The 401(k) experience for small companies can be particularly gnarly, with high administration fees and complicated user experiences. Startups – like Betterment and Zenefits – are trying to change that, often with lower, transparent fees and intuitive user interfaces.
Betterment, which offers banking, digital wealth management products and advice, wants to dip its toes deeper into the business-to-business retirement planning space by making its 401(k) offerings available to clients of HR and benefits platform Zenefits, which reaches more than 10,000 businesses.
“It’s a net benefit for small business providers who don’t have the staff on hand to necessarily be managing the day to day administration of the 401(k) plan,” said Kristen Carlisle, general manager at Betterment for Business, the firm’s unit that handles 401(k)s. “The burden of having to administer the 401(k) plan is reduced because you’re not having to do the sort of technical upkeep of a payroll provider into a 401(k).”
Carlisle said Betterment is not gaining any additional revenue through the Zenefits integration, which went live this month. The fee structure for business clients on Zenefits will mirror what it charges other 401(k) clients, which include a recordkeeping fee per employee, as well as an assets under management (AUM) fee.
For example, the fee calculator on the Betterment for Business website suggests that for a company with 100 employees, the employer would pay $87 per employee annually, while an employee with $5,000 in their 401(k) account would pay $12.50 per year, or 0.25% of AUM. The site, however, suggests some employers may be eligible for lower prices depending on their payroll provider and desired plan features.
The bigger picture
In recent months, digital 401(k) providers – including Guideline and Human Interest – have grown as employers added retirement benefits during the pandemic. Betterment for Business currently has 700 401(k) plans on its platform, and the number of plans grew by nearly 30% during the pandemic, Carlisle said. Betterment’s 401(k) client roster includes large direct-to-consumer digital companies like Boxed and Casper.
Carlisle acknowledged that the field of startup 401(k) companies is crowded, but noted that Betterment sets itself apart by also offering a digital holistic perspective of users’ finances, covering financial needs across life stages. By integrating with a large HR and benefits platform like Zenefits, the 401(k) can act as an entry point for users to explore other products and services.
“Betterment tries to provide a viewpoint for today, tomorrow, and the future, and I think that’s something that sets us apart,” Carlisle said.
Established in 2016, Betterment for Business currently has 50 employees, and the team is growing, according to Carlisle. It’s part of a two-pronged business-to-business strategy for the firm, which also includes Betterment for Advisors, which offers a white-labeled version of its investing software to financial advisers. Betterment for Advisers, which was established in 2017, reportedly saw a 21% year over year increase in the number of advisory firms using the service. The unit serves 2,000 advisers across 600 firms. It recently rolled out custom portfolio capabilities for its clientele of financial advisers.
Carlisle said the firm is exploring ways to connect its two business-to-business units wherever possible. One example of this is its Advised 401(k) offering, which allows financial advisers who are on Betterment’s advisory platform to work with small businesses and help bring them into Betterment’s 401(k).
In other news, Betterment announced Thursday that it had acquired Canada-based robo-adviser Wealthsimple’s U.S. investment advisory book of business.
For Zenefits and Betterment, the integration marks an alignment among two companies seeking to cater to underserved business clients.
“Small and mid-sized businesses have been historically underserved by the retirement industry, but companies like Betterment break the mold to make sure they have high-quality, affordable options available,” Andrea Shannon, vice president of business development at Zenefits said in a statement.