For decades, Americans have been told their 401(k) is “their” retirement, but when it comes to managing those funds, most find they have little to no control. Tax-advantaged accounts like 401(k) plans, Roth IRAs, Health Savings Accounts, and 403(b) plans generously reward people for setting money aside toward their golden years, and that comes with restrictions on the 6 in 10 Americans with some type of retirement plan.
Most of these accounts are maintained by third-party administrators hired by employers and hosted on convoluted legacy investing platforms. Plans limit investors who want more custom options for their 401(k), whether that be in the range of stocks or funds they can invest in, or how they’re able to engage outside help for advice. So if 401(k)s were intended to give Americans ownership over their future retirement, why are hopeful retirees so limited in what they can choose?
Several tech-focused fintech firms have attempted to fill this gap, including software upstarts like Pontera, Yodlee, and Absolute Capital, which have developed products to connect financial advisors to 401(k) investors seeking that additional layer of control.
Some of these tools allow for “held-away accounts” hosted on retirement platforms to be stewarded by advisors to track portfolios, place trades, and rebalance investments, as well as enable robo or AI-investing set by algorithms, if customers so choose.
This industry is built on the principles of open banking that have spread across the finance sector to enable customers full prosperity rights, plus access to their financial data on fintech services, money management and budgeting platforms, and cryptocurrency exchanges. You’d think this would have been the norm already.
As tech advisory companies attract more customers, though, state regulators and competitors in large investment banks are predictably seeking to block investors from using them.
In Washington, Missouri, Nebraska, Ohio and Colorado, state securities regulators have issued guidance letters warning about “unauthorized” tech platforms gaining access to 401(k) accounts, accusing these firms of “unethical” business practices or operating without the appropriate licenses. Fidelity, the nation’s largest retirement investment bank, has reportedly suspended thousands of their clients’ accounts for sharing credentials with these services.
Much like Uber and Airbnb are technology companies — not taxi services or hoteliers — these services are software platforms that shouldn’t be mistaken for financial advisory companies.
Fintech provider Pontera has fired back at regulators and investment banks like Fidelity, which have blocked client access to advisors using their platform, accusing them of keeping retirement accounts “captive” and depriving investors of choice. Although states like Texas and Rhode Island have offered positive guidance on tech-focused advisor platforms, they remain outliers.
While the patchwork of state securities and financial regulations continues to metastasize, the appetite for positive reforms aimed at expanding investor choice is growing in the nation’s capital. An executive order from President Donald Trump directed the SEC to explore how 401(k) investments can be opened to assets once deemed out-of-bounds, including private equity structures, real estate trusts, crypto assets like Bitcoin, and even infrastructure bonds.
These potential SEC reforms could upgrade retirement accounts to the 21st century and keep pace with new financial and technological trends that younger consumers, tomorrow’s retirees, expect. They could also free up the market so that retirement investors could engage advisors on tech advisory platforms to better suit their needs, if they so choose.
If the SEC recognizes the value of empowering investors to truly own how they plan their retirement, why can’t this principle be recognized in the states as well? If there’s one thing consumers deserve when it comes to building their nest eggs, it’s having ultimate sovereignty in how they build it.
