There’s an old adage in sales: “Nobody ever got fired for buying IBM.”
If you were an IT manager in the 1970s or ‘80s, the safest computer choice you could make for your company was purchasing IBM.
Was IBM the best out there? Doesn’t matter. It was the go-to, safe bet—a household name that their bosses trusted. So why look for something different…or better?
The 401(k) industry faces a similar challenge: The perceived safest choice isn’t always the best choice—especially when it comes to your employees.
We’re not the IBM of the 401(k) industry. People don’t know our name like they know the big players. But one thing holds true: We are a safe bet. We’re the 401(k) that is looking out for your employees’ best interests. We are built from the ground up to help your employees save not just for retirement, but for all of their financial goals. We are simply the smarter way to invest.
Now Is the Time to Move Beyond the Status Quo
A lot happened in the last year since we launched Betterment for Business.
Traditional industry players began moving their feet to comply with upcoming Department of Labor regulations. Mounds of research, including our own, continued to expose issues in the 401(k) industry. New entrants flocked to the space and claimed that your 401(k) is a scam, garbage or, at minimum, ripe for disruption.
But amidst the regulatory waves and battle cries, the players lost focus of the goal: helping Americans prepare best for retirement. One in three American families have no savings at all. And those who are saving aren’t sure whether they’re doing it right, or whether they’re saving enough to cover their costs for later in life.
So far, we believe, Betterment for Business is the best solution to this problem; the longtime players of the 401(k) industry have been at it for decades with little success (the data speaks for itself), while newer entrants are simply not as well-equipped to address the problem.
Our Customers Drive Our 401(k) Product Decisions
Betterment for Business has been around for a year, but our team has been iterating for nearly seven years in our retail business to deliver best practices for the participant experience.
We launched our retail service in 2010, and our inspiration and product decisions for our 401(k) service have been driven by none other than retail customers themselves. They conveyed an overwhelming sentiment that our product offerings should also be available as their 401(k) solution, so that’s what we gave them.
When we launched Betterment for Business, those retail customers were the ones who persuaded their companies to adopt our 401(k)—which meant higher engagement for their employers. When you have a 401(k) like ours that’s built for all employees, from the recent college grad to the CEO, your employees are going to be more likely to engage and enroll.
Today, more than 300 employers and tens of thousands of their employees benefit from our award-winning service. Seventy percent of our plans automatically enroll employees in the plan, compared to the national average of 38%. Employees contribute, on average, 5.5% of their total pay. Our plan participants exhibit positive investing behavior and are going to be better prepared for retirement.
In 2016, We Built Tax-Coordinated Portfolio™, Partnered with Uber, and Updated Our Pricing Structure
At Betterment, we’re building an institution for the long term. Over the last year, we built Tax-Coordinated Portfolio (TCP), a feature that can increase after-tax returns for 401(k) plan participants who also have a personal account with Betterment; we partnered with Uber to help self-employed driver partners invest for retirement with IRAs; and we made some changes to our pricing structure, which we believe will allow us to continue providing the best value in the marketplace.
Our new pricing structure allows us to reinvest in the business, accelerate its growth, and bring all employers—current and future—a better 401(k) experience. The benefit of our structure compared to that of other providers is that all of our costs are completely visible; many providers hide the costs of 401(k)s within mutual fund expenses, making it difficult to determine what services are provided, and at what cost. Others receive kickbacks from fund companies, resulting in alarming conflicts of interest.
Our pricing structure un-bundles the key offerings we provide—advisory, investment, recordkeeping and compliance—and ties a fee to each service. We receive zero revenue from outside parties. For plan decision makers, all fees are visible so that all-in expenses can be tallied, as are the services provided. For us, we are able to better manage the costs of high-quality 401(k) plan service.
Our 401(k) continues to be competitively priced for employers when compared with other providers’ menu of advice products and services. With all of our enhancements, we’re proud to say that we are continuing to offer a 401(k) solution that is designed to maximize your employees’ savings and encourage them to become better investors.
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