Wealthtech

One year into the pandemic, 401(k) startup Guideline doubles AUM to $4B

Work-from-home mandates drove employer investments in 401(k) plans, the company said.

A year into the pandemic and remote work, benefits are evolving from free lunches and ping pong tables to long-term financial products.

Guideline, a 5-year-old San Mateo-based startup that offers employers 401(k)s, said it doubled its assets under management to $4 billion year-over-year during the pandemic. The company hit a milestone of 20,000 clients in March 2021 – 7,000 of which were added during the pandemic. 

Kevin Busque, Guideline’s CEO, said the change afoot is the result of new ways employers are using retention tools: In-office perks were a draw prior to the pandemic, but long-term financial planning benefits like 401(k)s hold greater sway when team members work remotely.

“The small business community at large has been super resilient and has developed a new approach to servicing their employees, where it’s less perk-centric and more benefits centric –  and by that I mean less in-office perks like lunches as opposed to real benefits,” he said.

With the spate of layoffs and downsizing at the pandemic’s outset, Guideline said it saw a slight increase in the rate of terminations in the immediate aftermath of the pandemic, but that rate quickly leveled off to pre-pandemic discontinuation rates of around 4% annually. 

Set-aside rates grow as remote workers save 

Busque said he was confident that Guideline was positioned to weather challenges to the business model, and a key takeaway among users during the pandemic was a commitment to grow the proportion of money deposited from paychecks into 401(k) accounts. 

From January to June of last year, the company said its clients’ users increased their average contribution rates from each paycheck – from nearly 9% to 12% – while leveling off to pre-pandemic levels of 8% by July. During the first two months of 2021, contributions hovered around 9%.

“Because people are taking advantage of [employer] matches, they have to put in more, and I believe that we have some effect of the stimulus here,” said Busque. “As you see in the retail market, people are now investing more in the stock market and for us, we’re seeing that trend inside of the 401(k).”

Currently, 73% of Guideline plans offer a match and the average employer match amount is around 4.5%, according to the company.

Busque’s claims of consumers’ hearty savings appetites are reflected in the Bureau of Economic Analysis’ personal saving rate data. According to the February report from the Bureau of Economic Analysis, Americans’ personal saving rate stood at 13.6%, up more than 5% year over year. 

401(k) startups’ pitch to small businesses

Compared to large incumbent providers that can charge assets under management fees of up to 2%, startups that offer 401(k)s typically appeal to small businesses because of their easy user experiences, along with transparent (and often cheaper) prices. 

For employers, Guideline charges a monthly base fee that ranges between $39 and $99 and a monthly fee per employee of $8. Guideline clients run the gamut of occupational categories, with a high representation of professional-service fields like law offices, dental offices, and surgery centers. By contrast, it has comparatively few retail and food-service clients, according to Busque.

Of course, Guideline isn’t the only 401(k) startup that experienced growth during the pandemic. San Francisco-based Human Interest – which this month added $55 million to its Series C funding round – is reportedly adding $1 million a month in net new revenue. In addition, robo-adviser Betterment, which also offers businesses 401(k)s through Betterment for Business, recently told FinLedger that its number of plans grew by nearly 30% during the pandemic. 

Guideline’s roadmap

You need to be able to show your ‘value add’ for the money you’re charging, and that’s happening across the financial services industry, not just in retirement.

Busque said he’s encouraged by the company’s growth prospects that are driven by an expanding pie of companies that stand to benefit from its offerings. Among the new plans added, 93% were offering 401(k)s to employees for the first time. 

In addition to 401(k)s, the company rolled out individual retirement accounts (IRAs) for terminated and dismissed employees in 2019. Guideline also launched a SEP-IRA program in beta one month ago. Busque said the company also expects to launch health savings accounts (HSAs) by the end of the year.

Guideline, which closed an $85 million Series D round co-led by Al Gore’s Generation Investment Management and Greyhound Capital last year, has raised a total of $144 million. Asked whether Guideline plans to raise more money this year, Busque told FinLedger the company will be raising money “very shortly.”

Founded in 2015, Guideline is based in the Bay Area, but Busque said the company will move its headquarters to Austin later this year because of the city’s lower cost of living. Looking to the future, Busque suggested downward pressure on fees will continue to augur well for startups in the 401(k) space.

“I think it’s indicative – and you’ve seen this in the past – [of] the fee compression,” he said. “You need to be able to show your ‘value add’ for the money you’re charging, and that’s happening across the financial services industry, not just in retirement.”

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