401(k) robo Guideline tries to woo advisers with new service

Firm is one of a number of robo-advisers looking to capitalize on small 401(k) plans

Aug 6, 2018 @ 3:05 pm

By Greg Iacurci

Guideline Inc., one of several upstart companies trying to woo small 401(k) plans by pitching their relatively low costs and technology, has launched a product that targets retirement plan advisers.

Guideline, founded roughly a year and a half ago, provides retirement-plan record keeping, administration and investment-management services for employers, primarily those with small or start-up 401(k) plans.

Now, the company has debuted Guideline for Advisors, which allows advisers to take over the investment-management component as a fiduciary. Guideline still provides record keeping and fiduciary plan administration services.

Guideline for Advisors launched a beta version July 26 that is currently being used by 200 advisers. The company plans a full launch of the service later this month, according to CEO Kevin Busque, who previously co-founded TaskRabbit, an online marketplace for people seeking help with odd jobs like cleaning, moving and delivery. TaskRabbit was purchased last year by the home goods giant Ikea.

"I try to find a project I'm passionate about and solve it through technology," Mr. Busque said.

At a time when record keepers of defined-contribution plans have been consolidating fairly rapidly at the upper end of the market, small, technology-driven and venture-capital-backed firms are trying to make inroads among small retirement plans, which have largely been neglected by traditional providers and advisers.

In addition to Guideline, similar businesses such as ForUsAll, Human Interest, Vestwell, Dream Forward Solutions Inc., Employee Fiduciary, Ubiquity and ShareBuilder 401k (owned by Capital One Financial Corp.) have come to market within the last several years. The retail robo-adviser Betterment also launched Betterment for Business in 2016.

These so-called robo-record keepers "lift the administrative burden from small firms by streamlining processes and eliminating back office paperwork," said William Trout, a senior analyst at Celent. "Moreover, they are driving down costs to the benefit of both the participant and the small business sponsor."

Guideline has amassed 4,600 small business clients and $670 million in assets after 20 months in business — for an average plan size of $146,000. The company has raised $24 million in capital to date and will embark on another "big round" of funding later this year, mostly for marketing purposes, Mr. Busque said.

Of the roughly 547,000 401(k) plans in existence as of the end of 2015, around 58% — 317,000 plans — had less than $1 million in assets, according to the Investment Company Institute.

While some of the firms mentioned above, including Vestwell, Human Interest, Dream Forward and Ubiquity, support advisers to varying degrees, this isn't the "main play," Mr. Trout said. Guideline for Advisors lets advisers develop model portfolios for clients in lieu of Guideline.

Louis Harvey, president and CEO of Dalbar Inc., predicted that advisers will "need investment advice technology such as this to compete in the new world of contracting compensation."

Mr. Trout said the turnkey-type services of the robo-record keepers provide an easy way for advisers to access smaller plans, but he noted that firms face challenges such as client volume and competition among providers.

These firms could also get a shot in the arm from auto-IRA legislation that has been enacted in several states and is being considered by many others. The measures, which have been passed in five states — Oregon, California, Connecticut, Maryland and Illinois — mandate that small companies offer a workplace retirement plan to their workers, whether a state-sponsored automatic-enrollment IRA program or a 401(k), for example. Oregon's program was the first to come online.

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