Bill Hortz's picture

"Perspective is all-important. As a technologist and problem solver, I bring a novel approach to retirement plans."  Aaron Schumm, Vestwell

[The Institute for Innovation Development recently talked with Aaron Schumm, Founder & CEO of Vestwell—an innovative, NYC-based fintech company that is pioneering a modern retirement plan platform that reduces fees, increases transparency and employee engagement, and ensures compliance in a quickly shifting regulatory landscape.]

Hortz: You state that being an independent technology firm — that is neither a traditional record keeper, nor an asset management firm — helped you build a better, more modern 401k service and platform. What was different about your perspective and why does that make such a difference?

Schumm: Perspective is all-important. As a technologist and problem solver, I bring a novel approach to retirement plans. Existing offerings are often encumbered by historical constraints, status quo mentality, and short-term profit motives. With my outside perspective, I can objectively see what has to be done to fix deep-seated problems and drive the quantum-level changes that are needed to address the state of retirement plans today.

A key difference in our perspective centers around always focusing on doing what is right by everyone: adding value to all and aligning the interests of the participant, the plan sponsor, and the financial advisor.  We do this by removing three main friction points: the confusing and often cumbersome nature of designing, establishing, and administering the 401(k)-plan; the high cost; and the legal liability that can be an issue for both the financial advisor and the plan sponsor. 

Vestwell’s perspective is also focused on meaningfully changing the user experience by, for example, allowing financial advisors to white-label the platform and facilitating every aspect of the users’ needs.  This allows “generalist” and “new” 401(k) advisors to design a custom plan for their clients with confidence and ease, while “specialist” advisors can now service smaller plan sponsors at mass scale.  The platform becomes the only touch point for the advisor, plan sponsor and participant, which includes custom plan design, proposals, recordkeeping, administration, investment management, trade execution, custody, as well as full 3(16), 3(21), & 3(38) services. 

Hortz: How exactly did you go about designing your retirement platform around customer experience?

Schumm: We looked at the industry and thought about “what does a small-to-medium-sized business (with anything up to 50M in plan assets) need from a plan feature and design perspective to offer a strong 401(k) plan to their employees?  How can we limit the risk to the plan sponsor and advisor?”  Typical 401(k) plans can have a daunting 1,600 variables in their plan adoption agreement.  We distilled those questions, reducing the total down to about 25 highly-relevant questions to make it easier for companies to offer plans.  We put an inordinate amount of work into designing a solution that was very thoughtful, yet far less complicated.

This change took the plan design and proposal process of a new 401(k) plan down from the typical one to two weeks, to around five to 10 minutes!  Think of the time you can put back on your calendar with that?  From a legal paper process, we also made it all electronic and have just one single 10-page legal document that requires a signature.  Vestwell takes care of the rest. From start to finish, an advisor and plan sponsor can be ready to go and onboard in 30 minutes; not in several weeks, as it takes with most providers. 

Hortz: How did you incorporate behavioral science to help employees maximize their savings for retirement?

Schumm: Auto-enrollment is a platform feature that is one example of what behavioral scientists call a “nudge,” or something that pushes individuals to make a positive behavioral change. Without the “nudge” of auto-enrollment, the employee participation rate in a retirement savings plan is often around 40%.  

We also try to use data surfaced through the user experience to quell apprehension to save.  We have found that data coupled with nudges can help people maximize their savings.  Thematically, we make sure there is never a question asked that someone doesn’t know the answer to, whether it is around plan features or risk assessment.

We further wanted to make sure participants were not afraid to invest.  Most of us are too busy to moonlight as an investment manager.  So, we give access to institutionally managed portfolios with ETF strategies created and managed by professionals that are only focused on money management.   Employees get access to sets of target date portfolios with custom glide-paths and risk assessments, risk-based strategies.  For those well-versed in investments, we provide a pre-approved lineup of products to create your own managed model.  In every case, each employee gets access to a true Chief Investment Officer, to help get educated on investing. Proper education creates confidence.  Confidence creates better saving and investing decisions. 

Hortz: How does your technology substantially reduce retirement plan costs?

Schumm: Technology is leveraged to drive plan cost down through scale, and integration, allowing Vestwell to compress our fees.  For example, setup fees can range in the thousands of dollars.  We only charge $500.  Small-to-medium sized plans can cost as much as 3% or more.  Our plans, with the advisor’s fee, plus more services than in a traditional plan, are a third of that cost.  This can save plan participants hundreds of thousands of dollars over the course of their career.

Hortz: What process and criteria did you use in assembling a network of retirement administrator vendors/custodians?

Schumm: We went through a long and hard due diligence process to find our “go-to, out-of-the-box” partners.  These are firms with a sound business, tried and true systems, and strong leadership, and those that are technologically advanced and have a strategic alignment with Vestwell’s vision. 

Since then, we have formed a few partnerships with great institutional partners to expand our platform as a multi-recordkeeper, multi-custodial, multi-executing broker partner solution, with a single interface.  These partners follow the same set of high standards we have set forth.

Hortz: You offer a great deal of flexibility for advisors working with your platform. Can you discuss some of these flexibilities?

Schumm: Vestwell is a digital-first, low-cost, fiduciary-backed 401(k) platform for financial advisors to help better service their clients, changing the conversations around how companies and employees can save for their future. 

We look at ourselves as an extension of the advisory firm.  They do what they do best, and we round out the solution and services to best compliment and scale the advisor’s practice, in a white-labeled capacity.  It’s the advisor’s client.  We are just there to help.

We also designed flexibility into the platform by making services a la carte, including front-back technology, record-keeping, custody, 3(21) & 3(38) investment management, full 3(16) administration, and named trustee and named fiduciary services.   

Hortz: What do you see as the strongest trends and changes yet to come into the retirement plans arena and what is your best advice to advisors working in this arena?

Schumm: One of the biggest trends in retirement plans we see is that technology is a must, especially in helping scale an advisory practice, while also positively changing the conversation with their clients.  Advisors are highly relevant in the retirement plans arena, servicing up to 90% of the SMB 401k plan space, but there are still over 500K companies in America without a retirement plan in place.  As more people leave the large corporate world for smaller businesses, it’s our responsibility, as financial service providers, to make sure ALL employers and employees in America have access to a retirement plan, and that EVERYONE can save for their future. Acting now, backed by technology, to help employees close the retirement savings gap in America, has never been more important. We here at Vestwell feel we can help in that process.

 

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of  Financial Advisor and Private Wealth magazines). For more information click here.  

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