vestwell 401k

#ItzOnWealthTech Ep. 79: The Ultimate Tech Stack for Retirement Plans with Aaron Schumm, Vestwell

“Our goal is to make sure that every single person that touches this platform, irrespective of who it is, if it’s an advisor, if it’s an asset manager, if it’s a company, if it’s the employees of those companies, every person has to be better with Vestwell than without. And that’s something we focus on every day.”

Aaron Schumm, CEO, Vestwell

After Aaron Schumm graduated with a degree in finance, from the University of Illinois, his very first job was as a portfolio analyst, reviewing the investments held by corporate pension plans. Now, 20 years later, it seems as though he’s come full circle with his latest startup Vestwell that wants to automate all the underlying tasks of companies that are launching retirement plans, as well as helping the advisors that work with them.

I spoke to Aaron about the trade-offs that firms have to make between user experience and cost, some of the impacts he’s seeing from the massive industry consolidation, and how he wants Vestwell to be the underlying tech stack in just everything that happens in the workplace, and a whole lot more on this episode of the Wealth Management Today podcast.

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Companies Mentioned:

Topics Mentioned:

  • Background of Vestwell [04:45]
  • What’s Changing in the Record Keeper Space? [08:40]
  • MEPs & PEPs [13:30]
  • Balancing User Experience vs Cost [19:30]
  • Mergers & Acquisitions [26:30]
  • Future of Vestwell [40:30]

Complete Episode Transcript:

Craig: I’m happy to present our guest on this episode of the Wealth Management Today podcast is Aaron Schumm, founder, and CEO of Vestwell. Aaron, welcome.

Aaron: Hi everyone. Thank you for having me, happy to be here.

Craig: Aaron, it’s always a pleasure to have you back you, I think you’re the most popular guest on this podcast.

Aaron: Really?

Craig: Definitely.

Aaron: I don’t know what to say about that. I feel awkward.

Craig: You have fans man, screaming fans.

Aaron: Well, it’s nice of you guys to have interest in hearing what I have to say. So I appreciate it.

Craig: Your episode where you were a Winner of WealthTech, and congratulations again on that honor of being a Winner of WealthTech was very popular.

Aaron: Thank you, I do appreciate it. And I use the caricature from it often.

Craig: One of the bonuses, one of the benefits, free caricature. So I’m in New Jersey. Aaron, where are you calling from?

Aaron: I am in Westchester, just north of the city.

Craig: Lovely. Yeah, we’re all just sitting in our houses doing our thing.

Aaron: Know we moved out in October of 2019, so we are purely lucky on the timing of it and I’m forever grateful. I never thought I would like the suburbs as much as I do.

Craig: Sometimes it’s better to be lucky.

Aaron: Exactly. But it’s good, we’re all living in the virtual world now, so here we are.

Background of Vestwell

Craig: We certainly are. So Aaron, give us the 30 second elevator pitch for Vestwell.

Aaron: Vestwell the underlying infrastructure and architecture to power workplace savings and investing appliance. Starting with 401ks, 43Bs, anything if you think of the digital landscape and and how 401ks have been run, we are resetting the bar, with the front to back architecture stack that is completely reinvented to power these retirement plans. We work through traditional providers, I think financial services and payroll companies, you’ll never really hear of us outside of the folks in the industry because it was always white label, right, we’re the engine inside. So it’s been exciting, it’s a very mature industry, to see people really just honing in on how they need to rethink how this industry is going to work in the future has been exciting for us.

Craig: Yeah. It’s crazy how things have changed so quickly. And I mean, did you guys see a big uptick in business when the pandemic hit or was it the opposite?

