How Do We Build What People Need Today: Top Ideas from Vestwell’s Aaron Schumm

We first met Aaron Schumm in the rooms where nerdy people talk about the future of retirement savings, and how it might be made better, faster. As a private sector expert he is, of course, anything but nerdy. Aaron is the founder and CEO of Vestwell, “a modern engine powering savings and investment programs for small businesses and individual savers.” Vestwell’s focuses on solutions that help people save for retirement, education, and healthcare. The company currently serves nearly 25,000 small businesses, more than a million savers, and $25 billion in assets across the 50 states. We get to use the word “blockchain” in this conversation, which pleased us to no end. Alert! Tech ahead.

Aaron Schumm, you are a serial entrepreneur who founded a new savings-focused financial services firm in 2016. Who and what is Vestwell?

We are a fintech platform headquartered in New York City. We're focused on closing the savings gap across the country. We have built and are expanding a unified platform to power all aspects of savings within the workplace, and then to carry individuals beyond.

In a way we are a bit invisible: we are the engine powering 401(k)s, 403(b)s, 529s, ABLE programs, and Auto IRAs. We think of this as happening through three distinct channels, where we are sitting at the intersection. Those channels are the financial service organizations, the workforce and their employers, and payroll providers. We bring all of those together into one ecosystem to help them engage on a level they haven't been able to engage before.

We heard a lot of high-tech concepts there. When you say you are the engine, what does that mean?

Yes. So ours is a cloud-based enterprise system that covers all plan and program technical services front to back except custody, to which we link. That means we are a multi-custodian platform. We also provide open architecture for investment management. That means we have thousands of investment managers that come in and provide their services to our customers.

In this structure, we can be the interface across the investment managers, the program, and its experts -- which includes states and their financial services firms, but can also be a financial advisor, or a business owner -- and the individual savers and employees use our platform as well.

Not to get too technical, but there are also times we can run “headless." In these cases, we're just the technology behind the scenes, making all of this stuff go fast and smoothly, hopefully in an elegant manner. Sometimes people know we're there. Sometimes they don't. Typically, our services are branded under the name of whomever our partner is, be it OregonSaves or Morgan Stanley at Work, to give two examples.

What's your current take on the retirement market -- where do you think we're doing well, Aaron, and where could we do better?

As “boring” as retirement can seem from the outside, it's quite exciting in our industry right now. I feel like progress is really being made. Five and ten years ago, you didn't see the level of engagement you do now, and it's coming from all sides.

On one hand, you have government, both at the state and federal level, pushing forward changes intended to have a positive impact. You have individuals waking up and saying, Hey, I need to do something right now, which you didn't see before. We hire a lot of people and these days it’s common to hear our younger candidates asking us what we offer from a benefits and savings perspective. We didn't see that a few years ago.

I feel like people are paying attention to retirement savings in new ways, which is great. It's exciting, but there's still a lot of work to do.

Describe some of that work, Aaron.

We currently have more than 32 million small businesses in the country. Fewer than a million of those have a workplace savings program, so we see a large gap there. In our later years in life, 40% of us Americans have less than $10,000 saved. 60% of our Black and Hispanic folks have nothing saved. And yet in our retirement years we’re expected to pay more than $300,000 just for medical expenses. We have to close that savings gap.

Some of the things that are being put forth by some lobbyists seem a little self-serving and I don't really think they will move the needle. We are seeing that trying to engage and show people a better way has opened eyes and is allowing people to start saving in a more effective manner. Here I would include the experimentation with Auto IRA programs as one example.

So what are we doing well in the US? I do like the states and their new Auto IRA retirement savings programs. States are being a little bit firmer with employers in saying, Hey, you have to offer something. It's great. I think people get scared. They're like, “Oh, big government,” but this state activity is impactful. Especially when the reality is, Hey, you don't have to use the state program, but you have to do something.

We see that being front and center, available in the workplace, is really helping people in their uptake of retirement savings opportunities. At the same time, we still have a long way to go to solve this gap in retirement savings coverage and use. We're excited to be part of the process of creating solutions.

