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U.S. News: Q&A With Vestwell

By Coryanne Hicks, U.S. News & World Report

U.S. RETIREMENT AND pension plans are nearly a $670 billion market with an average annual growth rate in the last five years of 6%, according to IBISWorld. It’s an enticing market, but one registered investment advisors, RIAs, have often shied away from out of fear of the archaic technology traditionally used to run it.

In addition to being one of the largest finance and insurance industries in the U.S., the retirement plan industry is also one of the oldest. This means a lot of the industry’s operations were put in place well before the dawn of the internet. In some respects, the industry has been slow to adapt.

It’s time to change that, according to digital retirement plan provider Vestwell. The company says it’s time the 21st century comes to the retirement plan industry, starting with a modernized, digital platform that allows advisors to more efficiently sell, manage and scale their retirement business.

Read interview excerpts from the conversation with Vestwell’s founder and CEO, Aaron Schumm, on how his company is digitizing the retirement planning industry.

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Four years into startup, Vestwell makes its big move — nixing FIS’s recordkeeping for the 401(k) super-bot it built with Goldman Sachs’ VC money

By Lisa Shidler, RIABiz

After four years in business, Vestwell is gearing up to become a turnkey 401(k) program on behalf of RIAs — a software change that could be like swapping a Model T for a Tesla — with some heated industry debate about whether that really makes a competitive difference.

The New York-based startup that Aaron Schumm founded in 2016 plans to deliver more “digital” data that helps RIAs — most of whom currently specialize in 401(k) or non-401(k) assets — create an investor experience that unifies those spheres.

The goal of Vestwell’s data harmonization is to get more retail RIAs to tackle plan sponsors and plan participants.

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Practical 401(k) Advice to Clients Amid the Market Dip

By Kate Stalter, U.S. News & World Report, via Yahoo News

The COVID-19 crisis is shining a spotlight on employer-sponsored retirement accounts such as 401(k)s. Long-standing rules have been relaxed, and investors have new options for making withdrawals.

These changes were put into law last month as part of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act.

Financial advisors are also being more proactive in helping clients with these employer-sponsored vehicles, which are usually held outside the investment accounts an advisor manages.

For starters, 401(k) account owners can now access up to $100,000 penalty free if they, a spouse or dependent suffer adverse consequences — either health or economic — due to the virus.

Also, 401(k) loan limits have been raised. “Before this crisis, loans were limited to the lesser of $50,000 or half of the vested balance in the participant’s account,” says Allison Brecher, general counsel at Vestwell, a New York-based retirement plan administrator.

“The CARES Act increased that to the lesser of $100,000 or the full present value of the participant’s vested account balance. Loans, even from a participant’s own retirement plan account, do need to be repaid, but the repayments (on outstanding loans) can be delayed by up to one year,” she says.

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COVID-19 may quickly expose that McKinsey’s 2030 vision report ill-advisedly reprises Mark Hurley’s 1999 logic about classic RIAs as easy marks for ‘enterprises’

By Oisin Breen, RIABiz

But pushing a narrative is a lot easier than proving it, especially when it comes to the long-tail influences of technology, says Aaron Schumm, CEO of NYC retirement-robo, Vestwell, in an email.

“Wirehouses can sell a great story, and they may have a lot of offerings on the shelf. But the back-end architecture is glued together with fragility at best,” he explains. “Slapping a front end user experience onto an old mainframe doesn’t make it modern.”

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Dollar Cost Averaging: Managing Risk During a Downturn

As we navigate this period of market turmoil, there is a great deal of advice around how to manage (or leave alone) your retirement plan. It’s particularly common to hear finance analysts and pundits talk about the benefits of dollar cost averaging (DCA) since it’s a popular way to manage investment risk during periods where the market may be declining or volatile.

According to Investopedia, “dollar cost averaging is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase.” So rather than investing a lump sum, you can invest that amount over a period of time, such as 25% in each of the next four months.

The idea is that diversification doesn’t just apply to investments; it applies to timing. Market timing is impossibly hard, so rather than investing all at once where you can lose a large amount if markets fall, you can invest that sum over a period of time. There’s been a wide body of research on the topic, showing that in periods of market volatility, dollar cost averaging can be very effective.

There are two ways you can use dollar cost averaging with your 401(k):
  1. If you’re putting away a percentage of your paycheck, congratulations! You’re already dollar cost averaging. Keep saving for retirement and follow your retirement strategy.
  2. If you’re thinking about reallocating your portfolio, you can shift your allocation towards stocks incrementally over a period of time rather than immediately.