Aaron: So when it first hit in March, beginning of March in New York, we went remote quickly. Thankfully being a tech company, we were already set up to be remote. You know, most of the team work from home probably at least once a week anyway. So that was flawless, but things paused for a minute more I think on the financial services end of the equation than the folks that we’re catering to, because they have armies of people that work with them and for them, they were trying to get up to speed. There was one company, who was like, you know our average age of advisor is almost 60 years old and most of these people haven’t even logged into their laptops before. So they’re trying to get people up to speed. So it slowed down for March and then April, we just kinda started flying again. In the last three, four months, one after the next has been our best month ever since existence. We’ve had the best quarter to date, best months. And the volume just keeps just leapfrogging itself. And a lot of that I think is just driven because people are looking at saying, listen, I gotta be digital first. I’m not going to be in client’s offices or prospective client’s offices. So how am I getting engaged with them the most natural way? And it starts in the digital world and that’s what we do. So that’s been exciting to see.

Craig: Yeah. I’m glad to hear that. In a bad situation at least some good fortune has come out of it.

Aaron: Yeah. We just I’ve been fortunate from the standpoint where we’ve just procured some of the largest contracts, two of the largest contracts we’ve we’ve ever done as an organization. Large enterprise deals that really just transformed Vestwell forever. The individuals, the CEOs that run those organizations, one in particular, I can’t say their name, but he was just like, listen, this stuff happens in the world. We’re ready for it. He’s like, it’ll take us a minute to get our feet under us in kind of the new world we have to live in, but he’s like, strategically we’re already going and none of that’s going to change. So if anything, I think we’ve seen the large enterprise relationships that we’ve established get accelerated because now there’s no other choice.

Craig: There isn’t. It’s either adapt to digital, or perish, or get snapped up by someone else. So what are you seeing? I mean, you guys are obviously heavily in the record keeping world, retirement world, what are some of the trends you’re seeing? What’s changing in the record keeper space?

What’s Changing in the Record Keeper Space?

Aaron: So it depends on who you are, and what the organization focuses on. At Vestwell we built basically a record keeper list record keeper. So we’ve flattened the stack, we’ve removed any legacy. We’ve brought it closer to how people engage in any other facet of their financial world. And we’re seeing a couple of things. So if you’re in the asset management side of the equation or an advisor obviously offering the investment services to plans and their participants, their employees there’s definitely been the gravitation towards managed accounts. So you’re seeing people saying, listen the managed accounts that you know incredibly well right in the wealth world are now coming over to the retirement world and the defined contribution space. So we’re seeing a big gravitation to that.

We actually have an exciting thing that we’re rolling out around that in the platform itself, that’ll be coming out here in the first quarter. And what it’s doing is effectively replacing the target date fund world. So if you think target dates, you know been a boom for a long time and continue to grow. But now you’re kind of seeing that flatten out and you’re seeing a shift into the managed account world. Because as an advisor, right, I can look at it and say, I can offer this to the employees within a plan and then carry them into a wealth account over time, after they roll out, they leave their company or roll over and not have to go through an arduous process to reevaluate how they’re investing.

And as an employee, I can look at and say, I actually have a custom investment model for myself within the plan. And I can use that wherever I go in life. So that I think is a trend that will be around for a long time. Again, it also bleeds into managed outcome to guaranteed income, where you have kind of a soft landing at the end of your career as you’re getting ready to retire, then flipping that into a guaranteed income type structure. And all of those are kind of coming into light. More broadly the gravitation towards reinventing record keeping is getting stronger and stronger. The survey we just did actually echoed what the sentiments we already thought, and that’s why we’re actually here as a business.

But that’s really been exciting because record-keepers have been neglected. And you’ve spent a ton of time in the wealth world and you see all the evolution there and what’s happening. But this side of the industry is really kind of just been left and forgotten about to a degree. And now people are like, Oh, wait, I need to reshape how I actually engage with people because we always say, there’s no better place to establish a relationship with someone than in the workplace. And then that becomes your introductory point to anything else you do, kind of the cradle to grave scenario as a financial advisor where I can engage with someone at the earliest point in their career and where they’re most “captive”, and then start to walk them into whatever happens in people’s personal lives and where they need to be. So those are all trends that we’re seeing and then we’ll see more things around ESGs. Those sort of investments being offered as default. We’re going to incorporate some ESG strategies here shortly. We have a couple products on the shelf already, but what we’re looking at more closely you see a lot. We get asked often around like Bitcoin and incorporating crypto type investments into –

Craig: Yeah man, when are we getting crypto in our retirement plans?

