A Service to Make 401(k) Tweaking a Piece of Cake

In the current economic turmoil, with investment portfolios melting in value, it’s become harder than ever to plan for retirement. Many people lack good investment advisers, or the time and skill to do their own investment research.

So, a small San Francisco company, Cake Financial, is introducing Thursday a $99-a-year automated service that attempts to tailor a mutual-fund portfolio that will get you to retirement according to your goals. It’s designed to be simple, clear and relatively quick, using plain English, easy-to-understand graphics, and a step-by-step approach that walks you through the process. In essence, it’s a robotic, low-cost investment adviser.

The service, called Cake Premium, automatically imports your investment and 401(k) account information from any of 65 major investment companies, analyzes and categorizes your holdings, and then proposes how best to reallocate your positions. It uses its own proprietary formula to rate funds, both on their performance and on their fees, and suggests substitutes that it believes would be better.

This new Premium service evolved from two earlier Cake products, a free investment-tracking service and a $30-a-year service comparing mutual funds. Both products emphasized social networking among active investors. But the new Premium version goes much further in terms of recommendations, is aimed at average folks and doesn’t focus on the social networking. Like the others, it’s Web-based and runs in all the major browsers.

Cake (cakefinancial.com) isn’t a registered adviser or broker, and doesn’t actually conduct any transactions. So, if you choose to follow its advice, you’ll have to buy or sell the necessary funds elsewhere. The company says it doesn’t receive commissions or fees, and has no financial ties to any mutual-fund company, bank or broker. It says its income from Cake Premium comes solely from consumer subscription fees.

I’ve been testing Cake Premium, using a dummy portfolio provided by the company. Because I am not an investment expert, I can’t evaluate the merit of Cake’s recommendations. You may want to ask a trusted adviser about that after test-driving it via Cake’s 30-day free trial. But I can say that I found the service clear and easy to use, and can see how it could be helpful to average people with limited time and knowledge. However, I also found that Cake Premium has some significant limitations.

Here’s how it works. After you enter a few basic facts, like age and desired retirement date, you tell the service your login information for your retirement account, such as a 401(k). But it won’t work if your account isn’t at a major investment firm like Fidelity or Schwab (SCHW). And you can’t manually enter your data from an account that isn’t covered. The company assures users this is all done very securely.

Next, Cake Premium will assess the mix of mutual funds you hold, and decide if that mix matches your goal. It rates each fund, categorizes them by type, and then labels your current strategy by degree of risk. For example, it might tell you that your current holdings are “moderately aggressive” or “conservative.” It might also tell you “you are paying way too much in fees.” All of this is displayed in very clear text and graphs.

Then, it makes an overall judgment. In my case, Cake Premium declared that the investments in my test account weren’t properly diversified and represented the wrong level of risk for my situation.

Finally, the service will suggest a new allocation of funds, propose you substitute some funds with others it considers better, and present you with a detailed listing of which ones to sell and which to buy—naming specific funds. You can, at any time, alter Cake Premium’s proposals to see how your chances of meeting your goals will change, and you can do the same by adjusting a few factors like when you might retire and what percentage of current income you’d need.

But what about those limitations? For one thing, the service is focused only on mutual funds, and can’t give you advice about CDs or money-market funds. Also, it is all about retirement, not other goals, like saving for college.

And unlike a good investment adviser, Cake Premium learns only a portion of your financial picture, so its mutual-fund recommendations aren’t made in a complete context. For instance, it includes only a single small box into which you can type a total of your other assets. The company says it plans a more detailed information-entry process in future versions.

Finally, a maddening problem: If you are trying to reallocate the mutual funds in a 401(k) plan, Cake Premium isn’t smart enough to limit itself to suggesting substitutes that are actually available in your plan. It may in fact suggest only alternative funds that your plan doesn’t offer. The company suggests you purchase such funds for a separate account, like an individual retirement account.

Overall, Cake Premium may be a helpful tool in confusing times. But its limitations make it an incomplete solution that’s no threat to a really good, honest investment adviser.

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site, walt.allthingsd.com. Email him at mossberg@wsj.com.

Published on August 19, 2009

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