Vestwell recently acquired BNY Mellon’s Sumday division, the group servicing state Auto IRA programs. Why is this business important to you?

Yes. We closed the transaction on the last day of January 2022. We're excited. The whole team is here in the office together today. Like all of us, they haven't seen each other in person for two years, so it's nice to be in one place again.

Vestwell and Sumday have some history together. I got to know Doug Magnolia, who heads up the Sumday team, just as we were starting up Vestwell. We were chatting about what we're trying to do at Vestwell, what we wanted to build. Literally we had nothing built yet. Doug said, this is interesting because we just built this platform to go empower the ABLE programs and 529s. The legislation was starting to be put forth on the Auto IRA side.

And Doug said, you know, we don't have anything yet on the employer side to support payroll-based contributions and all the things the business owner has to do to facilitate an Auto IRA. He asked, could Vestwell do this? And we said, Yeah, that's interesting. That aligns with our long-term strategy and how we want to approach this industry and the configured setup for people that helps them engage. But we weren't there yet.

Fast forward a few years as legislation kept progressing, and these ideas were really coming to life, BNY said, Hey listen, we'd like to invest in Vestwell. That got us started on our shared path. We tied our technical and service solutions together. They were working really well. And we were able to win a few mandates. We won the OregonSaves program. We won the Connecticut and Maryland programs. We had a great partnership between Sumday and Vestwell; our teams were working really well together. We said, Hey, we think we can build things faster if we take this team and just do this together under a common leadership structure. Let's have the sum be greater than the parts. So Sumday is now Vestwell State Savings, continuing under Doug Magnolia’s leadership.

Our vision at Vestwell is to provide an expanded ecosystem of savings programs. In our view 401(k)s and IRAs are a good start, but how do you go beyond that? We think about all the other savings vehicles that an individual could use. We're all really excited that everything has come together so well. We're unified in our mission and what we're doing, with our teams focusing on the areas in which they really excel.

The Sumday team are with you and you guys are working on bringing all things together.

Yes, one hundred percent of the Sumday team came over. We're together rethinking how small businesses and individuals are able to engage. And that's been the driver.

I think the things we need to retain focus on include being flexible in who you engage with and how, because this is not a one-size-fits-all world. We are also focused on being really cost-effective. We believe what's happened to date is that people have been put into solutions that are egregiously expensive and inflexible, and don't really provide them with the ability to save the way they should be saving.

It's not necessarily the fault of the provider. They're trying to do what they can do, but they're hamstrung by the legacy core systems they are tied to. And that's really what has held back this industry from innovation. I think when you're able to strip that out and say, let's just do this over -- technology's changed, the world's changed. How do we build for what people need today? -- It allows us to go faster.

What are some of the innovations you think will serve this market well?

I do think a very immediate thing is to make sure we are able to provide a solution to individuals to make really conscious decisions without being experts.

That's important because it’s our human nature not to want to seem uninformed. We typically do not to enjoy the feeling if we are not sure we understand what's going on with our income, savings, and investments. Sometimes people just get overwhelmed and are afraid to take any action. You want to remove that friction, and give people a sense of, You can do this and we'll give you the ability to do it.

Related to this, I think emergency savings and incorporating that into a savings solution is really important. Statistically, when emergency savings is offered, people don't draw down on their 401(k) or their IRA balances so quickly. So I think that's important.

You know our mission has been to approach savings holistically. So you don't have to swivel a chair and try to figure out, okay, how much am I going to put in an emergency savings account versus a health savings account versus college savings, versus retirement. That's a hard problem to solve, right. It’s hard even for those of us that are entrenched in this world.

We are thinking about how to bring that together and create tools that simplify “savings allocation.” We think it’s important. What I want to see happen is the ability to allocate that next best dollar for an individual, in an automated way, based on data driven by what's important to that individual and how we can help them.

As an aside, if you just look at 401(k) versus an IRA, there are times you shouldn't put your next dollar in the 401(k). There are times when it may make more sense for that next dollar to go into your IRA or maybe an HSA (health savings account). We're looking at ways to help provide solutions around that and take that next best dollar and place it into that most tax- and goal-efficient bucket for that individual to help them save for the future.

