactions within a bank account but does not own the funds within it.

• Account owners are legally responsible for activities conducted by authorized signers on their accounts.

• Authorized signers can write checks, pay bills, and make deposits, but their authority ends upon the account owner’s death.

• The account owner can limit the authorized signer’s access, such as restricting check-writing privileges.

• Adding or removing an authorized signer requires completing a form with the bank and possibly an in-person visit to add the signer, and the account owner can revoke the signer’s status at any time.

Definition of an Authorized Signer

An authorized signer on a bank account is someone who has the right to make transactions from the account, at the discretion of the account owner. However, an authorized signer does not own the funds in the account. The account owner can choose to whom to grant authorized signer status, and they can revoke that designation at any time.

In addition, it’s worth noting that the account holder may be able to limit the authorized signer’s access. For instance, some financial institutions may allow the account owner to cap check-writing privileges at $500 or $1,000 for the authorized signer. Any amount above that could require two signatures on the check.

Online banks and traditional banks often allow customers to add authorized signers; some may allow you to add more than one. A bank account authorized signer may be a:

• Spouse

• Adult child or grandchild

• Parent

• Sibling

• Another relative

• Friend

• Business partner (if you’re adding someone to business bank accounts)

Some points to note:

• Authorized signers are often added to business accounts so that the authorized signer can make deposits or write checks as needed.

• Authorized signer status applies while the account owner is still living. You can’t be an authorized signer on, for example, a savings account after death of the account owner, as your authority ends with their passing.

• As briefly noted above, an authorized signer is different from a joint owner of an account. With a joint account, the parties each have access to, as well as ownership of, the money in the account.

Also, adding an authorized signer is not the same as opening a bank account for someone else. For example, a parent might open a bank account for a minor child. The parent is the primary account owner, while the child is a joint owner, or it might be a custodial account. (This will depend on the financial product chosen.)

Roles and Responsibilities of an Authorized Signer

An authorized signer on a bank account typically has the right to:

• Check account balances

• Sign checks drawn on the account

• Pay bills

• Schedule transfers to other accounts

• Use a debit card to make purchases or withdraw cash from the account

• Deposit funds to the account

• Stop payments

You may be able to add an authorized signer to a business account, checking account, or savings account. If state laws allow, an authorized user may also be able to close the account.

You may wonder why someone would add an authorized signer to a bank account. It could make sense in certain situations.

• Seniors may choose to add their children as authorized signers to help them manage their money.

• A business owner may add one of their employees to the account and delegate certain tasks, such as paying invoices or making deposits.

• Someone who’s undergoing medical treatment for a serious condition may add a family member or friend to make sure their bills are paid so they can focus on their health.

An authorized signer has no right to any assets in the account after the account owner passes away unless they’re also listed as a beneficiary. If you’d like your authorized signer to be able to inherit your account, you’d need to fill out a beneficiary form with your bank.

Recommended: How Do Savings Accounts Work?

Differences Between an Authorized Signer and Account Holder

The main difference between an authorized signer and an account holder is simple: The account holder owns the account; an authorized signer doesn’t.

An authorized signer can’t make any changes to the account’s ownership. They don’t have any automatic right to the money once the account holder passes away. The account owner can revoke their authorized signer status at any time. Account holders are also legally responsible for anything authorized signers do with the funds in the account.

To recap:

• Account owners (including joint account owners) own the funds in the account and have discretion over how the account is managed, including when to add or withdraw an authorized signer.

• Authorized signers have the right to conduct certain transactions in the account, but they don’t own it and their authority ends when the account holder dies. (In other words, there’s no access or rights for an authorized signer on a bank account after the death of the owner.)

• Beneficiaries inherit funds in the account once the account passes away, but have no rights to it during the account owner’s lifetime.

Another angle on this matter: The difference between an authorized signer vs. joint owner bank account is that joint owners have equal ownership, control, and access with one another. They also share equal legal responsibility for account transactions.

A joint bank account owner may or may not automatically inherit a bank account when the other account owner passes away. If the account is held with rights of survivorship, the account becomes theirs. If it’s held as tenants in common, the share of the account belonging to the deceased owner passes to their heirs.

How to Add or Remove an Authorized Signer

Adding or removing an authorized signer typically requires you to fill out a form with your bank. You may add an authorized signer when you open a new bank account or after the account is established.

You’ll need to give the bank some information about the person you want to add, including their:

• Name

• Date of birth

• Social Security number

• Address and phone number

The bank may allow you to specify the level of access you’d like your authorized signer to have. This is similar to how credit cards may allow you to set spending controls for an authorized user. Your bank may also request an in-person meeting with your authorized signer to confirm their identity and create a signature card.