Aaron: Soon actually. We’re actually going to incorporate a strategy here soon. It’s a Bitcoin strategy. Obviously it can’t be the default, but for people that want it, Hey, sure you got it. We understand, and we’re not we’re not going to be the 338 asset manager on it, take the liability for it. But if someone wants it, we can make it available. And then more broadly you see, like the pooled employer plan and the in the multiple employer plan coming to light where it’s kind of different constructs trying to achieve somewhat of the same thing and giving scale to these larger organizations that can’t go down market because they just don’t have the technology to do it, or don’t have the ability to operationally support it. That’s gonna come into play here next year. So a lot going on.

MEPs & PEPsvestwell 401k

Craig: Cool. So your mention there leads us right into the survey. So can you explain what the difference between the multiple employer plans and the pooled employer plans for those of us playing at home who don’t know those terms?

Aaron: Hopefully I don’t reverse these, but the overall idea is it’s creating a plan contract, a plan design with a set of investment elections and matches and so on where everyone is pooled. You have a leading sponsor, someone that acts as the plan sponsor across the entire MEP structure, and what those do is everyone kind of piles into there. Everyone gets the same plan. So it’s been around for 20 plus years. You see actually, if you really kind of look at it goes all the way back to like the pension era, and how those work.

But in the multiple employer plan, what happens if you think of like a PEO, like a TriNet or an ADP or something like that where they have, oftentimes those are MEPs that you become part of when you’re invested within their retirement plan. Now there’s the open, the concept was an open MEP and closed MEP, which talks about who can actually come in and how those get administered. You can now add more people that are outside of the industry or outside of a structure. Where before we would just say, okay, only lawyers can be a part of this MEP, law firms, right now it’s expanded where you can add different types of companies into that.

So that’s happening, and they do that, because it’s supposedly easier for people to administer. I argue that differently. I don’t think it is much easier when you look at if you have multiple payroll providers and that you have to incorporate. If it’s just one payroll company. Yeah, sure. That’s fine, because everyone’s going to the same thing. But if we have a thousand companies and a thousand payroll companies you have to connect to and manage that it’s not that it’s not as easy as people think.

Craig: Gotcha.

Aaron: On the backside of this, the PEPs, as well as the match goes on the 5500. Instead of having to do a 5500 IRS filing for every company, they can do one filing. So you basically do an aggregate filing around it. Which does make some things somewhat easier. We’ve kind of taken a different approach, we automate a lot of the stuff that doesn’t add a lot of value but can, but is necessary, right?

Maybe you think of like payroll connectivity and eligibility, that’s what we focus on. We have, I would argue, the best payroll engine out there. And the ability to aggregate and distill information and look for anomalies, calculate eligibility in microseconds and getting those things right up front, eliminate all the downstream, operational aspects that kind of snowball into these large headaches for folks. And we catch it all up front, and in doing that things get streamlined.

So the way I look at it, we can offer an individual, a retirement plan an individual company retirement plan, but it’s cheaper than any MEP you could ever find in the marketplace. That’s customized for them that allows them to do whatever they want. And grow and change and augment the plan as they need as the company evolves. So from our state now, will we offer MEPs? Sure. Yeah. We have a couple of MEPs that are coming on now. We’ll have some PEPs out there, like, it’s fine. We don’t, we don’t really care. We just want to be the engine to help facilitate and change the experience overall and give people what they expect in today’s world.

Craig: Sure. And in your survey, which is called the 2020 Retirement Trends Report, which I’ll put a link to on our website, you’re showing that 33% of advisors anticipate incorporating these employer plans into their practice. Is that number, low or high, or just about for the industry?

