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Tech-Backed Firms See Recordkeeping Industry Ripe for Disruption

Cynthia Loh, general manager for Betterment for Business, suggests the firm is committed to competing against the largest and best-established recordkeepers in the defined contribution retirement plan industry. 

By John Manganaro editors@plansponsor.com | January 30, 2017
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PLANSPONSOR was recently invited to talk industry trends with executives at Betterment for Business, just about a year after the firm first caught the attention of defined contribution (DC) retirement industry professionals.

Readers may recall the firm’s (somewhat controversial) claim that Betterment for Business, launched formally in January 2016, is the “only full-service platform providing recordkeeping and advice.” It should be noted that other firms argue they can offer just as much integration, automation and transparency as Betterment, whether solo or in partnership with one another, “but it's just not true,” according to the advisory-turned-recordkeeping firm.

Cynthia Loh, general manager at Betterment for Business, says the firm has since won and onboarded more than 300 plan sponsor clients representing tens of thousands of participants. “We started by onboarding our own 401(k),” Loh adds. “We find it very beneficial to be able to tell our clients that our own plan was the very first one. Internally we have close to 30 individuals dedicated to this portion of our business now.”

Clients have come from across the economy, but the largest group comes from the technology sector, “which you would expect,” Loh notes. “We’ve also had some success in the professional services space ... Our message seems to resonate with doctors’ offices, lawyers’ offices and smaller financial services firms like our own.”

Given the client profile as it has developed so far, clearly some time remains before a firm like Betterment will truly approach and challenge the reach of the major established recordkeepers that control vast swaths of DC business in the U.S. By practically any measure, it would take decades of sustained growth for a firm like Betterment to start to challenge the size of a given mega provider, and this is true at a time when profit margins have been squeezed mercilessly, and maintaining scale seems essential for sustained profitability; yet, executives at Betterment are clearly committed to the vision of one day being a major contender on the scale of a Fidelity, TIAA or Empower.

“At the very early stages we were going up against some of the small players in the marketplace, but as we’ve grown, we are now competing right there with the large traditional recordkeepers that have a lot of the volume in this space,” Loh suggests.

NEXT: Emerging environment may favor disruptors 

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