Inside Vestwell's $70M funding and retirement deal with Morgan Stanley

Financial services firms are betting on a big future for Vestwell, continuing to pour millions of dollars into the fintech.

This week, the company announced its Series C funding round, attracting $70 million from the likes of Wells Fargo Strategic Capital, Fin Venture Capital, Goldman Sachs, Morgan Stanley, Manulife, Point72 Ventures and others. The latest funding adds to more than $42 million in prior funding rounds and seed capital.

Today, Morgan Stanley also announced that Vestwell will be a retirement plan record keeper available through the company’s workplace business.

Vestwell recently added its first managed-account option, which uses Franklin Templeton’s Goals Optimization Engine. The company will also soon take over as the record keeper for the OregonSaves auto-IRA program, through its partnership with BNY Mellon, after which it will serve about 20,000 plans, according to figures it provided.

“We’re playing the long game in how we’re going about this, and it’s all been paying off,” Vestwell CEO Aaron Schumm said.

The company, which employs 140, is hiring “across the board, but primarily in product and engineering,” he said. The firm’s headcount has more than tripled in about half a year, he said.

“We’ll be growing more and more. We have a healthy roadmap.”

The company will be developing more educational content for customers and is increasing resources to keep building out its payroll systems connectivity, he said.

The recent funding “gives us a lot of cash for several years.”

Investors said they see potential in the expansion of employer-sponsored retirement plans. Numerous states have auto-IRA initiatives and will require small businesses to provide some type of retirement plan to their workers, and many might look beyond the option provided by the state.

“There are more than 31 million small businesses in the U.S., and many of them have historically experienced challenges in providing retirement benefits to employees due to the administrative burden and high costs,” said Tom Richardson, head of principal technology investments at Wells Fargo Strategic Capital, the announcement.

Vestwell is planning to expand its record-keeping business to include other workplace savings options, “such as 529s, HSAs, emergency savings and IRAs,” the announcement stated.

In addition to its recent investment in the firm, Morgan Stanley indicated that Vestwell is now a record keeper in its Work Retirement Solutions service. That business, which includes 2 million retirement and financial wellness participants and 5 million stock plan participants, provides access to multiple record keepers that Morgan Stanley advisers can help select for retirement plan sponsors.

“Our strategy is to continue to evolve our partnership model to bring folks like Vestwell to the forefront,” said Anthony Bunnell, head of retirement solutions for Morgan Stanley at Work.

The relationship with Vestwell allows the company to reach new markets, including tech businesses that favor fintechs for their retirement plans, due to automation and other features they can provide, Bunnell said.

[More: J.P. Morgan partners with Vestwell to expand 401(k) business]

Though Morgan Stanley has been in the retirement plan business for decades, through its advisers, its more recent workplace retirement service has built out in part thanks to its 2019 acquisition of Canadian stock-plan administrator Solium Capital, as well as its deal last year to acquire ETrade, Bunnell noted.