Aaron: I think it’s, it’s, it’s a little high, and here’s why. So as an advisor, if I’m a financial advisor and I’m engaging with a business, I don’t see why an advisor would want to push a business into a box that maybe they don’t fit into. And just to alleviate, you could say, well, there’s better fiduciary coverage, operationally it’s better and that’s all fine. But as an advisor, their advice should be providing the best plan, design and structure for that business and the employers. Because risk is designed for the benefit of employees, the protection of those employees. So I think people gravitate towards this because they think it’s the new, I guess the topic of the day or the hot item that people want to say, yeah, I can do that, check.

But at the end, when we see this play out a few years down the road, I don’t think people are going to, they’re going to look at it and say, yeah, I don’t get that much off it. So I think it’s a little high and if I’m an advisor, I’d want to give my client the best advice, the best plan structure I can. And that’s not saying some people don’t fit in that box. There’s those opportunities. And I think there are opportunities too for advisors to say well, maybe on the stand up a couple of PEPs of MEPs myself as a provider to my clients, and then decide be the air traffic controllers to where they should land.

Balancing User Experience vs Cost

Craig: Seems to make sense, it gives them more options. So let’s move on to another area, which I wanted to cover on the sponsor side. So it seems to me that user experience and cost are running neck and neck, when it comes to choosing a retirement plan sponsor, why do you think that is?

Aaron: Well, costs would depend on who’s who’s going to bear the actual fees. And it could be the sponsor themselves, it could be the participants, or it could be split. What costs, especially in a cost conscious world, you want to make sure you’re getting the best value. And I think that also ties into the experience, right? As a sponsor of a 401k plan and we have this awesome 401k plan through Vestwell, as long as that flows well, and I have a great experience as the HR person or CFO who’s ever managing the payroll to get ingested into the platform and the participants actually can understand what they’re doing and engage in an experience that makes sense for them without having to be a financial expert, it alleviates the headaches for the sponsor as well as the participant.

It’s kind of funny. We’ve seen a lot of instances where companies have grown, where they’ve come through like a payroll relationship we have, and they don’t have a financial advisor. Most plans do, 93% of retirement plans have a financial advisor attached, just industry statistics. And that’s actually grown over time. It’s gone from 68% back in, I think, 2008 to 2019, we’re at 93%. Fidelity does a study around this stuff every year. And you can see that. I think it shows that advisors aren’t going anywhere. They’re becoming more relevant in the 401k world, but for some businesses, not everyone has a financial advisor. And then they grow and all of a sudden the HR person is getting a knock on their door or phone call or meeting request to talk about what they can do in a 401k plan.

The HR person was like, listen, I got enough on my plate. I don’t want to do this. So that’s where the experience I think comes into play. And then we often get asked like, Hey, do you have a financial advisor you could introduce us to? Absolutely. We work with thousands. So that I think it just boasts, the fact that you want to create an experience you want to alleviate, you want to allow people to make confident decisions without having to be experts in that field. Employees of any business, they shouldn’t have to be 401k experts or investment experts, so we can solve for that we’re doing our job.

Craig: So you mentioned something interesting that people are coming to you, Vestwell, the provider of the underlying technology and saying, Hey, do you have an advisor that we can talk to? And that gives you a whole referral stream to your advisors, which has been an area that custodians have kind of tried to make their own like, Hey, join our neural network. We’ll give you referrals. Is that something you’re seeing as a benefit of advisors coming to the Vestwell network?

Aaron: We’re not doing it as a money-making thing. I know there are payroll providers that use this as like a revenue stream for them. We’re just doing to help businesses. Most of our businesses are advisor-led, advisor-driven probably aligning with the statistics of the industry as a whole. But you know, not everyone’s the same or recognizes that. Advisors do create things and making sure that they’re tapped into this world where there’s a need, we try to find a fit for them. So we do it, but again, it’s not like a business initiative that we have.

