Investing and financial planning app Betterment is expanding the reach of its 401(k) business by partnering with workplace benefits provider JOON.
The tie-up – in which Betterment is the sole 401(k) provider on the JOON platform – deepens the New York-based robo-adviser’s outreach to small businesses and is the latest step along a strategy to partner with employer platforms.
“When we think about our partners like JOON in particular, it’s a way for us to not only support and help reduce the administrative burden for the small business owners, but to complement their offerings,” said Kristen Carlisle, general manager of Betterment’s 401(k) business. “It’s not just about broadening the access to our 401(k), it’s about making people understand that retirement stress is real, it’s affecting Americans and small businesses tend to not offer this type of benefit.”
According to JPMorgan’s June 2020 survey, nearly half of the surveyed small businesses – companies with $50,000 to $20 million in annual revenue and five to 50 employees, excluding nonprofit organizations – offered a retirement plan, 87% of which were 401(k)s. Among those who didn’t offer a 401(k), more than a third expected to introduce one within a year.
As the market for small business 401(k)s grows, Betterment has been adding platform partners. Over the past year, the company, which currently has $33 billion in assets under management, has entered into tie-ups with Bennie, Lumity and Zenefits in an effort to grow the reach of its 401(k) offering.
Betterment, which said it currently has around 1,000 funded 401(k) plans, is competing with legacy 401(k) providers and digital 401(k) companies, including Guideline, Human Interest and ForUsAll.
As employers emphasize longer-term financial planning benefits in lieu of in-office perks, the digital 401(k) space is attracting interest from investors. For example, in August, San Francisco-based Human Interest raised $200 million in Series C funding led by The Rise Fund, while in June, San Mateo-based Guideline raised $200 million in Series E funding led by General Atlantic.
Betterment said it selects partners that have a “fundamental alignment with what we’re trying to achieve.” Los Angeles-based JOON, which was founded in 2019, offers a range of employer-supported wellness benefits. The platform, which CEO Sebastian Elghanian said works with 60 employers, facilitates employer reimbursements for voluntary benefits. Its pitch to employers is a turnkey solution that allows employers to offer a suite of benefits with minimal effort.
“Our clients fall into two buckets: they’re either companies who are struggling with their own in-house solution, whether it’s an expense reporting software, spreadsheets or one-off vendors that are really difficult to manage, or they are thinking about doing something, but they know that the paradigm that exists today or has that is existed in the past is just too complicated,” Elghanian said.
JOON, which monetizes its services through platform fees employers pay to use the service, closed a $2.3 million seed funding round in July.
From Betterment’s perspective, partnerships with benefits providers allow it to build new “sticky” client relationships through 401(k)s, because those who have a 401(k) can transition to other offerings from Betterment, including investments and banking.
A year and a half into the pandemic, financial wellness solutions appear to resonate with employees. A survey from human-resources technology provider Corestream found that this year, 80% of employees said they would take advantage of financial wellness and financial assistance programs offered by their employer compared to 69% in 2020.
Since financial wellness benefits, including 401(k)s, are tools to attract and keep employees in a competitive labor market, Betterment strives to make employer onboarding as simple as possible.
“What we’re seeing now is really that ‘great resignation,’” said Carlisle. ”There’s a lot of turnover that’s happening, so companies aren’t just looking for ways to keep their current employees happy, but also how they attract new talent, and obviously the 401(k) is a critical component to that.”