It's National 401(k) day and I have some sobering thoughts on the retirement industry for those who are interested, or should be interested. Namely, employers, advisors, regulators, and most importantly, retirement savers. 

We started Basic Capital a few years ago, built our own recordkeeper and AI tools, and have since then been the fastest growing recordkeeper with remarkable momentum. 

These are some harsh truths but they come from a place of candor, care and a hopeless romanticism that as an industry we can build something better for the American Worker. 

What makes the 401(k) such a difficult product to revolutionize comes down to the unavoidable reality that the buyer is not the user. A company's 401(k) is often selected and overseen by its human resources team. The wants and needs of the employee is an abstract factor. Participants are rarely, if ever, consulted. 

Employees, therefore, must live with the decisions of people who have only vague notions of what they are looking for, and limited exposure to the consequences of their choices. Plan sponsors are not held to account by the American workers now reaching retirement age. 

The predictable result is a retirement system built to satisfy regulators, protect from the plaintiffs' bar and pay asset managers. In turn, that means bland product experiences and uninspiring financial realities for workers. It cascades into reduced retirement security, creating a burden on social security and making workers feel disenfranchised. 

In fairness, employers are not sure what to care about when choosing a 401(k) provider. After all, they have a business to run. They must balance business risks against doing right by the employee, but they don’t concretely know what that “right thing for the employee” is. An entire industry has formed dedicated to profiting off answering that question.

Benefit brokers, advisors, consultants, and gatekeepers have proliferated to help  honest HR leaders and employers make a high-risk decision they never signed up to make in the first place. 

Recruitment, retention, and "financial wellness" are made-up salary-justifiers and everyone in the industry knows it. We've taken something elegant in its simplicity and created a profit pool from workers' savings.

There is only one 401(k) metric that matters and it's the balance in the participant's account. Is this person ready for retirement? Are they on a path to be ready for retirement? That’s what matters. And what should be our north star as an industry. Instead, it’s providing air coverage from plaintiffs lawsuits, catering to whatever asset manager is paying Empower, or helping grow Fidelity’s private wealth business. 

The balance in the participants account should be the North Star as an industry. It should guide our product roadmap, it should be the 'why' of everything we build. "Why did you add that feature?" Because it increases participant balances. "Why do you offer more investment choices?" Because it increases participant balances. "Why does the admin dashboard generate Slack messages about contribution rates?" Because it increases participant balances.

Do we need fiduciary rules that protect the participants? Of course. Do we need financial education to inspire and nudge the participants? Sure. But we can't do any of it without a deep, unifying sense of why we are here and why we have any right to exist at all.

At Basic Capital we are vocally and doggedly building the best product for the participant. This doesn't mean we don't have product features for other stakeholders like Advisors, PEOs, and HR Admins. Rather this is a guiding belief system about what those features should be, why they exist and how we design them. They should be driven by and spoken about in terms of how they impact and improve the experience and outcome of the participant. 

I showed up to this space with a naive belief that things could be better. We set out to build something we wanted for ourselves. A retirement platform that felt more like the other financial tools in our life, not a check-box and a tax form. 

This isn't to say that retirement is bereft of innovation. Take lifetime income, a good idea for participants that materially simplifies deaccumulation. But it disrupts the multi-billion dollar advisory business that some recordkeepers built on top of their 401k to advise retiring workers on how to manage their wealth going into retirement. 

Take the brokerage window, it makes no sense that a diverse multi-thousand employees workforce will all find a list of ten investment options compelling. But we make it impossible for the participants to access the brokerage window because it’s bad for the recordkeeper making money on a stable-value fund suballocation inside a target-date fund.

So what is the solution? First is reducing the regulatory burden that stifles competition. A more pragmatic regulatory approach to 401(k) would create more options and less fiduciary insurance paid for from the participant's balance.

Secondly, as an industry we should be guided by true fiduciary standards, not by fiduciary compliance. Fiduciary standards means doing what’s best for the participants, which often means lower fees, more optionality, better experience. And better service. 

In short, retirement plans have stagnated, offering legacy solutions to an increasingly unengaged market. Not all disruption is good, but prolonged stagnation is always disastrous. 

To plan sponsors, we see you, we hear you and we are building for you. Because we know, you are trying to do “what’s right for the participant”.... And so are we. 

To our competitors and other recordkeepers, the 401 industry should be built for the participants, not on them.