Craig: So can we talk about the misalignment of rankings between sponsors and advisors when it comes to measuring success where they seem to have different ideas of what a successful plan is. Can you talk about that a bit?

Aaron: Well, let me start with the sponsor. Sponsors think success is, and this is my opinion, is when things don’t go wrong. You never want a retirement plan to be a headache for someone. The challenge is retirement plans complicated, right? There are so many moving parts in these things. And even as you know, we built this platform, and we’ve been fortunate because myself and a lot of folks on our team, have been on both sides. We’ve been on wealth and retirement over our careers which you don’t see often, which is kind of interesting, but in seeing how things play out on the wealth side, and then looking at the complexities of retirement plans and all the nuance around just eligibility, and the complexities that people have put in place.

Now, I think some of it has been made overly complex, whether because people wanted to scare people into doing certain things or laws just got in the way. So kind of unwinding those things and distilling it, and back to a point where we were trying to take the complicated stuff that’s low value add and streamline it becomes important. So if you do that for a plan sponsor, who’s ultimately the client right, they’re mutual clients at the end of the day, you want to make their life easy. You don’t want to be like, Oh, I got payroll again. Then I gotta go do this, and this is going to take me two hours to process. You want it to happen right away and as easy as possible.

So we focus a lot of that and I think that’s important. On the advisor side, it depends on the advisor and how far they want to go into the equation. But advisors just want to make sure their clients are taken care of. Because if they’re not, it’s a reflection on the advisor who recommended to use this sort of structure or sort of program. So I understand why you, where the respective sides are coming from with it, which makes our job that we have to solve for it all. Keep, the plans clean, keep them happy, keep them moving, create the experience you want and make sure it doesn’t get screwed up and then make sure that the advisor’s clients are happy and getting what they want. And then then we all win. It’s something we talked about all the time as a business, right? Our goal is to make sure that every single person that touches this platform, irrespective of who it is, if it’s an advisor, if it’s an asset manager, if it’s a company, if it’s the employees of those companies, every person has to be better with Vestwell than without. And that’s something we focus on every day.

Craig: That’s awesome. I love to hear that kind of stuff. So let’s talk about, something I know you really want to talk about, which is industry consolidation and all this stuff going on, all the mergers, all the acquisitions, all the money flowing around. What’s your take on that? And last year we had a fair number, like Aspire deal, there was stuff going on last year, then this year we’ve had Empower snapping up companies. What do you make of the current – up until now – acquisitions and what do you think is coming down the pike?

Mergers & Acquisitions

Aaron: Yeah. So, it is an industry of scale in many ways, right? So that’s why I think you see a lot of this consolidation between the Empower acquiring MassMutual and Personal Capital and probably $3 billion plus they threw at those two combined transactions and saying, Hey, you know what, we’re going to take this business and we’re going to create scale out of it. Now, knowing how the underlying tech stacks are built in some of those, it’s not as easy as people think. But it’s interesting, right? It shows that people are saying, Hey, we’re going to do this, and we’re going to try to reinvent how we engage with people. I think Empower has kind of set the clear path and there a lot of ex-Fidelity execs there, right, who are like, Hey, we want to go after and service these clients directly.

It’s actually played well for Vestwell, frankly, because we’re not there to compete with advisors where some of these other folks actually outwardly are. We’re here to help advisors engage at a new level. So I think we’re going to see that, those sorts of things happen, and Ascensus is the backend record keeper for Vanguard, but they’ve also purchased, I want to say 40+ different third-party administrators and have incorporated that into their future plan offering. And that’s, again, another scale thing, like we’re just going to grab all of these things.

We’re at a different stage and a different point, but we’ve taken the approach of saying, Hey, we want to build a technology stack that allows anyone to run their business, and we can run a highly profitable, scalable business with pure technology. We don’t need to go be an asset manager, and offer some assets, stable value product or something to create additional revenue. We don’t need to go offer, layer in a bunch of probably non-value-added services or fees to create a profit. We look at it like, what can we build to optimize this and run a highly scalable, profitable business on its own? And then we win, right? Interestingly, we did get approached by a couple of PE firms about acquiring MassMutual. So, Hey, could we go acquire MassMutual and put that on Vestwell? And the short answer is yes, they’re running two underlying legacy technology stacks.

