After a short engagement, Gus Fleites splits from his CEO spot with an Oregon 401(k) platform provider

Brooke’s Note: We originally wrote about this Gus Fleites hiring on March 28th because it seemed to say something important about the fast metamorphosis of the 401(k) business. See: Gus Fleites joins an Oregon venture with a plan to revolutionize the 401(k) business. But also, frankly, it had the added intrigue of seeming — with a corporate big leagues guy in Boston joining an entrepreneur in Oregon — like an unlikely marriage. It turns out that it was.

Agustin J. “Gus” Fleites has abruptly parted ways with the Portland, Ore.-based 401(k) platform provider that he joined a few weeks ago with some fanfare.

The former president of State Street Global Advisors, which managed and distributed $110 billion of assets on his watch, issued only a brief statement by e-mail about the parting.

“With regret I announce my resignation from Invest n Retire,” Fleites wrote. “While continuing to believe in the tremendous opportunity for the company’s business model, it is no longer possible for me to continue to represent the firm. I wish the company best of luck in its future direction.”

Fleites declined to comment further.

Stormy weather

In an interview, Darwin Abrahamson, founder and principal of Invest n Retire, was also succinct in his remarks about the firm’s divorce from his newly hired CEO.

“We just decided it was mutually beneficial for us to go our separate ways.”

And Abrahamson allowed that his company is experiencing real turbulence of late.

“The last two weeks have been the biggest whirlwind of my life,” he says.

Darwin Abrahamson: The last two weeks
have been the biggest whirlwind of
my life.

At the heart of the weather event is the addition of 12 investment managers to Invest n Save’s 401(k) plan offerings in the last 30 days, including Fund Evaluation Group LLC, which advises $31 billion of assets from Cincinnati; HAHN Investment Stewards & Co. Inc. of Toronto; and Globalt Inc. of Atlanta.

The signing of these big managers has affected how Abrahamson plans to expand his business. “They all have sales forces,” he says.

The presence of those sales forces signals that Abrahamson no longer believes that his money is best spent on building up his own marketing and sales units. Instead, he’s hiring engineers.

“I have to concentrate my efforts on the technology side. That and educating the managers on our platform is where we’re going to spend our resources,” Abrahamson says. “...We are building out a new public portal for the investment managers, advisors, plan sponsor, and investors.”

ETFs poised to become more competitive

Fleites was originally attracted to Invest n Retire’s technology because it appears to solve a critical issue — and Abrahamson seems intent now on investing in his core proposition.

At the heart of Invest n Retire’s value proposition is technology that enables plan participants to buy fractional shares of ETFs even though such transactions are not possible on the stock exchanges. Another company with fractional-share capabilities is Folio Institutional. See: Folio Institutional finds its winning formula for RIA custody in specialized trading technology.

One difficulty in competing in the 401(k) business using ETFs is that they lack the well-obscured revenue stream of most 401(k) plans, which are funded by revenue-sharing programs built into the mutual funds they use. Thus, it’s difficult for ETF-based plans to add fees and remain competitive. See: Why gathering big-time 401(k) assets — and charging regular fees — is well within reach for most experienced RIAs.

But with new fee disclosure rules coming into effect, ETFs are poised to become far more competitive when a fee is added on top. See: See: Which three of DOL’s new 401(k) rules represent the biggest land mines for financial advisors and plan sponsors.

This is an another edge that 401(k) plans using mutual funds have maintained: because purchases can easily be made in dollar amounts. Another aspect of the firm’s technology is its ability to handle transactions of more thinly traded ETFs.