General News

General News|Jul 25, 2019

Senate vote on retirement-savings measure not likely this month, so supporters ready push for fall

from: www.investmentnews.com

Jul 23, 2019 @ 2:18 pm

By Mark Schoeff Jr.

When congressional leaders and President Donald J. Trump reached a budget agreement Monday, they closed it off to additional measures, including a landmark retirement-savings bill that is stalled in the Senate.

Backers of the Setting Every Community Up for Retirement Enhancement Act were hoping to get it folded into the $2.7 trillion spending pact, which suspends the debt limit until July 2021, but came up short.

“It was not for lack of trying on our behalf,” said Chris Spence, senior director of federal government relations at TIAA.

The SECURE Act, which would bring about the biggest changes in retirement policy in a decade, would provide legal protections for employers to include annuities in retirement plans, make it easier for small businesses to band together to offer plans, and increase the age for required minimum distributions from 70½ to 72, among other provisions. It was approved 417-3 by the House.

Several senators, including Ted Cruz, R-Texas, and Patrick Toomey, R-Pa., are objecting to the bill for policy reasons unrelated to its retirement provisions. That’s preventing the bill from being passed quickly by unanimous consent. Spokespeople for Mr. Cruz and Mr. Toomey weren’t immediately available for comment.

Getting time for a full debate on the Senate floor looks unlikely before the chamber departs next week for its summer recess.

“We’re not going to see floor time before August,” Mr. Spence said. “We need to come together and regroup to figure out what can be done in September to move this forward.”

Paul Richman, chief government and political affairs officer at the Insured Retirement Institute, hopes that the SECURE Act will be included in appropriations legislation that must be approved this fall to avoid a government shutdown.

One of the points of the budget agreement says no policy changes can be included in government-agency spending bills unless they’re approved by House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Mitch McConnell, R-Ky., the minority-party leaders in each chamber and Mr. Trump.

“All have said they have no issues with the SECURE Act,” Mr. Richman said. “We continue to remain optimistic that the leadership of Congress and the president see the value of enacting this into law sooner rather than later.”

When the insurance lobby kicked off its campaign to get SECURE approved, they said doing so before August was critical. As the presidential election year gets closer, legislative activity on Capitol Hill is likely to slow.

But SECURE proponents are taking setbacks in stride.

“The bill is a very positive force,” Mr. Spence said. “It’s not a policy issue. We’re getting caught up in the politics of it. It’s got to be a matter of time before it breaks loose and gets over the finish line.”

In the meantime, the lobbying continues. On Tuesday, the American Retirement Association released research showing the retirement-savings gap on a state-by-state basis and asserted the SECURE Act would address the 28.3 million Americans who do not have access to a workplace retirement plan.

General News

General News|Jul 18, 2019

Pretty heavy reading but these multiple white papers from various record-keepers like Fidelity, Schwab and Vanguard on the value of Retirement Plan Consultant services are still really interesting. I appreciate the fact that these firms, which were traditionally known to try and work direct without advisors, have come around to the conclusion that the plan level input and participant engagement we add is a win-win for everyone. This specific Vanguard white paper tries to quantify the hypothetical future wealth creation plan participants in plans with advisors would receive vs. those without a retirement plan consultant like Arcwood. The Alpha is staggering at over 3.5% annualized. Which is hard to believe until you drill down into the article and look into the areas this increased retirement success come from. Which includes an advisors work on crucial areas like asset allocation policy, risk management frameworks, manager oversight, and most importantly plan design advocacy and implementation.

Click here to read the white paper in its entirety.

Blog

Blog|Jun 27, 2019

There is a lot of talk about Financial Wellness right now. Every provider seems to be offering something tied into their system. However, the most important thing you as an investment committee member or plan sponsor should know, is like those before them, they are all almost entirely all Self-Service-Programs.

In our opinion the retirement plan service industry’s greatest shortcoming is found in participant engagement. If you don’t already have a plan and advisor in place with boots on the ground to engage and help your participants with the existing retirement plan, simply adding a self-service/do-it-yourself financial wellness program isn’t going to move the needle for very many participants.

Arcwood works with many providers including Fidelity, MassMutual, Dave Ramsey, etc. to help our plan sponsors drive Financial Wellness Programs and offer more than just access to an online tool. Here are some of the main options and resources available to most sponsors when considering a Financial Wellness program:

THIRD-PARTY ONLINE WELLNESS PROGRAMS

There are several programs on this list which is growing daily. They include: Questis, Retiremap, Financial Finesse and of course Dave Ramsey’s Smart Dollar. They are all traditionally used online by employees at a self-service pace. Arcwood combines these online courses with other financial wellness meetings and engagement for those sponsors who have additional funds and are looking to provide more resources. For those sponsors who like the Dave Ramsey baby step approach the program includes a free budgeting tool. Signing up for the program through Arcwood provides sponsors a 30%+ discount to per head pricing.