But we ended up not pursuing heavily because we didn’t want the insurance side of the business. Because we we just want to run the tech, and they didn’t want to separate the insurance side. So everyone has their own vision of where they want to be, but there’s a lot of demand. I think what we’re seeing as a whole, and we’ve been, again, the benefactor of this is the players in the industry who have been in this industry for a long time, the traditional kind of record keeper, TPA’s, they’re running on legacy tech stacks, which keeps them out of the small, mid end of the market, at least doing it in a highly scalable, profitable fashion. And they’re looking at their business and where they can say, okay, we’re going to be in this business for the long haul, and if we are, what we’re doing today is not going to work two, three, four, five years down the road.

And it’s going to be kind of a slow walk towards desk if we keep going down this path. It’ll be slow, but it’s going to happen. So we’ve seen this big attraction, us saying, listen, we have to change our game. We have to change how we outwardly look because the shelf space is getting smaller. We have to stand out above the rest and we have to do it better than anyone else. And we look at this like it starts with the technology stack and then layer in what other investment management services folks want to focus on, we want to be the engine to do that.

So, it’s exciting to see. I mean, I always joke with people when I interviewed people that were hiring like, why do you want to be in a retirement space because it’s boring, it’s retirement. But it’s anything but. The whole country is looking at this and saying, this is the most meaningful thing we could do to help close the retirement savings gap for the working American. It’s the one thing we can control, so let’s fix it because who knows what’s going to happen with the folks on Capitol Hill and what they’re going to decide on, but this thing we actually can control and help drive a better outcome. So I think people want change and now technology has evolved to the point where yeah, we can do it. We can look now buy/build/partner is always the question, and you see it all.

Craig: Your phone must be ringing off the hook with PE firms looking to give you money, what do you say to them?

Aaron: How big of a check do you want to write?

Craig: Does it include a yacht?

Aaron: No, I don’t want a boat. Yes, we get an incredible amount of inbounds and you know, multiple day, and I usually punch them in the sense we’ve got out heads down and going. There are a few people that I really admire, respect and wanna engage with so we have conversations and build up rapport over the years. There’s like pent up cash, right? There’s a lot of as they say, dry powder that needs to be deployed and people are looking at this saying, listen, we’ve been sitting on things. PE firms in growth stage I would put us in like the growth stage world, they’re looking at us saying, listen, we are starting to do deals now, we have a lot of cash we brought into these funds, we have to deploy it. And they’re anxious to do so.

Fortunately for folks on my side of the table it’s easier than it ever has been. And kind of joking, or we don’t have to get on planes and run the circuit out in whatever Palo Alto or wherever you end up looking for for venture capital, people are now coming to you and you can sit here on a Zoom and do a capital raise. Now we haven’t, we’ve been also the fortunate benefactor of being well-funded and not needing to go look for cash and kind of having cash as long as we want. But you know, that being said, things are exciting right now and there are some conversations that are maybe worth having. So we’ll see. I’d rather be in this type of environment than back in like 2008 where if you were in financial technology, no one would even open the door to give you a meeting.

Craig: Fintech didn’t have same cachet back then, as it does now.

Aaron: Yeah. There wasn’t even FinTech. It was financial technology and services. I was a little nervous right into where things would play out just as business. But the FinTech world is not going anywhere. Now everyone wants to be classified as FinTech but a lot of companies are not true FinTech. But either way, I’d rather have the attention, the spotlight put on this segment than no one looking at it.

Craig: Oh, definitely. I mean, I think your segment in general has been increasing people are looking more at how to disintermediate these record-keepers and how to automate it, but you were one of the first ones. I mean, I know people were calling you a robo-advisor for record keepers and retirement.

