Goldman Sachs is buying an online retirement savings startup that is barely a year old, as the Wall Street bank adjusts to the growing influence of technology in finance.
Goldman’s investment management division said it would buy Honest Dollar, an Austin, Texas, company that sells retirement plans consisting of portfolios of low-cost exchange-traded funds to small companies, charging $ 8 to $ 10 an employee a month. Terms of the deal were not disclosed.
The deal, which is expected to close by July, comes nearly a year after Goldman said it was hiring former Discover Financial Services executive Harit Talwar to lead an expansion into online lending.
It is one of a number of moves by Goldman to experiment with cheaper, less-exclusive services. Last year, Goldman surprised its peers with decisions to launch an online lending business for consumers and to start a new ETF that aims to beat the S&P 500 while charging annual fees of just 0.09%.
Companies like Honest Dollar are pairing Internet distribution and advances like computer-generated portfolios to push down the cost of saving for retirement. Honest Dollar’s customers include the drivers of ride-sharing startup Lyft and its investors include venture capital firm Core Innovation Capital and former Citigroup CEO Vikram Pandit.
Honest Dollar’s sale follows an eventful 2015 in which the company launched its product, raised $ 3 million in seed funding and endured the departure of its co-founder and chief strategy officer, Henry Yoshida.
Other big financial companies are making forays similar to Goldman’s. Last year, BlackRock agreed to acquire FutureAdvisor, an online provider of automated investment advice, and Northwestern Mutual Life Insurance agreed to buy LearnVest, an online financial planning service.
JP Morgan announced a partnership late last year with OnDeck Capital to make online loans to small businesses. And earlier in March, The Wall Street Journal reported that Bank of America recently dispatched a top executive to Silicon Valley with an eye toward identifying promising payments startups that it could acquire.
The interest in financial startups from banks like these gives entrepreneurs an option to cash in despite the initial public offering market cooling significantly in recent months.
For Goldman, the purchase could add a new distribution channel for a key business currently more in favor with regulators – asset management – than the company’s flagship trading and investing businesses.The market for small-company retirement plans is attracting interest from both private companies and politicians. In total, some 45 million working-age Americans lack access to employer-sponsored plans, according to Goldman.
In part because small plans lack the leverage to negotiate lower fees, companies with fewer than 500 401(k) participants pay an average of 1.16% each year, versus 0.74% for those with 1,000 to 5,000 participants, according to a 2013 report by mutual-fund industry trade group the Investment Company Institute and Deloitte Consulting.
Honest Dollar offers investment portfolios of low-cost exchange-traded funds, with average expense ratios of 0.1% a year, from Vanguard Group and other firms. It charges companies a flat monthly fee of $ 10 an employee with a chance at a discount if the company signs up for an entire year.
Will Hurley, chief executive of Honest Dollar, said Goldman Sachs will “help us dramatically accelerate our growth.” “We have customers who say ‘You guys have been around a year but how I do I know you will still be around in the future?’”
Without partners, “it is difficult to build scale when you have to negotiate deals with every mom-and-pop company out there,” Celent analyst William Trout said.
Goldman and Hurley declined to say how many companies have signed up with Honest Dollar, which has 25 employees. The company allows plan sponsors a choice of savings vehicles that include standard pretax and Roth individual retirement accounts, SEP-IRAs, and SimpleIRAs. It is unclear how the company’s product offerings might change under Goldman.
This story was first published on The Wall Street Journal.