Guideline Hits $15B in AUA on Philosophy of Simplicity, Low Fees

Recordkeeper Guideline Inc. reached No. 7 in this year’s PLANSPONSOR Recordkeeper Survey as measured by total employer-sponsored defined contribution plans, in part due to adding 12,795 new plans in 2023.

The firm, which has forecasted another strong year of plan adds in 2024, was launched in 2015 after Co-Founder and CEO Kevin Busque asked a question about the 401(k) plan for a startup he had co-founded: Why was his plan provider charging relatively high fees for a lackluster experience?

“We were paying like 1.65% annually,” said Busque in a recent interview. “I thought, ‘Well, this doesn’t make any sense; I’m just buying mutual funds.’”

Busque, who at the time was vice president of technology at TaskRabbit, started asking questions of the firm’s 401(k) plan provider. The answers—or lack thereof—led him to the conclusion that there was little value added for the costs, “because I was still making the selections, and the fiduciary responsibility was still mine as well.” Meanwhile, he notes, less than half of TaskRabbit’s employees were choosing to use the benefit.

The software engineer went into the market looking for a solution and—as many startup stories go—he couldn’t find one. With TaskRabbit going through a sale to IKEA at the time, Busque decided to use his background in software development to build a better recordkeeper.

Kevin Busque

“At the time, nobody understood why we were doing it,” he says, acknowledging that there were many recordkeepers in an already fee-compressed space. “The reason we decided to do it … was because it allowed us to control the product experience and everything related to it. All the other products out there were old and terrible. I wanted something more modern.”

Although Busque started the company in 2015, the team was working on the product for a year and a half before it went into market. Since then, it has been competing with larger payroll providers such as ADP and Paychex; legacy players who operate on the smaller side of the market, such as Empower and Principal Financial Group; and other startups, including Vestwell, which has taken a leading role in the state-sponsored plan market, and Human Interest, backed by asset manager BlackRock.

Recordkeeping seems poised for further consolidation, as analysts often note. But for those who get it right, there is an opportunity to take advantage of a boom in small plans that Cerulli Associates forecasts will see an increase to nearly 1 million plans by 2030 from about 670,000 total plans at the end of 2022.

Bought, not Sold

Busque’s Guideline has climbed the plan count rankings in part, he says, because it built its own platform and technology, with few third-party providers charging asset-based fees, and because it is available in coordination with numerous payroll providers. Guideline has a third-party custodian, but now that the firm has hit $15 billion in assets under administration, Busque says it will continue to become even more independent.

One way Guideline keeps its offerings independent is by managing all of its integrations with payroll partners, as opposed to going through a third party, Busque says, which allows for better control of the product experience and tighter data security. He also notes that, at the moment, about half of Guideline’s clients are bought, not sold, meaning they find Guideline through their payroll provider or directly on its website.

“They can onboard in less than five minutes and don’t have to talk to a salesperson,” he notes. “We make all of those choices for them as the fiduciary, both the 3(38) and the 3(16), so that makes it really easy to get on board with Guideline, and that’s why we can go so quickly.”

The firm’s Starter 401(k) program, which launched in October 2023, has proven a driver of new plan growth by targeting firms with new state mandates. Guideline also offers a service called Guideline Pro, which financial advisers can use to set up plans for clients—as of now, that accounts for about 12% of the firm’s business, Busque says.

But there is another growth area Busque sees as driving growth: existing companies that are migrating to cloud-based payroll and benefits.

“You see this offline-to-online migration, which is a huge tailwind for us,” says Busque. “All these businesses are being handed down to the next generation … and now they are adding benefits with the click of a button.”

Guideline has been fueled by investors such as Felicis Ventures, General Atlantic, Generation Investment Management and Propel Ventures. With its current size, Busque says the firm could go public, but at the moment it has no plans to, with strong cash flow and runway for growth.

Not Complicated

Instead, he says, the firm is focused on continuing a simple and efficient approach to 401(k)s. He notes that 100% of Guideline plans include automatic enrollment, with a focus on a target-date-fund glide path with minimal expenses. He says 92% of participants take the firm’s recommended portfolio, with the other 8% picking their own funds out of the menu.

Meanwhile, Busque says he is not a fan of managed accounts; Guideline does not offer them right now and “probably won’t” in the future.

“We’re dealing with retirement assets, and I don’t think it’s that complicated,” he says. “I fully believe in modern portfolio theory and controlling what you can control—and what we can control is our fees.”

Busque tells of meeting the late Jack Bogle of the Vanguard Group, famous for pioneering index fund investing. Busque says that strategy is what underpins his approach to 401(k)s, which is getting participants into good funds early on in their career with a low expense ratio.

Where Guideline is currently working to innovate, Busque says, is stopping people from cashing out their 401(k)s when they face emergencies or have short-term needs. The firm, he says, will have new product announcements in that area of participant use by the end of this year.

Meanwhile, Busque hopes to keep his company of about 350 employees focused on the initial mission he first conceived when pondering his own company’s 401(k) offering.

“When I was having that conversation with Jack, he asked, ‘Are you going to stay true to this?’” Busque says, noting that others had spoken with Bogle, but eventually changed their models to become more complex and costlier. “I said to him, ‘Yeah, we’re not going to [change].’”