If you want to look out even further, thinking about blockchain constructs (there, we said it, blockchain!) We see value there. We're not there yet as an industry. But expect to see blockchain capabilities come to life in this savings space and be more readily adopted.

We like it when someone gives us a leg up by putting smart choices in front of us.

Yes. Typically, depending on the type of program we're supporting, we have the payroll data coming in. And we can see the beneficiary information. We know where program savers live, how they get paid, when they get paid, what industry they're in. And you can use all of that to help them make better decisions.

We don’t want to be forceful, but to be useful. Imagine a system that says, Hey, you know what? We see that you have a high deductible insurance plan. Do you have an HSA? Do you want an HSA? And then makes that available. Or the system could say, Hey, we see you have two minors as beneficiaries. Do you have your college savings accounts? All of these current ideas and capabilities become leading indicators for how you can help people save.

Let’s talk about the retirement savings ecosystem. Do you have a vision of what this might look like 10 or 15 years from now?

I do. Here are a couple of things I see. We touched on blockchain. I think there is a value in a blockchain construct, specifically when it comes to money movement. One of the most challenging things in the savings space is money movement. When you think about contributions and distributions, loans and rollovers, being able to have a very fluid, instantaneous, secure way to move money can bring a lot of value. And that's where I see a blockchain construct playing into this.

You can look at investing as well. Interestingly, we get asked daily about incorporating crypto products into our platform. Literally in the last three days, each day, I've had someone call tell me about it. We all see pros and cons to that, but I think there's a measured approach that can be taken to give people exposure in that realm where it looks like an alternative investment.

Our demographic skews a little bit younger. The average age of an individual on our platform is about 30. We have a lot of data around when people ask for certain things.

In addition, we're getting closer to a type of guaranteed income structure in all of our businesses that will come to life. Nothing in the market today is really clean and easy. But I do think there are contracts that are getting closer to providing guaranteed income in retirement.

We also don't know if the federal government is going to put an employer-based automatic retirement account requirement in place. That could be really interesting. Barring something at the federal level, maybe all the states just say, you know what, we're just doing it ourselves. We have 14 states now that have something in motion, and in other ways almost all of them do, if you count legislative efforts. I think that would be great.

I don't think we'll ever get to a superannuation structure like in Australia, but it's been proven that the model works. And it's had a really significant impact on working Australians and Australian families.

I’d like to see us, collectively across the industry, keep thinking about how to band together to create solutions that increase coverage, increase savings, and increase the achievement of financial goals by families. You know, everyone benefits from this.

We like that vision! So final fun question – what’ on your nightstand, and what superpower can we give you today?

I will admit, the reading side is sad for me right now. Most of my reading is either email, or children's books, which is probably not that exciting. I do have a few books that I tend to read all the time. Two of them I am carrying with me right now. One is Effortless: Make It Easier to Do What Matters Most by Greg McKeown, sent to me by a good industry friend. It's about focusing on what matters most and how to segment those aspects. The second thing I'm reading is the Conscious Parent by Dr. Shefali Tsabary. It’s about having young kids and all the things I should be thinking about, that I'm probably not.

Superpower-wise, the one thing I would love to have, aside from closing the savings gap, would be the ability to create time. It is the one thing we can't get back and always want more of. If we all had more time in our days, there's just so much we could do. I'm an anxious person, I want to do so many things in my life and I only have a very finite period of time -- how do I do it? How do I do it? If we could actually create the time and not have that bearing down on you, I would love that ability.

Very philosophical! We’re going to crack at least one of those books open ASAP. Thank you so much, Aaron for sharing your current perspective and fresh thinking.

Want more? You can connect directly with Aaron Schumm by email here. You can follow Aaron’s work at Vestwell here. You can also connect with Aaron at LinkedIn and on Twitter: @AaronSchumm@AaronSchumm.

This piece was featured in the March 10, 2022, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.