If you want to remove an authorized signer, you’ll need to let the bank know and complete any paperwork that’s required. You may be able to complete the process on your bank’s website or in their app. Once an authorized signer is removed, they no longer have any rights to transact in the account.

Legal Implications and Considerations

As the account holder or owner, you’re responsible for anything that an authorized signer does. That could lead to tricky legal situations if they engage in irresponsible or even criminal behavior, such as check fraud. At the very least, you could put yourself at risk for overdraft charges or other fees if the authorized signer mismanages funds in the account.

Before you add someone as an authorized signer, it’s important to consider how trustworthy they are and how comfortable you feel giving someone else access to your bank account. If your bank allows you to set controls on what an authorized signer can or can’t do, you may want to weigh the benefits of doing so. That way, you could likely minimize worries about an authorized signer overspending from your account.

Recommended: Savings Account Calculator

The Takeaway

Adding an authorized signer to a bank account may be something to consider if you’d like to have a backup person who could access your account if needed or someone to whom you could delegate some personal finance tasks.

If you’re interested in opening a new checking account or savings account, and are exploring joint accounts, see what SoFi offers.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Can an authorized signer withdraw money from the account?

Authorized signers can typically write checks on the account, use a debit card to make purchases, withdraw cash at ATMs, or make withdrawals in person at bank branches. If your bank gives you the option, you may be able to limit the types of withdrawals an authorized signer can make. For instance, you could possibly put a cap on ATM withdrawals, or make it necessary to have two signatures on checks for more than $1,000.

Does an authorized signer have access to online banking?

An authorized signer can have access to online and mobile banking if the bank offers that feature. They would need to create a unique user ID and password to log in and access any accounts they have access to.

Can an authorized signer be held liable for account activities?

Account owners, not authorized signers, are legally responsible for any activity that occurs in the account. That’s an important legal point to consider if you’re thinking of adding an authorized signer to bank accounts you own. It’s wise to be sure you feel they are a trustworthy individual.

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SOBNK-Q324-032

Understanding the Risks of ESG Investing

The State of ESG Standards

A Range of Criteria

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ESG vs. Conventional Strategies

5 Risks of Investing in ESG Stocks

Lack of Support for ESG Standards

Weak Monitoring

Compliance May Not Support ESG Frameworks

Inaccurate Reporting

Lack of Diligence Among Fund Managers

Why Companies May Want to Reduce ESG Risks

How ESG Mitigates Some Risk Factors

The Takeaway

What Is a National Bank?

Understanding National Banks

Definition of a National Bank

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History and Origins

Regulatory Framework

Advantages of National Banks

National Banks vs State-Chartered Banks

Becoming a National Bank

The Role of National Banks

The Takeaway

FAQ

Are national banks safer than state-chartered banks?

What are the major national banks in the United States?

How are national banks regulated differently than state banks?

Financial Consulting Services 101

What Is a Financial Consultant?

Examples of Financial Consulting Services

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Financial Consultants vs. Financial Advisors

Other Names for Financial Professionals

When Would You Need Financial Consulting?

Finding the Right Financial Consultant

The Takeaway

FAQ

Is a financial consultant the same as a financial advisor?

What does a financial consultant cost?

What does a financial consultant do?

The Average 401(k) Balance by Age

What’s the Average 401(k) Balance?

Average and Median 401(k) Balance by Age Group

Average 401(k) Balance for Ages 25 and Under

Average 401(k) for Ages 25 to 34

Average 401(k) for Ages 35 to 44

Average 401(k) for Ages 45 to 54

Average 401(k) for Ages 55 to 64

Average 401(k) for Ages 65 and Older

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Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

How Much Should I Have in My 401(k)?

Tips for Catching Up If You’re Behind

1. Automate your savings.

2. Maximize 401(k) contributions.

3. Make catch-up contributions if you’re eligible.

4. Consider opening an IRA.

5. Make sure you have the right asset allocations.

6. Pay Attention to Fees.

7. Conduct an Annual Financial Checkup.

The Takeaway

FAQ

What is a good 401(k) balance?

How much do most people retire with?

What Is an Authorized Signer on a Bank Account?

Definition of an Authorized Signer

Roles and Responsibilities of an Authorized Signer

Differences Between an Authorized Signer and Account Holder

How to Add or Remove an Authorized Signer

Legal Implications and Considerations

The Takeaway

FAQ

Can an authorized signer withdraw money from the account?

Does an authorized signer have access to online banking?

Can an authorized signer be held liable for account activities?

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