When Kevin Busque was starting his own company, his employees kept asking him about having a 401(k) plan, but he wasn’t sure how to begin as the information was overwhelming, he told an audience at the Hearsay Summit in late May. Having built a technology firm, and as an engineer, he said he began “unpacking” how to set up a 401(k) and realized something was very wrong with the current system.
“The whole legacy of 401(k)s has lost the point,” he told ThinkAdvisor. “[The point is] to give participants a successful retirement outcome, so how do you do that when you [charge fees] and take away compounded income and interest … it doesn’t make sense.”
He decided to break it down, use his engineering background and build a low-cost 401(k) program. And once he built it, he decided to launch it as a new firm, Guideline.com, that would offer these low-cost 401(k)s to small-business owners. After 18 months, Guideline has roughly 4,000 clients, with about $500 million in assets under management, although, as he points out, that’s not a measurement they use.
“We don’t measure AUM, “ he said. “We don’t monetize it. We’re about growing wealth.”
A new feature coming this summer will bring investment advisors into the process. Because the firm cuts out the middlemen in many cases, “that doesn’t mean that we’re trying to cut out people in the ecosystem [like] advisors who add a ton of value, as they bring reassurance, help and manage small-business owner personal wealth, and can answer employee 401(k) questions,” he says.
He says they leave it up to the advisor on what to charge separately. “Our product stays exactly the same, except we give advisor access to the plan and participants so they can help them individually. We don’t help with individual investment advice.”
Guideline charges new clients (employers) a $500 startup fee, and then $8 per employee per month. Employees aren’t charged anything, except what expense ratio would be on a fund, which he says is about 6 basis points a year, far below the industry average.
They are able to do this, he said, through some technology, but other factors are involved.
“How we reduce our costs is we cut out the middlemen that are non-value added, so things like [third-party administrators],” he says. “We are our own recordkeeper, so everyone else in the industry except for the very large players pay a third party [to do that]. Because we don’t have to do that, we can keep our costs really low, and it allows us to bring 401(k) access to small businesses that couldn’t get one before.”
Guideline has a solution called full stack, meaning they automate plan administration, compliance testing, reporting and disclosures and investment management, and they integrate with some of the most popular payroll providers including BambooHR and ADP. Busque says his first hire was a compliance person, and today they are a 3(38) and 3(16) fiduciary as well as an ASPPA-certified recordkeeper and plan administrator.