Why We’re Investors in Vestwell

By Dan Rosen

At Commerce Ventures, we talk a lot about the Commerce Continuum and the digitization of personal finance, because we think enormous changes are underway with the way consumers think about and manage their financial lives. Nowhere is the need for help more dire than in personal savings. As of 2018, 58% of Americans had less than $1,000 of savings, which means that almost any emergency would force them into debt or even bankruptcy.

This trend is even scarier when you consider retirement savings. You might be surprised to learn that fully one third (1/3rd) of all Americans have saved $0 for retirement, and less than half of Americans have over $10,000 saved for retirement. With modern medicine (don’t get me started on rising costs of healthcare), the good news is that Americans are expected to live to nearly 80 years old. But how will we pay for retirement, given our habitual savings problem? Fidelity estimated that healthcare costs alone will cost an individual over $130,000 during retirement. Yikes.

For 75% of retirement savers, the vehicle of choice is a 401(k) plan. 55 million Americans have gathered $7.7 Trillion in retirement plans like this…but what about the other 70 million working Americans?? Well, about 43 million of them work at small businesses (with less than 100 employees), and it turns out that less than 15% of those employers offer a 401(k) plan. And there you have it.

Improving Access: Enter Vestwell

I met Vestwell CEO Aaron Schumm in early 2016, after an intro from an industry friend and colleague, Ben Malka. A long-time investment tech veteran, Aaron founded Vestwell to use modern investment technologies (like the tech he designed at FolioDynamix) to bring a low cost, easy-to-use retirement platform to the large and underserved SMB employer market.

Vestwell CEO Aaron Schumm is frequently invited to speak to legislators and policy makers in Washington, D.C. about innovation’s role in expanding access to affordable financial services.

For years, I had met with talented entrepreneurs trying to address this opportunity (many of whom have gone on to raise large sums of venture capital), but no one had yet figured out the number one challenge of serving the SMB 401(k) market: DISTRIBUTION.

Simply stated, it’s very expensive to sell benefits to small employers, and most of the startups I met were trying to use direct marketing and sales to acquire customers. In fact, Aaron was the first entrepreneur I met with a clear plan for delivering a modern offering through existing investment advisors (turns out most small business owners consult an advisor when setting up a retirement plan). As our good friend Mark Goines (Vice Chairman of Personal Capital) describes, “The 401k market is there for the taking for RIA’s, especially for plans under $50mm. According to Cerulli, this is a gateway to so many new wealth management clients it is an essential part of any advisors tool kit.”

So we joined fellow seed investors FinTech Collective (who led), F-Prime (Fidelity owners’ VC fund) and Primary Ventures to help Aaron build and launch their platform to early customers. Over the past four years, we’ve seen Vestwell zig and zag (as all early stage startups do), but always moving the company closer to that realizing the same mission of serving the vacant SMB retirement market.

The Road Ahead

Today, Vestwell announced its Series B round, led by Goldman Sachs and including investments from Point72 Ventures, existing investors (like us) and a number of leading, highly-strategic investors, such as Nationwide, Allianz, BNY Mellon and Franklin Templeton. The company is now enabling hundreds of advisors to serve thousands of small businesses, representing $100s of millions of retirement assets…but that is really just the beginning of the story. Large advisory channel partners are deciding to switch their entire SMB book of business over to Vestwell’s platform — it’s just that much better.

The implication is this: a better designed, simpler to manage and lower cost offering will help close the retirement gap. Better design will help improve the endemic enrollment, education and engagement challenges which predecessors have faced. Simpler to manage will mean better employer adoption and more effective administration by those plan sponsors. Lower cost will leave more retirement assets in participants’ plans, allowing them to compound and grow their savings further faster. Sure, there is no simple fix for consumer inertia and bad habits, but we’re betting that Americans want to build better futures…they just need the right tools.