NEW YORK (Reuters) – Vestwell Holdings Inc, a tech platform for retirement plans, said on Tuesday it raised $30 million from Goldman Sachs Group Inc, Point72 Ventures and the Bank of New York Mellon Corp.
Franklin Resources Inc, Allianz Life Ventures and the venture capital arm of Nationwide Mutual Insurance Company also invested in the fundraising, which was led by Goldman Sachs’ principal strategic investments group, the companies said.
New York City-based Vestwell plans to use the funding to hire engineers and developers to expand its technology and customer service offering, said Aaron Schumm, chief executive and founder of the startup. The firm expects to add around 30 employees, bringing its workforce to nearly 80.
Vestwell, purveyors of an increasingly popular digital retirement platform, announced a $30 million funding round Tuesday. The round was led by Goldman Sachs Principal Strategic Investments (PSI). Other funding participants in the Series B funding round included companies like BNY Mellon, which announced a partnership with the firm in late 2018 to add firepower for the bank’s foray into state-sponsored retirement plans, and Fidelity’s F-Prime Capital. Vestwell said it moved up its timetable for the funding round by about a year after receiving funding inquiries on the heels of the BNY Mellon deal.
This deal, however, is separate from the BNY Mellon partnership, noted Vestwell founder and CEO Aaron Schumm. Up to two-thirds of the capital will be earmarked for accelerating technology and product builds, including some that were already in development, like advisor-focused reporting and analysis and efforts to streamline plan sponsor onboarding.
The company’s client service offerings will also be expanded to handle the organic and strategic growth Vestwell is experiencing. Between 20 and 30 advisory firms come to Vestwell per month, said Schumm, of which “most” are conversions of existing clients. As the company scales, it’s exploring integrating chatbots with its customer support to allow its staff to field more inquiries. Vestwell’s client list has grown 10-fold, according to company figures.
Nearly eight out of 10 participants, 76.7%, in 401(k) or 403(b) plans are saving more than 4%, according to a survey by Vestwell, summarized in its report, “The Retirement Advantage.”
Additionally, 59.5% say they are comfortable with their knowledge about their retirement plan, and 64.7% know they need to save 10% of their salary or more for a comfortable retirement. More than two-thirds, 67.3%, said they know where to find their retirement plan fees. Just over six out of 10, 61.6%, said they engage with their retirement plan. Only 33.5% said they wish they understood more about retirement planning.
However, only 25.7% of those between the ages of 25 and 34 are saving more than 10%, and 44.2% of those between the ages of 55 and 64 are saving this much.
Simple participant education ideas can make a great impact, according to Vestwell; after hearing one Investopedia statistic about the benefit of saving early, 21.7% of respondents said they plan to increase their retirement plan contribution. Another 26.4 said it made them rethink their deferral rate but could not afford to increase it.
Vestwell is partnering with small business payroll software provider OnPay, the company announced. The partnership is designed to make providing small business benefits easier for CPAs, advisors, plan sponsors and participants by providing turnkey retirement offerings.
The integration will give “advisors a more expansive solution for their clients, [while] offering plan sponsors an easier way to administer plans,” said Aaron Schumm, founder and CEO of Vestwell. “Having an advisor that can step in alongside a CPA and create a custom retirement plan is a fantastic value-added service.”
Multiple Employer Plans (MEPs) have garnered quite a bit of attention recently as lawmakers continue to discuss ways to provide small employers with more opportunities to offer retirement benefits for their employees. There are many benefits to Multiple Employer Plans (MEPs), especially in the small plan market. However, the question looms, are these plans right for every small business?
Bank of New York Mellon and Vestwell are entering a partnership that will give the bank a technological boost as it embarks on a foray into service offerings for state-sponsored retirement plans. The bank signed Vestwell as an affiliate, meaning several of the banking behemoth’s units, including BNY Mellon Custody, Pershing brokerage services, Lockwood asset management and retirement plan management solution, Sumday, will all have access to the newly signed firms’ homegrown retirement plan-focused interface.
At first glance, ERISA-permitted MEPs may appear to be the long-awaited solution SMBs have been waiting for when it comes to 401(k)s. Read why Vestwell execs advise using caution before supporting this new executive order here.