BlackRock, world’s largest asset manager, buys stake in small-business 401(k) startup
By taking a minority stake in an online 401(k) provider, the company seeks access to an underserved corner of retirement investing
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BlackRock Inc. is taking a minority stake in a 401(k) provider that caters to small businesses, a long-ignored segment of the retirement market that is starting to attract more interest.
BlackRock, the world’s largest asset manager, on Friday said it is making the investment in Human Interest Inc., a San Francisco company that has offered 401(k) plans since 2015.
The companies declined to say how much BlackRock is investing or the percentage of Human Interest stock BlackRock will own after the transaction closes. Human Interest Chief Executive Jeff Schneble declined to say how much the startup is currently worth.
BlackRock CEO Larry Fink speaks during the New York Times DealBook Summit in the Appel Room at the Jazz At Lincoln Center on Nov. 30, 2022 in New York City. (Photo by Michael M. Santiago/Getty Images / Getty Images)
Human Interest was valued at $1 billion as of Aug. 4, 2021, according to the company.
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Anne Ackerley, who leads BlackRock’s retirement group, said the stake in Human Interest is BlackRock’s first in the 401(k) industry. BlackRock has about $8 trillion in assets spread across all types of investment products. In its 401(k) operations, the money manager mainly provides investments to plans of large and medium-size companies. The investment in Human Interest will help BlackRock gain insight into the growing market for small-company 401(k) plans, said Ms. Ackerley.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| BLK | BLACKROCK INC. | 1,034.11 | +9.41 | +0.92% |
According to the U.S. Bureau of Labor Statistics, more than 30% of private-sector employees lack access to a retirement savings plan at work.
A lack of access to retirement plans "is a huge issue within the retirement industry," Ms. Ackerley said. "We’ve been very focused on how you get companies to offer plans."
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Ms. Ackerley said the move follows similar stakes BlackRock has taken in companies focused on helping people become more financially secure, including Acorns and iCapital Network.
401(k) plans ensure Americans have enough money to live on after they retire and no longer receive an annual wage.
Mr. Schneble said Human Interest plans to use BlackRock’s investment to expand its workforce from about 800 employees to about 1,000 by midyear and enhance its platform’s capabilities.
Currently, Human Interest has 12,000 clients, a number that is growing by about 1,000 a month, he said. Two-thirds are offering a 401(k) for the first time. On average, the company’s clients have between 30 and 40 employees.
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By the end of 2023, the company’s goal is to serve one million 401(k) participants, up from a "few hundred thousand" today, said Mr. Schneble.
Policymakers have been searching for ways to make retirement-savings plans attractive to small businesses. In recent years, five states, including California, Oregon and Illinois, started requiring many businesses to offer retirement plans or enroll workers in a state-run savings program, according to AARP. Another nine states have similar programs in the works.
Some of the state-run retirement savings programs offer BlackRock funds.
Human Interest is one of a crop of startups that launched online 401(k) plans aimed at serving small businesses at a relatively low cost and without a significant paperwork burden. Many of those startups sell 401(k) services directly to employers.
Human Interest, in contrast, mainly receives referrals from companies it partners with, including payroll providers, financial advisers, banks and credit unions.
Human Interest offers its clients access to BlackRock funds but the default investment menu, selected by most of its clients, consists of funds from other companies, including Vanguard Group. Mr. Schneble said he doesn’t expect that to change as a result of the transaction.
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Human Interest charges employers a monthly administrative fee of $120 to $180, plus $4 to $8 for each employee, depending on the level of services they elect. In addition, the company charges workers 0.50% for portfolio management. Workers pay another 0.07%, on average, for investment fees.
According to a report by 401(k) plan tracker BrightScope Inc. and the fund-industry trade group, the Investment Company Institute, 401(k) plans with less than $1 million in assets had an average total cost of 1.33% of assets in 2019, compared with 1.05% for plans with $1 million to $10 million and 0.28% for plans with more than $1 billion in plan assets.