401K PROVIDER (Record-Keeper) WELLNESS PROGRAMS

Through their Record-Keeping platforms many providers are now offering version of online wellness tools that go beyond simple gap analysis. MassMutual’s program, Map My Benefits, for example can help guide participants through other aspects of their financial life like short term savings needs, college education funding and any possible life insurance gaps. Prioritizing them based upon the employees stage in life, current resources and liabilities. While companies like Vanguard and Fidelity both have budgeting tools that can pull in outside liabilities, like student loan debt, and advise on savings plans for both those and the 401k. Our advisors focus much of the wellness education we provide on the tools already available like these combining them with other other financial wellness courses.

ADVISOR LEAD & SPECIALIST SEMINARS

There are also many resources available to sponsor and advisor through their existing fund provider relationships. For example both Franklin Templeton Investments and BlackRock Funds have speakers available to provide educational seminar meetings on Social Security Benefits. Arcwood combines these specialist meetings with other financial wellness meetings we provide ourselves as well as local 501(c)3 not-for-profit speakers available on other topics like debt management and budgeting.

Financial Wellness is important to us. If you are looking into programs and would like some advice please reach out to one of our business development advisors and we would be happy to discuss your options.

Blog

Blog|Apr 18, 2019

February 15, 2018

A new breed of robo-retirement startups have positioned themselves to take on incumbents and the $27.3T of assets held in retirement accounts.

The wealth management industry is under siege by a new crop of “robo-retirement” fintech startups disrupting retirement savings. At stake is roughly $27.25T held in US retirement assets as of September 2017 (including IRAs, 401(k)s, pensions, etc).

Though 401(k)s only account for $5.28T of assets (nearly 20% of total retirement savings in 2017), they have grown dramatically, up from 2% of total retirement savings in 2007.

That said, these retirement vehicles are still vastly underutilized by employees due to high fees, poor user experience, and lack of education. Now, startups have zeroed in on the opportunity to create retirement offerings that cut down on fees and deliver a better user experience, following the playbook fintechs used with robo-advisors.

While 4 out of 5 workers are employed by companies that offer a 401(k) plan, only 41% of workers actually contribute. A number of factors can contribute to this — lack of education on the benefits of contributing, difficulty accessing and navigating 401(k) plans, or an income that just covers expenses, thus making it difficult to save.

In addition to the challenge of getting more employees to invest in 401(k)s when they’re available, smaller companies also struggle to provide these plans to their workers. This can be the result of high costs and administrative challenges.

Recognizing this gap, startups — including ForusallBlooomVault, Human InterestFeeX, and Guideline — are raising private market funding to scale cheaper and easier-to-use retirement savings products.

These “robo-retirement” platforms streamline access for employers, lower the costs to administer plans, and provide transparent pricing. Meanwhile, incumbent wealth managers’ suite of products and services remain static – and vulnerable to disruptors.

Sound familiar?

The same trends that are helping robo-retirement companies gain traction are the same ones that enabled the rise of the first robo-advisors nearly a decade ago. If incumbents want stay relevant as these startups gain traction, they will need to be proactive to address products gaps, or suffer a similar fate.

Using the CB Insights platform and SEC filings, we analyzed how these startups stack up, and highlighted a few operating metrics like assets under management (AUM), client accounts, and financing.

We define this group of fintech startups as “robo-retirement.” Our robo-retirement category includes automated wealth management platforms that specifically target retirement savings accounts including 401(k), 403(b), and pensions. Our robo-retirement category is tracked as part of the broader wealth tech collection on the CB Insights platform.

Investors see new opportunities in retirement savings startups

Retirement savings startups have already seen 2 deals in 2018, despite the broader pullback in early-stage fintech in the US that occurred last year.

Following a $21M Series B investment in ForUsAll, Nick Shalek, General Partner at Ribbit Capital noted there are 2 brokers for every 1 fund they manage, creating an opportunity for software to increase broker efficiency. This is in part why Ribbit Capital, among other investors, are jumping in early.

 “The (retirement) industry is in desperate need of improvement. Around 300,000 brokers manage 650,000 small and mid-sized business 401(k)s. Since the average broker only handles two 401(k)s, they simply do not have the ability to invest deeply in delivering modern, personalized investment solutions to companies and their employees.

Just as the travel agent market was uprooted by technology, we believe ForUsAll is disrupting the 401(k) broker market by using technology to deliver a smarter, more effective, and less expensive solution.”

-Nick Shalek, General Partner at Ribbit Capital

Human Interest is the latest to raise, completing a $11M investment from Wing Venture Capital that also included angel investor Adam Nash. Adam Nash is experienced in scaling and advising robo-advisor startups. He is a current board member at Acorns, and the former CEO and president of Wealthfront.

