Payments

5 FinTech Startups in 401(k) Retirement Savings Aiming To Solve The Biggest Issue of Fees

Prosper MarketplaceEmail Marketing Manager

“How much do Americans save?”or “Do Americans even save?” has been a topic of discussion globally. While some parts of the world like India have a strong culture of saving money, western countries are not very well-known for that culture. A Government Accountability Office (GAO) analysis found out that in America, among households with members aged 55 or older, nearly 29 percent have neither retirement savings nor a traditional pension plan. Even among those who do have retirement savings, their nest eggs are small. The agency found the median amount of those savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for households with members 65 to 74 years old. That's equivalent to an inflation-protected annuity of $310 and $649 per month, respectively, according to the GAO.

However, the trend or habit of not saving is seen to be changing in America. Results of the 15th Annual Transamerica Retirement Survey of Workers state that 70% of Millennials are already saving for retirement and have started saving at an unprecedented young age of 22 (median). It also states that three out of four (76 percent) are discussing saving, investing, and planning for retirement with family and friends. Eighteen percent of Millennials “frequently” talk about it. In fact, millennials are actively participating in 401(k) plans provided by their employers. The following 3 findings from the Transamerica Retirement Survey justify the same:

  • Among Millennials who participate in a 401(k) or similar plan and are offered a company match, their contribution rate is 10 percent (median) of annual pay.
  • The majority (62 percent) who are participating in a 401(k) or similar plan are using some form of professionally managed account such as a target date fund, strategic allocation fund, and/or managed account service.
  • Seventy-one percent of Millennials participating in a 401(k) or similar plan find mobile apps for managing their retirement accounts to be helpful.

This clearly indicates the growing importance of retirement savings and the focus of Americans on 401(k) plans. Taking advantage of this trend and probably even promoting this trend are the retirement savings companies in the FinTech industry that we will review in this article. Retirement savings are always accompanied with associated high fees that surprise employees at the end of their careers. Fees are one of the biggest enemies of one’s retirement savings, especially when compounded over the course of an entire professional life. These administrative and management fees can easily take away a third of the retirement savings amount. There are FinTech startups trying to solve this and many other problems related to 401(k) savings for making life easier for people managing retirement savings. Here’s the list:

  1. feexLogoFeex: Founded in September of 2012, FeeX is a free service that finds and helps you reduce fees in your IRA, 401(k), 403(b), brokerage and other investment-type accounts. But investment accounts are just the beginning. As the Robinhood of Fees, their mission is to break the asymmetry of information that hinders so many of us in our daily financial lives. "Hidden fees are extremely hard to find and cost Americans roughly $600 billion a year, with a majority paying over a third of their retirement to fees alone over the course of their savings," said CEO Yoav Zurel. "There's a failure of transparency in the market and we're working to expose that -- one fee at a time -- giving users the tools they need to understand where their money is going and how to avoid each and every fee."
  2. forUsallForUsAll: ForUsAll is a next-generation provider of 401(k)s for small businesses. ForUsAll was founded to help bridge the current retirement gap facing the United States by radically simplifying the 401(k) so that it’s easy, hassle-free, and inexpensive for any small company and its employees. ForUsAll has a very simple goal: to make sure that every American has a fair shot at retirement success, no matter how small the company they work for or own. For employers, ForUsAll has radically simplified the process of providing a 401(k) by removing the conventional burdens associated with old-school 401(k)s. Using technology to handle the administrative heavy-lifting, ForUsAll has automated the 401(k) so that it works right out of the box and reduces the workload for businesses. "We have one simple goal at ForUsAll: to make sure that every American has a fair shot at retirement success no matter how small the company they work for or own," says Shin Inoue, co-founder and CEO of ForUsAll. "To accomplish that we challenged ourselves to radically simplify the 401(k) so that it works for any small company and its employees."
  3. logo_squareCaptain401: Captain401 offers the easiest and most affordable 401k retirement plan for the modern workforce. They empower all businesses, no matter their size, to safeguard the financial futures of their employees. They are the automated, paperless 401k that reduces all administrative burden for our customers. Captain401 provides innovative solutions for a massive problem—as of 2015, U.S. retirement assets totaled $25 trillion. Even so, less than half of Americans have saved enough for retirement. They want to change that. Captain401 is backed by Y Combinator and other top Silicon Valley investors.  Captain401 seeks to create a process that avoids funds that have higher fees and fail to beat the market,” CEO Roger Lee said. “The investing service is automated, helping employees make better decisions about their investments and become more educated about the best choices,” he said.
  4. Bettebetterment_logo_verticalrment: Betterment is the largest, fastest-growing automated investing service, helping people to better manage, protect, and grow their wealth through smarter technology. With more than 100,000 customers and over $2.6 billion in assets under management, the service offers a globally diversified portfolio of ETFs, designed to help provide you with the best possible expected returns for retirement planning, building wealth, and other savings goals. Betterment also helps customers get on track for a comfortable retirement with RetireGuide™, a retirement planning tool that lets people know how much they should save and if they are investing correctly. Recently, Betterment launched its new product, Betterment for Business, the only turnkey 401(k) service that includes personalized investment advice for all plan participants.
  5. Guideline_Logo@2xGuideline:  Guideline was incorporated on June 4, 2015 and registered with the SEC as an RIA (Registered Investment Advisor) in October 2015. Guideline is funded by some of the largest and most respected institutional capital firms, including New Enterpise Associates, Lerer Hippeau Ventures, Xfund, Box Group, RedSwan, SVAngel and 500 Startups. Guideline is the first and only 100% automatically managed 401(k) plan built on proprietary technology, offering an elegant 401(k) experience and total transparency for both employers and employees. Guideline Investments provides a modern 401(k) platform with best-in-class investment advice, as well as a beautifully functional experience that encourages participants to invest in their retirement.

While there are very few 401(k) retirement savings products in FinTech today, there are some FinTech startups trying to eliminate 401(k) completely by pitching their own retirement savings plan for small and medium sized businesses. Honest Dollar is one such FinTech startup, which is positioning itself to SMBs as an easy alternative to 401(k). As mentioned above, there might be very few 401(k) products in FinTech but there are a plenty of 401(k) retirement savings services in the market that are traditional and available mostly for the employers. The industry as a whole lacks consumer oriented startups/products like Feex, which directly help employees deal easily with their 401(k) retirement savings. Retirement Savings is a potential area for FinTech entrepreneurs to explore and FinTech VCs to explore as Americans are starting to save handsome bucks for the golden years of their lives. Did we miss out your startup in this list? Please tweet @abolirg or @letstalkpaymnts to let us know about your company and we will review it.

Aboli Gangreddiwar

Prosper MarketplaceEmail Marketing Manager

Aboli is a marketing specialist and a FinTech analyst based in Charlotte, North Carolina. Her FinTech articles bring together her research skills and industry knowledge. Having been an observer of the technology space and the start-up ecosystem in the Silicon Valley for more than a year, she likes to analyze and write about exciting and innovative companies in the payments and commerce industry.

Apply to Become a Contributor