Idea #3 – Personal Capital for Retirement Plans

by Byron on January 4, 2012

The problem:  401k plan sponsors, especially those with plans in the $.5-5 million dollar range, have a difficult time finding low cost, independent advice about which 401k provider and plan to choose.  Even if they can find competent, impartial advice, the plan sponsor has a difficult time finding a high service, good performance, low cost retirement plan.

The business:  Personal Capital for Retirement Plans

Over the last year I’ve thought a lot about the 401k business and how terrible it is.  There is so little true innovation.  One exception is Brightscope, a retirement plans information provider.  Another innovator in money management is Personal Capital.  But despite how impressed I am with both of those services, neither solve the problem above.  For me, something is missing.

Brightscope offers very good information.  Their dashboard report is impressive and could be a valued tool for any company plan sponsor.  That said, where does the plan sponsor go from there?  “So my plan sucks, what now?”

It seems, from the actions Brightscope has taken in diversifying their business, that the natural solution for them is to hook you up with a reputable advisor who can offer you a quality solution.

That’s a good service, without question.  But Brightscope didn’t really kill the model.  To kill the model, you need to take out the middle man (the advisor), take out the 401k service provider, or both.

On the other hand, Personal Capital half killed the broker/advisor and half killed the service provider.  They commoditized the broker/advisor via a call center.  They eliminated the service provider via the use of low cost etf’s and centralized money management.  In some ways, Personal Capital is simply a no frills RIA in disguise.  It’s not really novel, but it is the future of investment management.  A paradox, I know.

Pick up where Brightscope leaves off and create Personal Capital for retirement plans.

Doableness:  This would require a great deal of capital and a relatively large team.  You need the investment piece on top of all standard start-up functions.  In addition, you need scalable service not just for the plan sponsors to make their decision and implement, but for the plan participants to get set-up and do their investing.  But it’s a game changer.  This marketplace is more broken than general money management and Personal Capital has raised nearly $30 million.

My Thoughts:  What I’m talking about is nothing short of a full-scale, low cost retirement plan provider.  There is so much bloat in this business.  Companies like Brightscope and new fee disclosure laws are helping, but the space needs to be redefined.  Tear it down and build it better.

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