Educational Alpha Podcast – S3: Conversation with Aaron Filbeck
Host: Bill Kelly (CAIA Association)
Guest: Aaron Filbeck, Managing Director, Global Content Strategy, CAIA
Date: September 17, 2025
Topic: Democratizing Access to Alternatives in Retirement Plans

Episode Overview

This wide-ranging conversation between Bill Kelly and Aaron Filbeck focuses on the recent executive order aiming to expand access to private market (alternative) investments for 401(k) participants. The discussion explores the structure and evolution of retirement plans, the motivators and risks behind expanding “democratized access” to alternatives, the critical nuances of fiduciary duty, regulatory tensions, industry innovation, and the need to protect end investors in a rapidly shifting landscape.

Key Discussion Points & Insights

1. Background and Setting the Stage

• Introduction to Aaron Filbeck's Credentials

  • Aaron summarizes his career in wealth management, his time at CAIA, and his current focus on content strategy and industry engagement. (02:21)

• Why “Democratizing Access” Is Front and Center

  • Bill Kelly brings up the new executive order, questioning the fairness of access to alternative investments through DB vs DC (401(k)) plans and underlying assumptions about investor equality.
  • Quote: “The opening premise is so grossly flawed and it brings up the tired argument that why should the firefighter and the police officer in Texas have access to alts and the poor accountant doesn't?” – Bill Kelly (04:33)

2. Structural Differences: Defined Benefit vs Defined Contribution

• Fiduciary Protection and Participant Experience (05:00-07:07)

  • Aaron emphasizes the contrast between sophisticated, centralized fiduciary oversight in DB plans and the fragmented, participant-led environment of DC plans.
  • Quote: “We've had this move from DB to DC. The DB plans still have that level of sophistication and fiduciary management… whereas the DC plan, it's a very wide dispersion of sophistication.” – Aaron Filbeck (06:00)

• Policy, Guidance, and Limitations of Executive Orders

  • Bill notes executive orders can't create law, only influence via guidance, and the actual participant experience and economic opportunity in private markets merit deeper consideration.
  • Quote: “If Trump rang me up ... and asked me to write the executive order, ... I think I could have reached the same conclusion to some degree. But it has to be brought along in language and terms...” – Bill Kelly (07:07)

3. The Real Benefits and Risks of Expanding Access

• Private Markets as Engines of Wealth and Succession Issues

  • Bill highlights the economic importance of small businesses (lower middle market), owned largely by baby boomers without succession plans, and the potential for capital allocation here.
  • Quote: “There is a tremendous opportunity in the real economy to allocate capital and I think that is the story, not so much well, postman can do this, but you can't. Ridiculous.” – Bill Kelly (09:12)

• Industry Framing vs. Investor Needs

  • Aaron stresses that most participants aren’t concerned about investment products but rather about retirement security—making the current industry-led narrative potentially misaligned.
  • Quote: “At the end of the day, they're thinking about can I retire? Am I going to have enough money to last me the rest of my life? ... Not clamoring for this PE fund versus this private credit fund.” – Aaron Filbeck (10:29)

4. Policy, Reversals, and the Irreversibility of Access

• The Tenure and Impact of Executive Orders (11:11-15:50)

  • Discussion of frequent reversals of executive orders with new administrations; Bill contends this one is likely here to stay because, once access is granted to 401(k) investors, it’ll be extremely difficult to take away.
  • Quote: “The moment this gets put in place ... this being democratized access, ... impossible to get that genie back in the bottle.” – Bill Kelly (12:44)

• Legal and Regulatory Uncertainty

  • Aaron points out that a lack of bipartisan legislative backing creates confusion and the potential for whipsawing policies, stressing the need for legal clarity for sustainable progress.
  • Quote: “Until you get bipartisan support and laws that are passed in Congress ... it's going to be very confusing both for the participant but also for the broader industry.” – Aaron Filbeck (14:01)

5. Investment Vehicles: CITs, Target Date Funds, and 401(k) Participant Behavior

• Emergence of Collective Investment Trusts (CITs)

  • Bill observes a growing consensus that collective trusts inside non-depository trust companies may become the favored vehicle, due to fewer restrictions on illiquid holdings.
  • Quote: “Collective investment Trusts ... I think we're going to start to see every asset manager and their sister and brother having those as part of their offering.” – Bill Kelly (17:29)

• Behavioral Segmentation of Participants

  • Aaron delineates between “do-it-yourselfers” and the majority who prefer automated, professionally managed solutions—arguing most 401(k) participants benefit from auto-enrollment, default investment options, and managed accounts.
  • Quote: “Most people just don't pay it any mind and any attention... So when I think about the investment solution that makes the most sense if we're going to do this, it is to put it in ... some kind of multi asset diversified solution that could be risk based, it could be age based like Target Date fund solutions...” – Aaron Filbeck (18:17)

6. Re-imagining Target Date Funds and The “60/40 Is Dead” Debate

• Need for Innovation in TDFs

  • Bill challenges both the industry mantra that “60/40 is dead” and the wisdom of simply opening illiquids into TDFs, citing risk, manager skill, and investor protection issues.
  • Quote: “The 60/40 is a very, very hard index to beat. Pick any 10 year window and it's averaged 7% ... It's never ever, ever been negative. So ... it might be the right position for you ... individually.” – Bill Kelly (21:41)

