Vestwell expands into college savings plans by acquiring Sumday from BNY Mellon

Vestwell is moving beyond workplace retirement programs and into college savings.

The digital recordkeeping startup — and one of Financial Planning’s best fintechs to work for — plans to acquire Sumday, a BNY Mellon subsidiary that manages and administers 529 college savings, 529A ABLE accounts and state-sponsored savings programs. Terms of the deal were not disclosed.

Following the deal’s closure, Sumday will be rebranded to Vestwell State Savings and its technology, program management responsibilities and team will transition to Vestwell. Current CEO Douglas Magnolia will continue to lead the team as president of Vestwell State Savings.

Vestwell primarily provides financial advisors with the digital infrastructure to design and manage workplace retirement savings accounts for clients who own small businesses. When the company raised $70 million in July in a Series C round led by Wells Fargo Strategic Capital and Fin Venture Capital, it named college savings as an area it would like to expand into. The purchase of Sumday accelerates those plans, said Vestwell CEO Aaron Schumm.

Americans have amassed $464 billion in tax-advantaged college savings programs as of June, according to data from the Federal Reserve. However, these assets are spread across 15 million 529 accounts, meaning the average plan has less than $29,000 and could only cover about a year of tuition at a public university.

While people can open a 529 plan either through their state, a financial institution or advisor, the accounts are most effective at promoting saving for higher education when offered through the workplace, Schumm says.

“There is a trust and comfort level in understanding that the workplace is making it available to employees,” Schumm says, adding that people are 50% more likely to engage with a 529 plan if offered through their employer.

And because many small business owners turn to an advisor for help with employee benefits, there is an opportunity for advisors to offer 529 plans alongside retirement accounts, he said.

“That’s our whole MO. Advisors provide substantial value when engaging in the workplace, especially with small businesses that aren’t equipped with large payroll and benefits teams,” Schumm said.

Beyond growing among financial advisors, this deal is a chance to introduce more states to Vestwell’s technology, he said. Vestwell will take over management of three state-sponsored college savings programs and BNY Mellon will act as the preferred servicing agent, providing custody, fund account, recordkeeping and sub-advisory services with Vestwell handling the technology.

The two companies have partnered since 2018 on making 401(k), 403(b), and employer-sponsored IRA plans more accessible to BNY Mellon clients. BNY Mellon is also an investor in Vestwell and has seats on the company board, though Schumm declined to comment on how much of a stake in Vestwell the bank owns.

Going beyond this deal, Vestwell also has plans to make BNY Mellon the preferred custodian of 401(k) and 403(b) accounts. While the wealthtech is certainly entrenching its relationship with the bank, it isn’t ready for a more formal title, Schumm said.

“We are not looking at or speculating on a potential acquisition,” he told Financial Planning. “They are the largest custodian and one of the most respected financial institutions in the world, and we get to leverage and partner with them on expanding relationships.”

BNY Mellon did not respond to a request for comment.

When Vestwell announced its most recent funding, it added that it would like to also offer HSAs, emergency savings and IRAs. The company named industry veteran Lori Hardwick as chair of its board in September to help set the company’s agenda. Hardwick previously served as chief operating officer of Pershing, BNY Mellon’s RIA custody business, and was a member of BNY Mellon’s senior leadership team.

When asked what that agenda includes, Hardwick said, “expanding into more workplace savings versus just 401(k)s.”

That work has already gotten started.