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Pontera attracts yet another $45-million VC round for its 'held-away' 401(k) order management system and snags SageView, a $175-billion RIA, as a customer

The 10-year-old New York City firm nixed its FeeX brand and its old business model after RIAs said they wanted 'action' more than information.

Thursday, March 24, 2022 – 11:19 PM by Lisa Shidler
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Yoav Zurel: 'Advisors told us, information is great, but what I want is action'

FeeX just raised $45 million but first it had to change its business model from an X-ray to a bridge and renamed itself accordingly. Big RIAs with a 401(k) bent are rewarding them with contracts.

Founder and chief executive Yoav Zurel says the firm was laser-focused on fees in the 401(k) arena, but discovered little interest in that model and switched to helping advisors manage accounts.

Jason Roberts
Jason Roberts: 'Because policies prohibit it - it has to be done on the back of a napkin.'

"Advisors told us we need more than transparency. 'Information is great, but what I want is action,'" Zurel says.

Venture capitalists joined the action by investing $80 million in the past 18-months at the once-gimmicky New York City company. The firm is now known as  "Pontera," from the Latin “pont,” meaning “bridge.” 

Lightspeed Venture Partners is their chief backer; it's led all three rounds of funding. 

Other investors include Hanaco Ventures, Hyperwise Ventures, Blumberg Capital, and the Founders Kitchen Investment fund, which is led by Uri Levine, founder of Waze. Levine is also a co-founder and is still involved in the firm as a board member. 

The RIAs signing on as clients include the $20-billion-AUM Carson Group and, more recently, the $175-billion-AUM SageView Advisory. See: Young SageView fiduciary chief tasked with standardizing practices across 23 offices

More RIA clients means the need for more capital to pay more staff. Pontera has 130 staffers and expects to hire an additional 150 this year. 

Virtual custody

In its Pontera iteration, the company took on a big task -- finding a way for RIAs to manage for a fee 401(k) assets that have not rolled over to their control.

Aaron Schumm: 'A Pontera-like solution would likely only add expense.'

The defined contribution arena had $10.4 trillion in assets in the third quarter of 2021, and the total retirement space including IRAs and defined benefit plans total $37.4 trillion.

All of those assets are potential Pontera-enabled AUM.  "Nearly all 401(k) plans and employer-sponsored DC plans can be held away assets," the company says.  

"For context: Any account--that can not be moved (like a 401k for a current employee) or should not be moved, because it’s not in the client’s best interest to roll over or consolidate the plan--could be considered 'held away.'"

Revenues aside, RIAs bolster fees, relevancy and their chances of one day getting the actual rollover by creating a sort of virtual custody. 

RIAs also avoid getting in trouble with ERISA, which tends to look askance at ad hoc oversight of held away retirement assets and get paid in the bargain,  says Jason Roberts, ERISA attorney and CEO of of Pension Resource Institute.

"Because policies prohibit it - it has to be done on the back of a napkin. The problem is you're not getting paid on the account and you're still an ERISA fiduciary," he says.

Lowering risk

This Pontera program is solid, Roberts says.

"If you have a program like this, you can actually lower the practical risk that most firms have in this space." 

Formerly, Pontera was an app that an advisor could apply to a portfolio to ferret out hidden fees and the time was well-spent, Zurel says.

"It took us since launching the company in 2012 to 2018 to get that level of understanding of 401(k) plans. The 401(k) plan is a very flexible structure... But it took us a lot of years to understand 401(k)s and to be able to serve advisors in the way we're doing."

Under this program, advisors do get paid, and Zurel says the average account size is about $250,000. Under Pontera, advisors charge their typical fee for those assets. 

No substantive value

Some 90% of small businesses with workplace savings programs have an advisor already helping out,  says Aaron Schumm, founder and CEO of Vestwell, a startup 401(k) recordkeeper with its own big VC backing. See: Vestwell raises another $70-million, which it needs as it burns cash to keep up with rapid tripling of its 401(k) recordkeeping startup -- driven both by RIAs and Wall Street

"A Pontera-like solution would likely only add expense and not add substantive value to the employee above and beyond the advice. The advisor and/or 3(38) investment manager on the plan are already providing with their custom strategies," he says. 

Pontera's main goal is to give advisors access to clients' 401(k) accounts, Zurel says. 

The firm is not a record-keeper, but rather an order management system. Clients must give Pontera permission to access the accounts. The advisors have access to reposition assets but don't have permission to withdraw or change beneficiaries,  he explains.  

“Third-party studies have found that a professionally managed 401(k) account can outperform a self-directed account by more than 3% annually, even after accounting for fees,” said Pontera in a rlease. 

“Prior to Pontera, advisors who wanted to provide this support had limited options that often came with security or compliance risks.”

A better solution

Having a solution like this makes it easier for clients who want advice, Roberts says. 

"If we look at the status quo, most firms don't allow advice on held away 401(k) accounts," he says. 

In the past, advisors have gained the clients' name and password to access the account that allows for changing addresses and requesting distributions and that creates constructive custody, Roberts explains. 

"This program alleviates the risks and constructive custody goes away." 

In the past, the ways advisors help people with 401(k) plans have been clunky, Zurel says.

Risk vs. accountability

Oftentimes, advisors would ask for statements and documents, and the clients would get those to the advisor, and then the advisor would tell them what changes to make. Typically, advisors didn't charge for this service. 

But the advisor would still be liable.

The second most common way is when advisors take clients' user names and log in to client web portals and trade themselves. "The beauty is you deliver on your value proposition and can steer the account. But this comes with substantial risks. We're seeing hacking every day," Zurel says.

"The client-permissioned path allows advisors to have the best of all worlds. The advisors can do the full-rebalancing for the clients, and the advisor doesn't need to deal with how to protect the log-in information," Zurel says.

Cross-referencing

Getting past clunky can be clunky work, the firm says.

"Because we work with such a wide variety of platforms and account types, there is no single technology or approach that will sufficiently deliver the level of detail and clarity needed to be impactful for advisors and their clients," it explains 

"Over the past decade, we have developed a suite of technologies to analyze, reconcile, and standardize data. 

"We collect data from many sources - including processing statements, fee disclosures, fund prospectuses, plan literature, transaction data, and more, which we then cross-reference to create one accurate picture for each account," the company adds. 

 

 

 

 



Brian Murphy

Brian Murphy

March 25, 2022 — 11:52 PM
Nice - but still not optimal. It looks like Pontera is now taking on liability for login and portfolio re-balancing for client accounts. Any sort of hacking gets pinned on them I suppose. Given that it's taken them 8-9 years (and $80MM) to get to a good understanding of the 401(k) market, I'd guess their offering should really get going by 2030 or 2040! They've got part of the solution but their business model is woefully inadequate...not for the RIA's of the world, but the end client. Next question - given that they've now figured out the 401(k) market, are they getting permission from both the employer (trustee) and custodian to use their service for each and every client/plan? If not, they might want to rethink their offering a bit more. Good luck nontheless - the industry needs doers.
BFG Wealth Management

BFG Wealth Management

May 6, 2022 — 3:58 PM
Nice to see a platform for RIAs to finally be able to help clients manage their 401(k)s, 403(b)s, etc. the right way. How many times have I made a recommendation for a change in a client’s account outside our management, only for the client to forget to do it? Too many times… Nice work Pontera!

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