Vestwell Scaling Retirement Plan Costs With Technology

For many businesses, particularly those in the small- to medium-sized space, setting up a retirement plan for their employees is a complex, cumbersome and expensive process, even if it's a necessary one.

"When an advisor comes in [to a company] to talk about a retirement plan, it's usually a brown bag lunch scenario, where the advisor tells the company 'here's everything you can do but I can't tell you what to do," said Aaron Schumm, CEO of Vestwell, a new platform that helps advisors evolve their business to suit the changing world of retirement plan investing. "That can be intimidating and confusing, and more importantly, can prove to be a costly process for a business."

For the financial advisors themselves, setting a company up with a retirement plan is not an easy proposition and can turn out to be both expensive and tedious. More often than not, advisors need to leave their firm's "ecosystem," Schumm said, to seek out and work with third-party custodians, recordkeepers, asset managers and other vendors providing different services. Then they need to keep tabs on all those moving parts. It's often the case that a company's employees end up bearing the brunt of administrative hurdles and feeling the pinch of the expenses incurred in setting up a plan.

Minimizing that aspect, while making it easier for employees of a company to save for their retirement, was a guiding principle for Schumm when he launched Vestwell in 2015 as a digital, one-stop, white-labeled 401(k) and retirement plan platform.

"Because we're taking care of the headaches that come with setting up a retirement plan – the cost, the fiduciary aspect, the investment side – it means that employees can ultimately save more," he said. "By becoming the only interface that an advisor or plan sponsor needs to design a plan, implement it and invest that plan on [employees] behalf, we're saving everyone a lot of time, expense and headache."

Schumm co-founded comprehensive wealth management platform FolioDynamix before selling the company to Actua in 2014. He felt that the same kind of seamless tech offering was necessary to make it easier for all parties – advisors, companies, recordkeepers, asset managers – to operate in the retirement plan space.

How it Works

In addition to giving advisors a turnkey solution that allows them to offer their clients a regulation-compliant retirement plan without taking on the risk and costs typically associated with creating one, Vestwell's digital platform allows for seamless plan design, automated onboarding and low-cost investment strategies.

The end-to-end technology includes automated compliance notices and documents, a dashboard where all plan information is easily viewed, and annual, automated compliance testing. This allows financial advisors to better focus on their clients, Schumm said, by enabling quicker, more efficient and more transparent communication between parties.

"We built a touchpoint across the board where an advisor logs in with their brand, we design a plan for the particular client, create a proposal and then send that as a PDF to the client, and we all can look at it jointly," he said. "That process alone could take a week or two for most firms – we do it in five minutes. If all agree, the advisor hits 'activate' and all the paperwork is generated right there. The client then signs, and we inform their employees that their company has been enrolled into a 401(k) plan and that Vestwell will be implementing it."

Schumm said that Vestwell is an extension of the financial advisor's services and relies on technology to not only act in the best interest of all but also easily enable RIAs to further expand into the company retirement plan space. He estimates that about 500,000 small- to medium-sized businesses in the U.S. do not have employee retirement plans, and among those that do, many plans are not ideal and could do with a redesign.

"We wanted the conversation to change; we're about advice and service," he said. "Many firms out there are trying to displace financial advisors – we're equipping them to grow their practice and change their dialog with their customers."

While Vestwell can act as investment advisor, fiduciary, administrator and trustee of a retirement plan, Schumm is also a big believer in financial literacy and equipping people with the knowledge they need to become better investors in their own right. To that end, Vestwell can offer an individual their own personal CIO to help them in their investing endeavors.

"We want to reshape education by offering people the tools they need to understand how they are saving for their retirement," Schumm said.

— Read DC Plans' Goal Is to Help Employees Retire on Time: T. Rowe Survey on ThinkAdvisor.