Pontera insists no 'gray area' in supporting advice for 401(k) investors

As Schwab follows Fidelity in taking additional security measures targeted at customers who shared their credentials with third parties, the fintech provider at the center of the controversy is insisting that its platform for external advisors to manage investors' 401(k) holdings enjoys broad support from regulators and other stakeholders.

"Any notion that Pontera operates in a gray area is inaccurate," Dave Goldman, chief business officer at Pontera, told InvestmentNews via emailed responses. "Advisors have been managing assets within their clients’ 401(k)s for decades, and the DOL and the SEC have already contemplated this."

Not regulated, but onside

Like many other fintech and middleware providers, Goldman said Pontera does not offer financial advice, guidance, or investment products; that means it is not subject to regulation, though the advisors and firms it works with – including Stifel, Hightower, and most recently signing on this month, Arete Wealth – are either registered federally or at the state level.

"Pontera simply provides a security layer ... [enabling] the advisor the consumer chooses to work with [to] securely connect to held-away accounts," he said, emphasizing that advisors using Pontera do not ever have access to the consumer's login credentials – in other words, the usernames and passwords to their 401(k) accounts. "Advisors who use Pontera ... cannot withdraw funds, they cannot change beneficiaries, and they cannot change contributions. They can use the information to plan holistically for their client and rebalance their portfolio accordingly."

At the federal level, Goldman pointed to efforts to examine advisor-led retirement account management and rebalancing. Among other frameworks, he cited the Department of Labor's Interpretative Bulletin 96-1, which allows 401(k) participants to receive third-party advice without creating fiduciary obligations or responsibility for the plan sponsor; as well as consumer guidance from FINRA on data aggregation across different types of accounts, including IRAs and 401(k)s.

Proponents of data aggregation say it facilitates advisors' ability to provide holistic advice as it consolidates a consumers' financial information in one place rather than being siloed across different platforms. 

"With regards to states, many have issued guidance supporting what Pontera does," Goldman said, pointing to Texas and Rhode Island as the most recent examples. Rhode Island's guidance, issued last month, takes the crucial step of prohibiting investment advisers from using clients' passwords themselves, suggesting they should use a third-party platform that keeps their clients' login details at arm's length.

"A minority [of state regulators] have issued guidance that doesn't implicate or address what Pontera offers," he said. "Consumers expressly authorize Pontera to act as their agent with respect to their own personal accounts, and their account credentials are secured and encrypted, never visible to the consumer’s financial advisor to ensure added security."

Educating plan sponsors

As companies have shifted from defined-benefit to defined-contribution plan models over the decades, Goldman said plan sponsors have acknowledged the need to support workers in getting retirement-ready, largely agreeing that financial advisors are a useful source of that support. He also shared feedback from both plan sponsors and retirement plan advisors indicating a desire for participant-friendly plan providers, as financial stability can have positive knock-on effects on employees' productivity and sense of security.

"[Plan sponsors] are beginning to examine how lack of choice or access to third–party advisors could impact fiduciary responsibility in unanticipated ways," Goldman added. "Sponsors tend to respond positively when shown that technology like Pontera can enable professional advice safely, transparently, and in a way that enhances participant outcomes without compromising their fiduciary responsibilities."

In contemplating financial consumers' rights to access their financial records under Section 1033 of the Dodd-Frank Act, the Consumer Financial Protection Bureau noted how financial service providers can choose to let third-party tech platforms access participants' accounts through application programming interfaces, or "APIs," which are essentially digital connections that both parties agree to set up. But if a provider refuses to form those linkages – as Fidelity has reportedly done despite repeated requests – Pontera maintains that shouldn't preclude consumers from accessing their information and using it to build a better future for themselves.

"Where institutions have not yet implemented standardized, secure APIs, secure, encrypted credentialing remains the practical alternative," Goldman said, referring to how his firm masks 401(k) investors' login credentials so that advisors would remain blind to them. "The inability - or unwillingness - to offer an API does not preclude people from exercising those rights."

Despite multiple reports of Schwab notifying users that it does not allow credential sharing and requiring them to reset their login credentials, Pontera says Fidelity still "stands alone" as its clampdown has impacted "thousands of consumers." It's unclear at this point how far and wide Schwab sent out its notification, though by all accounts it has not blocked consumers out from their accounts.

While plan sponsors bear no fiduciary responsibility for participants' decisions to get advice independently outside the plan, Goldman confirmed that collaboration and sponsor education is a point of focus for Pontera, specifically talking about the value of participant-level advice as well as how its technology supports proper oversight, permissions, and audit trails.

"Ultimately, our role is to bridge the gap that blocks holistic financial management to produce better financial outcomes for employees," Goldman said.