New Vestwell Infrastructure Removes Traditional Record Keepers from Retirement Plan Administration

By Ryan W. Neal


Digital retirement platform Vestwell is developing a new technology infrastructure that would do away with the need for traditional record keepers.

Vestwell’s existing technology lets advisers create, sell and manage defined-contribution retirement plans, but founder and CEO Aaron Schumm said the engine still needed connections with archaic record keepers that slowed down processes and drove up costs.

“Legacy providers out there have been around for a lot of years. They work, they perform a function that’s critical to the equation, but it’s old,” Mr. Schumm said. “We’ve revisited, redone and rethought [record keeping] from the ground up.”

With a new investing architecture driven by modern application programming interfaces, or APIs, Vestwell can maintain records in-house on a digital database and take full control over 3(16) administrative tasks such as eligibility, loans and distributions, notices and compliance testing.

By automating record keeping and bringing all non-custody services in-house, Mr. Schumm believes Vestwell enables advisers to offer white-labeled workplace retirement plans more efficiently, cost-effectively and at scale.

“If you’re an adviser and you’re working with 100 retirement plans and each have 30 employees and you want to access those 3,000 individuals, it’s [currently] hard to do at scale,” Mr. Schumm said. “This new framework will remove how record keeping has functioned to date.”

The idea is to help advisers sell and manage DC plans for employers at small and midsize businesses. Because of the high costs, inefficiencies and thin margins of traditional record keepers, these employers’ only options are to offer a generic retirement plan, pay high fees or eschew offering a plan at all, Mr. Schumm said.

Vestwell’s APIs support custom investment management options, bringing 401(k) and 403(b) plans closer to how individual brokerage accounts operate.

“We’ve created the ability for a participant to have their own custody account within a 401(k),” Mr. Schumm said.

The new infrastructure follows several updates from Vestwell since the company attracted a $30 million investment from Goldman Sachs. Vestwell recently updated the user experience of its adviser- and client-facing portals.

The new infrastructure also paves the way for future developments that Mr. Schumm is even more excited about, such as bringing in other workplace accounts like health savings accounts. In the future, he wants Vestwell to support what he calls “next best dollar” decision-making.

When a plan participant gets paid, the idea is that part of their money will automatically be set aside for saving into the most tax-optimal location, whether that’s a DC plan, an HSA or flex spending account, or an individual brokerage account. By allocating money into the best “bucket,” Mr. Schumm said, advisers using Vestwell can help clients with their biggest concern: how they should best be saving.

“The easier we can make these decisions and make this available to people, the more we’re going to help them save,” he said.

While Mr. Schumm doesn’t believe that what he’s built with Vestwell is essentially a digital startup record keeper, for now, he doesn’t have a better word for it.

“We’re expanding the features and functions within this new architecture of a record keeper,” Mr. Schumm said. “In 2021, our focus will be on larger initiatives for where we want to take the industry.”

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