Guideline Investments recently became the first robo-adviser serving 401(k) plans to achieve the Centre for Fiduciary Excellence Investment Advisor certification. The designation is based on adherence to fiduciary best practices.
“This is significant because the firm uses a highly structured and automated process while maintaining the checks and balances necessary for an excellent fiduciary program within their scope of service,” explains Carlos Panksep, managing director of CEFEX. Guideline’s digital advice platform is overseen by investment professionals and “organized to prudently deliver investment advice to qualified retirement plans,” he adds.
The value of this independent certification manifests itself in multiple ways in the eyes of investment adviser Nate Wall, founder of i2i Financial, which began recommending Guideline as one of its provider solutions to employer customers about six months ago.
For example, he considers the payroll integration with a vendor like Gusto or ADP indispensable since the timing and accuracy of payroll contributions is one of his biggest concerns for many smaller groups.
Additional selling points on Guideline include a willingness to explain its process with transparency and that their staff has been very responsive to his team and their plan sponsors. Wall believes these touches add humanity to the robo adviser’s technology.
Guideline’s flat rate administration fee per active participant is equally inviting for his 401(k) clientele. The company describes itself as “the only 401(k) provider that doesn’t charge participants any fees on investments, regardless of the value of their assets or retirement account balance.” The arrangement is not only affordable, Wall says, but in his opinion better suited to the fiduciary philosophy of securing fees that are in the best interest of plan participants.
Kevin Busque, Guideline’s co-founder and CEO, likens his company’s pricing to that of a software company. “We legally and happily do everything in the best interest of the participant, and that’s because we are not compensated in any way by participant balances,” he says, noting a preference “to independently certify every component of our stack.”
In fact, as much as 80% of the service provider’s business involves new 401(k) accounts that typically no one has wanted, as Busque explains, “because they don’t have assets under management. Therefore, there’s no way for them to monetize it.”
Guideline’s proprietary algorithm serves small and midsize businesses with up to 1,000 plan participants that understand passive investing. The company boasts more than 4,200 clients with half a billion dollars in assets under management. Its recordkeeping and administration services also have been certified by CEFEX, as well as the American Society of Pension Professionals & Actuaries.
CEFEX conducted a rigorous assessment that included an on-site visit to examine Guideline’s recordkeeping system. The vendor’s investment advisory processes were assessed against a standard containing 21 fiduciary practices with supporting criteria described in the handbook “Prudent Practices For Investment Advisors” published by Fi360, which owns CEFEX.
What Wall particularly appreciates about robo-advising is that it layers leading-edge technology onto the more traditional asset allocation chassis for more personalized recommendations. He says this approach enables participants to provide additional personal information such as their salary, age, and risk tolerance to determine more appropriate allocations better suited for the participant’s individual circumstance.
“I’m not a fan of people day trading within their retirement accounts,” he says, “so the better tools that we can help them with diversifying their portfolios, making informed decisions and not over reacting to market conditions is in the best interest of participants.”