A few of the other private startups focused on retirement include Blooom, Guideline, and FeeX. Many of these startups are using a range of strategies that vary by distribution channel and perceived addressable gap, which we analyze below. The majority are leveraging a B2B strategy targeting small- and medium-sized employers because they are largely underserved.

Robo-Retirement fintechs are already growing aum, client accounts

Blooom has grown the fastest in terms of assets under management (AUM) and client accounts. As of January 2018, Blooom has quietly collected approximately $2B in AUM across 17,746 client accounts.

Blooom is a B2C and select B2B portfolio management software provider for Employer-Sponsored Retirement Accounts (ESRA). B2B partners include Fidelity, the startup’s custodian, which holds nearly half of the startup’s reported AUM in separately managed accounts.

Forusall is the second largest with a reported $500M of AUM for an undisclosed amount of accounts as of a press release in January 2018. AUM is up nearly 5x in less than a year. In March 2017, Forusall reported the company managed $104M of AUM across 5,685 client accounts.

Guideline came in third with a reported $158M in AUM across 2,000 client accounts as of October 2017.

Also pictured are Human Interest and  Vault. Though these companies manage less money, Human Interest is still keeping up with Guideline and Forusall in the race for client accounts. Portland-based Vault, a 401(k) provider for SMBs, was acquired by micro-investing startup Acorns in Q4’17. The firm has grown assets to $1.1M across 507 client accounts.

While AUM is modest compared to top robo-advisors like Betterment (which leads with $11.8B in AUM) and Wealthfront ($10B in AUM; both as of January 2018), both of which have 401(k) services, they’ve been building their market for a decade and faced little competition from incumbents in their early years.

Similarly, this cohort of robo-retirement startups were able to grow largely unchallenged by incumbents in the early days. To stay ahead of challengers in 2018, these startups will need to focus on customer acquisition and scaling.

these are the investors placing robo-retirement bets

We used the CB Insights Business Social Graph to highlight the investors that are diversifying their bets in fintech with retirement savings startups.

Please click to enlarge. Each green line indicates one investment.

  • Collectively, this group has raised $97M and are all in the early- to mid-stages. The most well-funded is Forusall, mentioned above.
  • Forward-thinking strategic investors are early backers of robo-retirement startups. Insurance companies Allianz Life Ventures and Nationwide Ventures both co-invested in Blooom. While Blooom is currently focused on retirement savings, extending into insurance could be on the product roadmap and a partnership with insurers would not be surprising.
  • Investors are spreading out their bets. Horizons Ventures has made 2 investments in this space, investing in Feex, a B2C subscription service that reduces 401(k) management fees, as well as Forusall. SV Angel on the other hand invested in Human Interest and Guideline.
  • Looking at investors’ portfolios, we can see a few notable overlapping portfolios with some of the largest robo-advisors. Great Oak Ventures is an investor in Human Interest and in micro-investing platform Acorns. Ribbit Ventures is an investor in Forusall and in Wealthfront.
  • Retirement savings startups have already seen 1 acquisition. Vault, mentioned above, was acquired by Acorns in Q4’17. Acorns will leverage Vault to launch a retirement product called Acorns Later in 2018. We dug into Acorn’s acquisition strategy as part of strategy teardown on Acorns.

Closing thoughts

Employer-sponsored retirement programs are still a largely untapped and growing portion of the retirement savings market. Early movers have a head start but can’t compete with incumbent’s resources. Timing in this market is essential and startups are well positioned to grow if they focus on acquiring customers while the economy remains strong (despite a potential correction).

What will be interesting to watch, however, is when (and how) incumbents will respond to this new wave of insurgents. Looking to get ahead, incumbents with a “buy” strategy might look to get into the retirement savings market. When the first robo-advisors entered the market, many incumbent firms seemed unfazed (while others funded a few). Today, every initial skeptic has a robo-advisor strategy.

If history repeats itself, by the time incumbents take notice, it could be too late to stop them.

Blog

Blog|Apr 10, 2019
Wells Fargo

Principal Financial Group is paying $1.2 billion for the bank’s retirement business, which serves 7.5 million U.S. customers.

Michael Thrasher | Apr 09, 2019

Principal Financial Group is acquiring Wells Fargo & Company’s Institutional Retirement & Trust business, a unit that serves 7.5 million customers and oversees $827 billion in assets, for $1.2 billion, the two companies announced Tuesday.

The deal is expected to close in the third quarter of this year, pending regulatory approval. Principal is financing the $1.2 billion purchase with cash and senior debt financing. Wells Fargo can also earn an additional $150 million contingent on better-than-expected revenue retention and payable two years after the deal closes. No other specific terms were disclosed.

