John Hancock goes for startup 401(k)s in deal with Vestwell

John Hancock sees a big opportunity in the small 401(k) market through financial advisors, today announcing a forthcoming plan service in partnership with Vestwell.

That option, called FutureStep, is being rolled out early this year and caters to small employers, third-party administrators, and wealth management firms.

There are projections for 30,000 new retirement plans forming each year for several years, due largely to state retirement-savings initiatives and tax benefits that are encouraging small businesses and startups to add 401(k)s, said Jack Barry, head of product at John Hancock Retirement.

“It’s almost as if a tidal wave of business is coming our way,” Barry said. “It’s a once-in-a-generation opportunity.”

Of course, the company already has a large, established retirement plan business. John Hancock works more than 57,000 retirement plans, representing about 3.2 million plan participants and $238 billion in assets under administration. But, like other incumbents in the consolidating field, partnering with a fintech like Vestwell is a fast way to expand into the startup plan market.

And also like many of the well-established retirement plan record keepers, it works with startup plans through third-party administrators, although such options are not necessarily the most efficient or cheapest, said Fred Barstein, founder of The Retirement Advisor University. Working with Vestwell, whose technology is in some cases decades newer than that of big record keepers, is simply efficient, he said.

“It takes a long time [to work with small plans], when it’s older clunkier technology. When you change one thing, it affects 1,000 others,” he said of established record keepers broadly. By contrast, pairing with a fintech “is clean,” he said.

Across its relationships with advisors, employers, payroll companies, financial services companies, and governments, Vestwell’s services extend to 1.5 million people and 350,000 businesses, representing $30 billion in assets, according to the firm.

That company has grown quickly in recent years, as state retirement programs, including automatic IRAs and coverage mandates, has prompted smaller employers to consider 401(k)s for their workers. The growth in 401(k) plans across the country has been driven largely by financial advisors, with more than half of plan record keepers reporting that most of their new 401(k)s have been sold through them, recent data from Cerulli Associates show. That firm projected that there will be more than a million startup 401(k) plans over the coming decade, with wealth advisors driving much of that growth.

In many cases, that will come through advisors who occasionally offer 401(k)s to wealth management clients who have small businesses. Such advisors, who are not specialists in retirement plans, are part of the key market for services like FutureStep, Barstein said.

“The explosion [in new 401(k)s] is coming, and the traditional record keepers have to figure out how they’re going to handle it,” he said. “This is one way to do it.”

Additionally, Hancock sees potential with retirement plan advisors who focus on medium and large plans, in that case offering a new, easier option to work with the smallest plans, Barry said.

“This is really efficient and designed to ensure the advisor plays a central role in the plan,” he said.