When entrepreneurial clients approach advisors for help with company decisions like finding the best 401(k) plan for employees, they’re met with shrugs, blank stares or referrals to other experts.
Betterment’s new offering for advisors is designed to solve that problem. The firm is bringing 401(k) functionality from its
“The idea that this singular provider is going to craft a fiduciary level portfolio for each individual participant doesn’t stand up to rational scrutiny or even regulatory standards in some states,” says Daniel Yerger, president of MY Wealth Planners and a fiduciary manager of multiple ERISA plans.
In Betterment’s offering, Advised 401(k)s, the robo advisor acts as a plan’s 3(38) investment manager, handling the construction, maintenance and record keeping of portfolios. It also shoulders fiduciary and compliance work. This means advisors only have to spend time working with clients, says Betterment for Advisors general manager Jon Mauney. Clients get a low-cost retirement plan supported by Betterment’s technology, which can help attract and retain talent for their business, Mauney says.
Yet Yerger wouldn’t use the platform to offer clients 401(k)s. A lack of transparency around investment management metrics is a fiduciary risk to the plan sponsor and participants, and
“There’s a real liability concern,” he says.
Betterment senior communications manager Danielle Shechtman says the firm takes its regulatory responsibilities seriously and that every FINRA examination since the 2014 examination that resulted in the fine has been completed without any deficiency findings. The firm "has enhanced its policies and procedures and made personnel and other changes to ensure compliance with all applicable regulations," Shechtman says in an emailed statement.
The Labor Department’s short comment period is one reason to get up to speed, fast.
Some advisors also wonder what additional value they can offer clients if Betterment automates much of the 401(k) process, including selecting the investments. Dan Herron, a financial planner with Elemental Wealth Advisors, says it would be easy for employers to sidestep the advisor and start a plan themselves.
“Plus, the technology is so good [and] the onboarding process is so easy, that there [aren’t many] administrative items for the advisor to do,” Herron says. “The better these platforms get, the harder it will be for advisors to justify tacking on their fee.”
Betterment for Business sells 401(k) plans directly to employers, placing it in competition with the advisors it serves, says Aaron Schumm, CEO of Vestwell, a fintech company that also helps advisors offer defined contribution plans but doesn’t have a retail business.
“Traditional business-to-consumer fintech and robo-platform providers often pay lip service, saying they will work with advisors, yet in not-so-subtle ways the intent is to take the advisors’ clients,” Schumm says. “It’s important to always understand the core DNA of any partner firm and where their true focus and intent lay.”
Mauney declined to comment on Vestwell or how it would differentiate Advised 401(k)s from Vestwell’s offering.
If advisors don’t have a good answer for what value they can add, they probably shouldn’t offer 401(k)s, Mauney says. He sees an opportunity for advisors to offer education through exclusive office hours or a lunch-and-learn for plan participants.
By having participants on the Betterment platform, they can easily become clients if they need additional advice or planning.
“It’s all about that additional touch,” Mauney says.
Rather than the 401(k) specialists who have made workplace retirement a core element of their advisory practice, Advised 401(k)s is built for younger firms looking to grow a practice and others trying to add a new service to clients.
“Folks ready to get out there and hustle, we’re counting on this being a thing that they’re interested in,” Mauney says, adding that the automation can help them scale a 401(k) business in a way that isn’t scary.
Pamela Rodriguez, founder of Fulfilled Finances, says Advised 401(k)s sounds like a service she has been looking for and will use it immediately if it fits her clients’ needs. Rodriguez offers free education on 401(k)s, but says it takes a lot of work to implement and service plan. New Department of Labor rules only add increased fiduciary and compliance risks.
By turning to a startup like Betterment, advisors could offer a digital experience that plan participants still can’t get at a big 401(k) provider, Rodriguez says.
“This is why I would be 100% open to offshoring the things that I don’t want to spend my time doing, [like] compliance, and focus on serving the plan participants’ needs by keeping the plans healthy and affordable,” she says.
Theodore van Gerven, founder of Modern Wealth Builders, already offers 401(k) plans to small business owners as a free service for being their personal advisor but says he’d be interested in what a robo could do. He’s looked at some third-party providers, such as Employee Fiduciary, but says a robo advisor would add the benefit of automated rebalancing.
“At the end of the day, for an advisor like me who doesn't charge on the 401(k) itself, I'd want a platform that is easy to set up and doesn't require much hands-on from me,” van Gerven says.