Outside of your 401(k), if you have money to invest outside of your “emergency savings” and other investment goals, you can practice dollar cost averaging by investing it over a period of time rather than immediately. Let’s say you intend to move $4,000 to an account. Rather than moving it all at once, you can move $1,000 for each of the next four months. In effect, you’re reducing your risk in the event the market continues to fall.

If you’re trying to implement a dollar cost averaging strategy, be sure to ask an investment advisor. Or, if you’re a self-help learner, there are plenty of resources online.

Vestwell is not a law firm or tax advisor. Participants may wish to consider hiring their own professional before making any changes to their retirement plan, as there could be tax consequences and other adverse impacts on their retirement plan.

Understanding Recordkeeping Technology

While recordkeeping is arguably the backbone of the 401(k) and 403(b) industry, most providers are trying to service modern day needs with mainframe systems. However, because the technology is so complex, many don’t understand how it truly works and why it has such a significant impact on the cost, function, and service of a retirement plan offering. Join our Founder & CEO, Aaron Schumm, and 401K Specialist Magazine’s Editor-In-Chief, John Sullivan, as they discuss the ins and outs of recordkeeping technology.

This session covers:

  • The How. Inner workings of recordkeeping technology.
  • The Who. Industry players and how they’ve evolved over time.
  • The Why. Why should advisors, plan sponsors, and even participants care?
  • The What Now. What could the future of recordkeeping look like and how can that help you and your practice?

Effective Ways to Manage Your Retirement Plan During Uncertain Times

COVID-19 might be causing a meltdown on Wall Street, but it doesn’t have to create a meltdown in your office. You’re likely facing pressure to answer questions (and maybe even make decisions) regarding your company sponsored retirement plan, so it’s imperative to stay informed. This webinar covers common participant challenges during times of uncertainty and how to address them. We also discuss some of the actions plan sponsors can take should they find themselves required to cut plan costs. Read the full debrief here.

Plan advisers may lose business as 401(k) sponsors struggle

By Emile Hallez, InvestmentNews

Some advisers have indeed been busy, said Aaron Schumm, CEO of Vestwell, which provides digital record-keeping services to about 5,000 plans.

Because of remote work and a standstill in new plan sales, “advisers are probably more accessible than ever right now,” Schumm said. “We’re seeing a high volume of advisers wanting to create proposals for existing clients.”

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FinTechs About Situation Around Coronavirus and Market Recession

By Vasyl Soloshchuk, WealthTech Club

We are all frightened by the uncertainty and global health and economic crisis. Fintech helps people to manage their finance during the crisis and avoid ruining decisions. That’s why financial advice and technology tools they use in their work are now raised in importance. It’s time to ask ourselves, in what the most impactful and non-obvious ways COVID-19 will change financial services?

In this selection, WealthTech and FinTech experts share their outlook and words of support with their business fellows, co-workers, and publicity. Find the motivation to keep trying hard and disrupt the world with wealth technology by reading them.

Aaron Schumm, CEO, Vestwell:

Fast-forward to 2020, we have all enjoyed a bull market exceeding a decade. A downturn was inevitable, but I don’t think anyone predicted the catalyst being a pandemic. The globe has and will continue to be impacted. Things will slow. Balance sheets will be strained, and unemployment will skyrocket in the industries most directly impacted, such as food & beverage, travel, etc.

On the positive side, this recession is not caused by a systemic financial flaw. In 2008, the financial industry was at fault. In 2020, the financial industry is being turned to as part of the solution. Fintech companies are at the forefront and best positioned to be bringing creative solutions to the world. With that, we’ll see immediate movement to a sustained cloud-based world, and focus on digital solutions. The companies that held back on moving to a modern era will now likely turn to those that have been at the forefront of change. This will apply to all businesses, including traditional financial services companies turning to fintech companies for solutions.

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Retiring Soon? Stay Put in the Markets.

By Rebecca Moore, PLANSPONSOR

During this time of painful market volatility, sparked by the outbreak of the coronavirus that causes COVID-19, investors are feeling anxious.

The continued message to long-term investors, such as retirement plan participants, is to stay put in their investment selections in order to benefit from the gains when the market recovers. Aaron Schumm, CEO and founder of Vestwell, a digital retirement platform for 401(k) and 403(b) plans, who is based in New York City, says his firm has seen an increased volume of retirement plan participants reaching out about what to do, and his firm is putting more information into participants’ hands.

He says it is a good time to re-educate participants about defined contribution (DC) plans’ use of dollar-cost averaging. Younger participants may especially need this education as some of them have not yet experienced a down market.

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