The short list of recordkeepers that dominate the world of servicing retirement accounts includes giants like Fidelity Investments and The Vanguard Group. But Vestwell, a venture capital-backed firm founded in 2016, is winning mandates from state savings programs and establishing partnerships that could ultimately make it part of that small club.
Recordkeeping — helping companies and institutions offer retirement accounts — might not be the flashiest business, but it’s a big one. There was an estimated $35.4 trillion of assets in various U.S. retirement accounts, including $9.8 trillion in defined contribution plans and $12.5 trillion in individual retirement accounts (IRAs), as of March 2023, according to the Investment Company Institute.
The recordkeeping industry, like others with a few major players, has also been slow to evolve and improve. The biggest recordkeepers don’t have platforms to support profitable relationships with many small- to medium-size employer retirement plans, a frustration for companies and savers. Aaron Schumm experienced those pains after co-founding FolioDynamix and establishing the company’s 401(k) plan, so he founded Vestwell to attempt to alleviate those for other business leaders.
Today, Vestwell counts 30,000 small businesses and more than one million investors as customers, and is the administrator to about $27 billion in assets — small numbers compared to other recordkeepers. PayChex served over 100,000 plans and added more than 21,000 new ones in 2021 alone and multiple recordkeepers have over a trillion in assets. However, Vestwell has momentum.
After Vestwell expanded and began servicing education savings accounts (529 plans), ABLE programs, and state-sponsored IRAs in 2021, state plan sponsors launching or improving their offerings have gravitated to Vestwell.
Since the start of 2022, Vestwell has won every contract awarded to a recordkeeper by state savings plans, including the CalABLE Colorado Secure Savings Program, the RetirePath Virginia, and the Colorado Secure Savings Program. It is now the administrator to more than 30 state savings programs, including education savings accounts, ABLE programs, and 75 percent of state auto IRA plans.
“ABLE was the first state savings program Vestwell administered and may be the most impactful in terms of improving people’s lives. Delivering a customized savings platform that provides unique features for individuals with disabilities continues to be a focus and priority for Vestwell,” said Douglas Magnolia, chief customer officer and president of state savings at Vestwell.
Vestwell’s ABLE platform was custom built for those accounts. Other recordkeepers sometimes retrofitted other solutions to serve them, Magnolia explained.
Magnolia credits recent partnerships with wealth management and other firms to Vestwell’s ability to adapt.
Vestwell partnered with Morgan Stanley last year and in May it partnered with J.P. Morgan Chase, which has more than five million small business customers, to expand the bank’s recordkeeping options and power the small business 401(k) workplace savings platform.
“Enhancing our offering by coupling a modern technology platform with an assigned client success professional, like Vestwell, will enable us to quickly and efficiently meet the increasing demand. Small businesses are seeking affordable and tech-forward retirement plans in record numbers, and we are proud to be able to deliver for them,” Steve Rubino, head of retirement at J.P. Morgan Asset Management, said at the time.
Vestwell also counts BNY Mellon, the German insurance and asset management company Allianz SE, and others as customers.
At banks and legacy recordkeepers “the tech offering was absolutely not there,” said Logan Allin, founder and managing partner at Fin Capital, a venture capital and private equity firm that co-led Vestwell’s $70 million, Series C round of funding with Wells Fargo Strategic Capital in 2021.
And Vestwell is marching into other areas tangential to retirement accounts, such as college savings and student loan debt. In July, the company acquired Gradifi Solutions, which offers programs to help employees manage and pay down student debt, contribute to education savings accounts, and refinance student loans. An estimated 43.5 million individuals carry federal student loans in the U.S.
“In our minds, they are the winner in the space,” Allin said about Vestwell. “We don’t see any meaningful competition at scale.”