• Customization and Modernization of TDFs

  • Aaron references research on different “to” vs “through” glidepaths in TDFs and imagines future innovation, including more personalized and dynamic risk models (like Kitces’ “V-shaped” approach).
  • Quote: “Wouldn't it be great if we could innovate the target date fund space so that we're making decisions that are more unique and specific to the participant.” – Aaron Filbeck (27:20)

7. Wrappers, Liquidity, and The Dangers of “Liquid Illiquids”

• Leaky Buckets and The Importance of Wrappers

  • Both stress that offering illiquid investments in wrappers allowing for easy redemptions can spell disaster, given mismatched liquidity.
  • Quote: “If we create access to illiquid investments in very leaky liquid buckets, it's going to be a disaster.” – Bill Kelly (29:30)

• Investor Understanding and Segmentation

  • Emphasis on “rings of liquidity” and only introducing private markets to long-term, illiquid retirement allocations, not to funds people may need to tap quickly.

8. Regulatory and Litigation Risks

• RMDs and Valuation Challenges

  • Bill raises the practical and regulatory complexity of mixing illiquids in retirement accounts, especially when RMDs require annual distributions and valuations.
  • Quote: “If I've got a whole bunch of illiquid holdings in there, one, how do I sell these damn things? ... How do I know what 4% is when all of these other things are hard to value?” – Bill Kelly (33:02)

• Litigation Environment and Fiduciary Risk

  • Aaron references frequent class action suits over fees and performance, predicting that alternatives in DC plans will face significant litigation unless legal clarity and protections are established.
  • Quote: “It's there scattered across multiple decades of class action lawsuits. It's around things like fees and...performance dispersion...” – Aaron Filbeck (35:44)

9. The Need for True Representation and Fiduciary Focus

• Who’s in the Room for the End Investor?

  • Bill laments the lack of direct representation for individuals in regulatory debates and the tension between lobbying, industry interests, and the purported missions of the DOL and SEC.
  • Quote: “Where is our lobbyist who's representing us in that inner sanctum? I just don't know if they're there.” – Bill Kelly (37:01)
  • Joke on renaming the DOL and SEC: “US Department of Lobbyists, the security and any exchange you want will do commission and the gulf and our underscore gulf of fiduciary duty.” (38:19)

• Protecting Investors First

  • Final emphasis: access is ultimately a good thing, but only if implemented with relentless focus on investor protection and true fiduciary standards.
  • Quote: “It is a good thing. But how we do it, how we do it responsibly, how we do it, the interests of the end investor, first and foremost at heart, which is the ultimate definition of a future duty. I'm less sure...” – Bill Kelly (38:54)

Notable Quotes & Memorable Moments

• “The genie is out of the bottle.” – Bill Kelly, framing the irreversible expansion of access (03:00)
• “We've got to flip that conversation a little bit and talk more about the structure of retirement and what that actually means for participants in the 21st century.” – Aaron Filbeck (06:47)
• “If we're going to do this, [put alternatives in DC plans], it should be uncomfortable for the industry.” – Bill Kelly (23:55)
• “Most people just don't pay it any mind and any attention... so the target date fund space... makes a lot of sense.” – Aaron Filbeck (19:07)
• “Wouldn't it be great if we could innovate the target date fund space ... making decisions that are more unique and specific to the participant?” – Aaron Filbeck (27:20)
• “Somebody has got to be protecting my interests. When that door is closed and when the white smoke comes out of the Sistine Chapel of the DOL, it's gotta be bellowing something that is in my best interest.” – Bill Kelly (37:35)
• “Access is a good thing. But how we do it, how we do it responsibly ... is going to require creative decisions, a lot of thought process, and ... capital instincts of the GP have to be parked at the front door.” – Bill Kelly (38:54)

Selected Timestamps for Key Segments

• [02:21] – Aaron Filbeck’s career background
• [04:33] – The flawed premise behind access arguments
• [06:00] – DB vs. DC plan structures and fiduciary contrast
• [10:29] – What participants really want (not fund products)
• [12:44] – The “genie out of the bottle”/irreversibility of access
• [17:29] – Rise of CITs in 401(k) allocations
• [21:41] – “60/40 is dead” debate and realistic allocation performance
• [27:20] – Potential for customizable and innovative TDFs
• [29:30] – Dangers of “liquid illiquids” in TDF wrappers
• [33:02] – RMD, valuation, and liquidity problems
• [35:44] – Litigation threats and the need for legal clarity
• [37:01] – Absence of individual representation in policy decisions
• [38:54] – Final reflections on access, investor protection, and creative regulatory solutions

Tone and Flow

The conversation is candid, occasionally witty, and deeply informed, with Kelly and Filbeck engaging in a balanced dialogue—expressing both enthusiasm and caution for democratized alternatives access in retirement. Both emphasize the primacy of investor protection and the need for smart structure and policy, not just industry-led land grabs.

Conclusion

This episode serves as a critical primer on the complexities of opening private market investment to a broader swath of retirement savers. It encourages industry stakeholders, policymakers, and investors to look beyond slogans, focus on genuine investor needs, and advocate for a regulatory regime that privileges long-term, prudent retirement outcomes over short-term industry wins.