The acquisition doubles the size of Principal’s record-keeping assets, making a juggernaut in the retirement space even larger, while diversifying its client base. More than two-thirds of Wells Fargo’s institutional retirement assets are in midsize employers’ plans ranging from $10 million to $1 billion, according to Principal.

“Retirement is at the heart of our business and core to our future,” Dan Houston, the chairman, president and CEO of Principal, said. “This will be a powerful combination for customers, employees and shareholders as we solidify our place as a top-three leader in the U.S. retirement market.”

Shedding the Institutional Retirement & Trust unit, which includes defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust, and custody and institutional asset advisory businesses, is a stark change relative to at least one other wealth manager. Morgan Stanley just reorganized its wealth management business to fold in the recent acquisition Solium Capital Inc., a stock-plan administration company the bank acquired in February for $900 million. It also has been vocal about seeking to make other acquisitions and adding to its wealth management business to help serve the employees of the more than 1,000 companies it provides retirement accounts and stock options to, as plan sponsors seek ways to help improve their employees’ overall financial health.Advertising, Mouse Over For Audio

Rob Foregger, co-founder of NextCapital, a company that provides enterprise digital advice solutions to Transamerica and other financial services firms, said he expects there will be more consolidation amongst recordkeepers. But a well-executed strategy like Morgan Stanley’s can make a retirement business especially valuable. Much of Fidelity Investments’ asset management growth has stemmed from its retirement business, said Foregger, who spent nearly two years as the president and led Fidelity’s retail banking services.

A Wells Fargo spokesperson said the sale of the retirement business to Principal reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximize opportunities within wealth, brokerage and asset management.”

Lazard and Debevoise & Plimpton advised Principal on the transaction.

Blog

Blog|Apr 03, 2019

Published Tue, Apr 2 2019 • 12:06 PM EDT | Updated Tue, Apr 2 2019 • 3:40 PM EDTYlan Mui@ylanmui

Key Points

  • A key House committee passes the Secure Act, a bill intended to increase the flexibility of 401(k) plans and improve access to the accounts, particularly for small businesses and their employees.
  • The bill includes a host of provisions aimed at encouraging small businesses to provide private retirement benefits to their workers.
  • The bill is one of the few proposals with a significant chance of becoming law amid a bitterly divided Congress.

The most comprehensive changes to private retirement plans in more than a decade are gaining momentum in Congress.

A key House committee on Tuesday unanimously passed a bill intended to increase the flexibility of 401(k) plans and improve access to the accounts, particularly for small businesses and their employees.

The proposal, known as the Secure Act, was backed by the top Democrat and Republican on the tax-writing Ways and Means committee.

The bill includes:

  • A host of provisions aimed at encouraging small businesses to provide private retirement benefits to their workers.
  • It allows them to band together to offer 401(k)s and creates a new tax credit of up to $500 for companies that set up plans with automatic enrollment.
  • Businesses with long-term, part-time workers must also allow them to become eligible for retirement benefits.

Several measures that would affect other types of savings are included in the bill.

  • It repeals the maximum age for IRA contributions and raises the age for required mandatory distributions from 70½ to 72.
  • It also expands the use of 529 plans, from only college-related expenses to include home schools and student loans.

“Americans currently face a retirement income crisis, with too many people in danger of not having enough in retirement to maintain their standard of living and avoid sliding into poverty,” committee Chairman Richard Neal, D-Mass., said Tuesday.

The bill is one of the few proposals with a significant chance of becoming law amid a bitterly divided Congress. Elements of the bill have been debated among members for years and enjoy wide support among both industry groups and advocacy organizations. On Tuesday, Neal called the legislation “a major bipartisan accomplishment.”

“The Ways and Means committee is where we find solutions and get things done for the American people,” he said.

The last time Congress passed major retirement legislation was in 2006. The Pension Protection Act focused on underfunded accounts and reforms to that system. Since then, lawmakers have debated proposals to address the popularity of 401(k)s and individual savings accounts.

But those efforts have stalled on their own, said Paul Richman, chief government officer at the Insured Retirement Institute, a trade group. He said the Secure Act aims to “modernize” the system.

“It’s packaging them all into a comprehensive piece of legislation that would address many of these little issues that have cropped up over the years,” he said. “We think that it’s a good chance for Congress to take some positive, bipartisan action and advance this bill.”

The Senate Finance committee introduced a companion bill late Monday. It is expected to pass with backing from both sides of the aisle.

“There’s a lot of pent-up momentum for this, and that’s why it’s so bipartisan in nature,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a think tank. “They’re now getting to the point where there’s momentum to get it across the finish line in both the House and the Senate.”

In the House, Neal said he is also working on a second retirement bill with ranking Republican Rep. Kevin Brady of Texas. He said he hopes the committee will consider that legislation before Congress goes on recess in August.