As pandemic lingers, Betterment doubles down on 401(k) business

As consumers put more money into savings and retirement accounts during the pandemic, Betterment saw its 401(k) business grow, doubling the number of retirement accounts over the past year.

While 401(k)s are probably not a primary assets under management (AUM) growth driver for the robo-adviser, they’re nonetheless a growing focus for the company, Kristen Carlisle, general manager at Betterment for Business, told FinLedger. The company saw its number of plans grow from 500 to 1,000 since April of last year, but Betterment didn’t offer a specific AUM figure for its 401(k) business.

Supporting retirement security and financial wellness for employees is incredibly important to small business owners

“Coming out of the pandemic, the biggest lesson is that supporting retirement security and financial wellness for employees is incredibly important to small business owners, and we’ve seen that they’ve been impacted significantly,” she said. “They want to make it possible for their employee base and themselves to save for retirement and be prepared.

Betterment for Business, the company’s 5-year-old unit that oversees 401(k)s, is also on the hunt for more talent, with 10 positions currently open, said Carlisle. Betterment, of course, isn’t the only fintech seeing growth in its 401(k) business over the past year. FinLedger recently reported that San Mateo, California-based Guideline, a company that focuses on digital 401(k)s for small- to medium-sized employers, doubled its AUM to $4 billion over the past year. And San Francisco-based Human Interest – which in February added $55 million to its Series C funding round – is reportedly adding $1 million a month in net new revenue. 

Betterment’s 401(k) growth comes as the company reports adding $10 billion to its overall $29 billion in AUM over the past year. In the first three months of 2021, client net deposits were more than $1.5 billion, up 118% year over year. Under its new CEO Sarah Levy, who took the reins after founder Jon Stein stepped down in December of last year, the company last month entered into a deal to take over the U.S. AUM of Canadian robo-adviser Wealthsimple. Levy, in a December interview, said the company was building a foundation to eventually go public. 

On the 401(k) side, in March, Betterment integrated with HR marketplace Zenefits and benefits platform Bennie this month. Betterment partly attributes its 401(k) growth to a digital onboarding process it rolled out in April of last year. 

401(k)s are a gateway to Betterment’s bigger ecosystem of products, including investments, individual retirement accounts, savings accounts and banking. Since customer acquisition for direct-to-consumer robo-advisers can be expensive – one industry estimate put it at $300 per gross new account and $1,000 per net new account in marketing alone – 401(k)s can introduce customers to the brand and act as a catalyst for them to adopt other products.

“You’re not only you’re going where a lot of smaller investors have the bulk of their savings, but now you’re actually able to serve them on a qualified basis, and on a non-qualified basis, so you can start looking at their assets outside of the workplace and as they roll over, you can capture those assets,” said Dennis Gallant, a senior analyst at Aite Group. 

Gallant said he thinks demand outstrips supply for digital 401(k) providers that serve small businesses, and for that reason, Betterment’s enhanced focus on 401(k)s is a good strategic move. But as more companies enter the field, they’ll likely face pressure.

“The hard part is differentiating yourself in this market because there’s a lot of firms putting their digital advice [into 401(k)s],” said Gallant.

Betterment is leaning on its brand recognition and broader product ecosystem to help it stand out among competitors. The company said it’s also seeing interest in its 401(k) offering from tech companies – its 401(k) clients include Boxed and Casper – alongside small businesses with employee counts of two to 1,000. 

“Our power is really in having a fuller picture of your total financial future,” said Carlisle. “It isn’t just the 401(k) as a participant, [but] you can sit alongside the larger Betterment suite of offerings, including investing, checking and savings products, that allow you to get a full picture of what’s happening in your finances.”

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