Aaron: Yeah. It’s funny. I mean, I don’t really care what people call us. I just want them to use us. You could label it whatever you want. But I look at this, like, we want to be the underlying infrastructure, foundational architecture that powers anything happening in a workplace. You know, one of the other trends that talk about that kind of plays into this is like on the state plan side, you look at the state mandated, payroll deducted retirement programs that are being put in place. So, Oregon was the first to rollout, I think they call it, Oregon Saves. Oregon Saves is if you’re a business of over X number of employees I think in Oregon, it’s 15 if I remember correctly, the states have different mandates. You’re required to offer your employees a payroll deducted investment program. They do it in the form of IRA today. Illinois was the next that followed suit and then California, Connecticut just passed and Maryland has put an initiative in, Colorado is here shortly as well. But they’ve put these things in place, because they’re like, we have to give something to employees otherwise we’re all gonna pay the price later on. And thankfully a lot of these folks are turning to Vestwell. Publicly, I can say we won Connecticut, we’re going to be running that state IRA program. And there’s some other things that we’re talking about putting in place there.

And then there’s two other states that it looks like we’re going to pick up here and it’s done through our partner who is also an investor or an affiliate of BNY Mellon, but BNY Mellon is, you know, we’re the engine behind the scenes. And that’s all we think about it. It’s like, we just want to be the engine to facilitate this stuff, regardless of who, who the business is, who the organization is that needs to offer this, we want to be the underlying pieces that make this thing really hum.

Craig: Well, congratulations on the Connecticut deal.

Aaron: Thank you. Yeah, it’s exciting. I think it’s cool that just the states are taking the initiative, and I think it’s just the beginning. Things are going to evolve, as far as they’re gonna look at IRAs and maybe it becomes 401ks and open MEPs and all of this, these kind of structures that I think more beneficial to employees in the long haul, but it’s a great starting place that they’re doing this. And we’re thrilled to be a part of it.

Craig: What do you think of getting rid of all these crazy acronyms and having just one account, why do we need so many?

Aaron: I mean, it would be awesome. But the challenge is going to be on the legislative front to get these registration types structured, or aligned. That’s… could it happen theoretically? Yeah. Will happen, I don’t know. I always referenced the Australian superannuation structure. I really like that structure and I wish we would go that route. I do think it could happen at some point and I think it’s 10, 20 years down the road, but it could actually come to bear if you can get enough people around it. And one thing I think that’s encouraging because of our state relationships, we get the pleasure of kind of engaging with a number of these folks at the treasury levels and whatnot of these states, as well as lot of the folks on Capitol Hill, and they’re all starting to talk and bring ideas together and say, you know what, maybe we actually just create kind of one overall blanket mandate. It still has to be approved at each respective state within each state, but they’re kind of designing saying, okay, well, let’s take all this knowledge as best practice and put this all together. So you see this in the medical world often, right? It’s like, okay, let’s start sharing ideas and figure out how best practice works. And we’re seeing it happen in the financial services side, which is super encouraging that people are willing to do that. So I don’t know what version you want to call it, but it’s like FinTech 2.0 or whatever.

Craig: Yeah, who controls these versions anyway? Who’s in charge of that? I want a new version.

Aaron: I don’t know. We rolled out Vestwell 2.0 this year, which was our reinvention of the record keeping construction, or deconstruction rather where it’s like the record keeper’s record keeper. That’s been exciting. And frankly, in our world, I look at what we’ve built as this is the new bar, right? This is what I truly think everyone in this country will be running in this construct. Hopefully we’re the engine actually doing it, but it is what brings it together. And it actually brings it closer to your kind of world of like, couldn’t it just be one account? And we can run a 401k and an IRA in an HSA and whatever, a taxable on a 520, we can actually run all of those in one seamless architecture without having to run three disparate systems and put a layer on top, ours is just one. And we’re connected to the payroll, right? So if you think of, we can actually allocate the next best investible dollar out of your paycheck, but before it ever goes to your bank account, which is powerful, very powerful. And we have all the underlying data on this. And so the future of where we’re going is we have all the payroll connectivity, we add payroll connections is one or two a month right now, we’ll continue to accelerate that. And then we will just start to place it in the most appropriate bucket based on who people are and what their needs are. It’s cool that we can do this in today’s world. You couldn’t do this 10 years ago.

