While others worry about the stock market, Bruce R. Bent focuses on cash.
The 70-year-old founder and chairman of The Reserve in New York, formerly The Reserve Fund, is well known as the inventor of the money market fund in 1970. Mr. Bent saw the need for a vehicle to capture Treasury bill yields of 8% while savings accounts were limited to paying 5.25%.
Since then, he has come up with one new idea after another, all of them designed to make better use of liquid assets.
The Reserve, which has assets under management of $66.5 billion, pioneered interest-paying corporate deposits, for example, and in 1999, it came out with a $1 million deposit program insured by the Federal Deposit Insurance Corp.
“We’re simple-minded. We just focus on cash,” Mr. Bent said.
True to form, his latest innovation is a line of credit designed for use with 401(k) plans, which allows participants to access their cash and avoid the traditional clumsy borrowing process.
Mr. Bent said that his 401(k) add-on, ReservePlus, reduces the amount participants are likely to borrow and increases participation rates at the same time.
“It’s just another typically innovative Bent type of product,” said Tim Salvin, chief executive of Investlink Technologies LLC in New York, a record-keeping firm. “It’s definitely going to take off.”
To some Reserve customers, the innovations are secondary to the personal service they say they get from The Reserve.
David Pointer, president of Waters Parkerson & Co. Inc. of New Orleans, said Mr. Bent’s firm helped him after Hurricane Katrina hit.
Waters Parkerson’s local bank was closed, and there was no way the firm could get cash to its desperate clients, Mr. Pointer said.
“Without Bruce walking in [The Reserve] office that day and saying our firm was Priority One, our business may not have succeeded in relocating to Memphis [Tenn.],” Mr. Pointer said.
The Reserve’s back office “became our back office. They saved us,” Mr. Pointer said.
“You can do [a] handshake deal with Bruce,” said Daniel McHugh, president of Lombard Securities Inc. in Baltimore. “You don’t have to worry about paperwork.”
Q. Why have you chosen to focus just on cash?
A. Everybody has to have it, whether you’re an individual, institution or corporation. Everybody is in the “living business” of paying rent and putting food on the table, or manufacturing widgets or something like that, and needs cash.
Q. Do you take satisfaction in being the originator of the money market fund?
A. There’s a great satisfaction to it. We came up with some crazy number, something like [an extra] $200 billion that people have earned, versus what they would have made in a savings account. I’m proud of that.
[But] I screwed up big-time in the beginning. I listened to my lawyer, who said I couldn’t patent the money fund, and I believed him. Since then, I patent everything.
Q. So you would have had a monopoly on the money fund?
A. Sounds good, doesn’t it?
Q. What are some of the other projects you developed?
A. We have on-balance-sheet sweeps [for commercial bank deposits]. Banks can’t pay interest on corporate checking accounts, so what we do is move one account in a bank to another type of account with The Reserve as trustee [so that we] can pay interest [to corporations].
With [FDIC]-insured deposits ... we’re different from everybody else because we give $1 million of insurance. No one else does that ... What we do is basically daisy-chain banks. We have 11 banks, so we put $99,000 in each of 11 banks. So that’s where we pick up the [$1 million in] insurance.
And now we have cash management in ReservePlus for all the people who are in a 401(k) or should be in the 401(k).
Q. Some financial institutions have gotten nervous that some of your new ideas would cause disintermediation. But hasn’t it been your experience that they instead gained assets?
A. Yes, that’s exactly right. Look at the brokerage houses. Years ago, E.F. Hutton [& Co. Inc. of New York] came to us. They were a little late to set up a [money fund] program, and they had us set up a money fund for [a select number] of branches. What they found is that the balances that went to the brokerage house went from some amount — say, X — to 3X after they offered the money funds, because people [left] the balances there. I made a presentation to all the top executives at [Merrill Lynch & Co. Inc. of New York], and their reaction was, “You’re out of your mind, kid. We’re not going to give you that money.” Merrill [eventually raised] probably $100 billion in money market balances.
Q. You predict that people will reduce their borrowing if they have easier access to their 401(k) balances. Why?
A. The first challenge is [getting] people [to participate] in the plan. You have to fight with them. I’m a small company, and I would go sit down with Suzie and Joe and say, “Hey, I’m giving you money free [in The Reserve 401(k) plan],” and I would have to fight them [to enroll]. Forty percent of people who are in the beginnings of their careers aren’t putting any money in it, and the others are limiting it. They’d say, “What if there’s an emergency, and I need to get my money out?” Not only are [plan] loans administrative nightmares, there’s also a terrible invasion of privacy involved. The employee has to come in and bare their soul [about why they want the money.] They don’t want to do it, and I don’t want to hear it.
Q. How does your product work?
A. With this [ReservePlus product], we now have a situation where when you put your money in [and get the match], you the employee are ahead of the game, and if you need your money, you can access it. In the traditional [401(k) loan], if someone loses their job, they’ve got to repay the outstanding loan at the worst time in the world for them. Also, under a traditional loan situation, I’ve got to borrow as much as I think I’ll ultimately need. I can’t borrow again until I pay back what I already borrowed. That’s stupid.
So under our plan, [you get] what you need to finish your basement or whatever. All [the rest of] your money stays in the plan. The net effect is, people in our setup have been borrowing less. Our experience with the clients we have [is that] the average loan is 35% less than the average loan in traditional plans.
Q. Have you talked to policymakers about what you have discovered?
A. We have. And initially, [the reaction] was this [attitude] that father knows best, that it’s not a good idea to encourage borrowing from a plan.
Q. In other words, don’t let them touch the money?
A. Right. And as a result, nobody participates. But even when they put in this cumbersome [loan] program that you have overwhelmingly right now, there was a huge boost in the participation in 401(k)s. But you still effectively preclude the [lower-income] people you want most in those plans.
Q. How has your loan product affected participation rates?
A. They’re up by 40%.