The Institute for Innovation Development recently talked with Aaron Schumm, founder and 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.
Bill 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?
Aaron Schumm: Perspective is all-important. As a technologist and problem solver, I bring a novel approach to retirement planning. 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) and 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 percent.