Future of Vestwellvestwell 401k

Craig: Very cool. Yeah. One thing before we go running out of time, I want to be cognizant of your time. One thing you mentioned, which I just highlighted here on my notes, you said we, meaning Vestwell, “we want to be the underlying technology for anything that happens in the workplace”. That’s a bit of a different mandate than what I thought you guys were doing. So where are you going with this? And what do you see the future of Vestwell in couple of years?

Aaron: And so it kinda is that, as I just mentioned, when we look at it like 401ks, 43Bs, that’s flagship. But I actually look at this through the lens of just infrastructure and architecture. And just remove the nuance of account type or plan type. That’s just a logic layer. And so if you look at it in that you have logic layers and then you have architecture underneath, and the logic is discerning what, where it goes. That’s how we think about it. So 401k is yes, absolutely. First and foremost, but then if you think a Roth K versus a 401k. And we do both Roth, 401k. There are times where it makes sense that you should be in a Roth and you shouldn’t be in your company’s 401k. And based on how much you’re making and your tax brackets and so on. If you think about that, and we have all the information on the individuals that are coming in, we know who they are, birthdays, how they get paid, how much they get paid, when they get paid, what industries they’re in where they are regionally, you can use data points to help make better decisions for them, or guide them. Say, listen, I know you’re going into a 401k, but it actually is more beneficial for you to be in a Roth K, here’s why. And then allocate those dollars into those buckets, and feed that information back into a payroll system.

So they know where to pull from and how it gets taxed. Then you have HSA. Do you have a high deductible insurance plan at your company when you enroll? Yes. Okay, great. Hey, you know what? You should probably add an HSA. So let’s look at that. And then through account aggregation, we understand that these other IRA accounts sitting at wherever they are, you could roll those in. So you have three buckets, right? You have three account types, you have HSA, 401k and IRA. Then you can look at an individual, same sort of data points. What is the most tax efficient place for each next dollar to be placed? Based on the plan design, how much is matched. All of those things. So that’s where it kind of comes into overall workplace. I don’t want to be an insurance provider, something like that, but again, we want to be this infrastructure that can place that. That’s, I guess how the path we’re marching down and we’ve spent the last year and change, just focusing on that underlying architecture, and then we’ll continue to layer additional logic points on top of that.

Craig: That would be awesome. I’m really excited to see that. I mean, when you see things like using data, leveraging data to help employees make better financial decisions, I’m all for that. That’s a super goal.

Aaron: I will say this, I’m very, very encouraged by the level of education or the just intellectual curiosity that we see across employees today. They’re taking it upon themselves to figure out what’s best. And the more seamless and fluid we can make that happen the better, and that’s when we’re doing the service we should be doing in financial services. So that’s encouraging, but there are a lot of people who just don’t know. They think a 401k is like their bank account they’re just like, Hey, I want to go this and let me get my money. And we’re like, well, it doesn’t really work that way. There’s penalties that you’re going to get hit with if you do this. So helping people to get educated around those will always be the case. We just try to surface more around it and our team works super hard on it. We kind of have this overall bucket theme, one of our OKRs is centered around “where’s my money?”. And it’s all about where’s my money. And how do you actually show these things and create confidence and understanding of what in the decisions people are making with that.

Craig: That’s fantastic. I wish you guys the best of luck, I’m really a big supporter of Vestwell, and everything you guys are doing. And I really appreciate you being on the program today, Aaron, thank you so much.

Aaron: No, thank you. Thank you. It’s great to be here, and I appreciate everyone taking a listen and you taking the time.

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The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at