Slaying 401(k) fees at scale
At Guideline, we are committed to bringing transparency to a legacy industry riddled with predatory fees. Today, I’m excited to announce two important steps towards our goal of offering the most employee-focused 401(k) platform for small business.
We have eliminated all asset-based fees in our managed portfolios, other than the index fund expense charged by Vanguard.
We streamlined our managed portfolios to reduce the blended costs of the Vanguard index funds.
Let me back up a moment and explain. While we are focused on providing a full-stack 401(k) solution for small businesses, there are two important components of our service that we outsource.
The first is having a custodian, which is just a fancy way of describing where your mutual fund assets are held for safekeeping. Custodians charge an AUM-based fee, so it’s important that they actually provide value to the small business and the participating employee. They validate transactions, execute trades, and provide a level of transparency through quarterly or annual statements — all great things to have when dealing with retirement funds. We have always advertised and displayed our ridiculously low custodial fee but we never actually passed on the 0.03% fee to participating employees (go ahead, check your statements :)), so we are excited to be in a position to completely remove it altogether.
Symbolically, this change is really important because it means we have eliminated ALL asset-based fees (any % fees on participating employees’ retirement assets) from our platform other than the index fund expenses themselves. These fees are a detriment to your retirement savings growing at the fastest rate possible. When I started Guideline, this was a primary goal of mine. I’m super excited to achieve it.
This leads me to the second component of our service that we outsource. We are not a mutual fund company, nor do we plan to become one. The mutual fund business is a game of remarkable scale, and the two biggest fund companies, BlackRock and Vanguard, manage trillions of dollars in assets, with their lowest cost products growing the fastest. We use Vanguard index funds for our portfolios, and we have streamlined our managed portfolios to reduce the overall expense ratio to 0.07–0.08%, depending on the portfolio you choose. To put this in context, at 0.07–0.08% in fund costs, you are paying nearly half the costs of the Vanguard target date funds that many consider the gold standard for 401(k) plans. You can read more about our investment strategy here.
Beyond these steps forward today, we will keep pushing; continue listening to our clients; and blaze our own path in product, pricing, and benefit design. As we continue to scale, we are committed to passing on those savings to you, the small business, and most importantly, your hardworking employees who are trying to save for retirement.
Please help us spread the word. Offer a true benefit. Happy saving.