Increasing Retirement Security with Neal Ringquist and Spencer Williams

Jack Sharry: Welcome everybody to WealthTech on Deck. Thanks for joining us. As our listeners know, we talked about the confluence of human and digital advice from all angles, Wealth Management, workplace retirement, asset management, insurance, and annuities. And of course, the role financial technology plays in connecting all these dots to improve outcomes for all. Today, we’re going to have a conversation with some folks who have built a business in the workplace retirement sector and have been tirelessly seeking to help participants, recordkeeper sponsors, and tech companies come together around improving outcomes for everyone in the value chain. Spencer Williams is Retirement Clearinghouse’s founder, president, and CEO and also the president and CEO of Portability Services Network. And Neal Ringquist is the Chief Revenue Officer for both Retirement Clearinghouse and Portability Services Network we’ll be hearing about both in a moment. Spencer and Neal are longtime friends in the business and I welcome you to WealthTech on Deck, glad to have you aboard.

Spencer Williams: Thanks, Jack. It’s great to be here.

Neal Ringquist: Thanks, Jack. Likewise.

Jack Sharry: Spencer, when you kick it off and explain to our listeners why you started Retirement Clearinghouse way back when and how that turned into Portability Services Network. We’ll talk about that as well, I’m sure. But what does Retirement Clearinghouse do? Why is it such an important service?

Spencer Williams: Well, Jack, this goes back more than a decade now, I think the first dawning on us was recognition of what the impact of America’s highly mobile workforce is on the retirement system, and in particular, on individuals’ retirement savings. So a lot of people know that America’s workforce is mobile now, or they think this is a new phenomenon. It is not, the records go back probably 50 or 60 years at the Department of Labor, that it shows the mobility of America’s workforce, the average worker is going to hold, you know, 12 jobs, their average tenure is less than five years. And what we realized was that, while the retirement system is robust, and is, you know, has many different types of service providers, as you said, record keepers, plan sponsors, advisors, you know, third parties, was that there was a gap in the system, a big gap, sort of market inefficiency, if you will, the mobility of the workforce is not satisfied by the current infrastructure of the system. And that was the dawning for us give you a quick stat. And then, you know, we can go from there, which is about 15 million people a year with a 401 K plan change jobs. And the most stunning number that we came across as we dug deeper and deeper and deeper was that somewhere in the order of you know, more than a third of those people cash out their retirement savings when they leave jobs, permanently disabling their ability to retire well, okay. And if you look one layer deeper, you found that that number shot up to close to 70% of people with very small balances. And there’s a very high correlation between that population, and America’s underserved and under saved workers. So the people with the least income, right, and minorities and women were getting the worst end of the deal from a system that doesn’t accommodate workers changing jobs, and helping them in their retirement savings.

Jack Sharry: Gotcha. So, Neal, you have a background in tech and as former president of Advisor Software, Inc, ASI. And you also spent some time with M Power and Morningstar in your past, over the past nine or so years that you’ve been at Retirement Clearinghouse, tell us your backstory, what you’ve been up to what you’ve been working on, you guys have really been pushing a rock up a hill here. So maybe talk a little bit about what you all have been up to?

Neal Ringquist: Yeah, well, I’ve been for Retirement Clearinghouse focused on sales, marketing, and relationship management with the heavy focus on getting auto portability off the ground.

Jack Sharry: And why don’t you explain that most of our listeners are not going to fully understand auto portability, but you’ve probably explained that a few times in your career.

Neal Ringquist: You bet. So let me make a parallel to my work at M Power the letter M POWER as opposed to the record keeper and Empower. So you know many of your listeners Jack may think the whole robo advisor concept started with Wealthfront and Betterment and so forth, but it actually started in the mid-90s when a firm called 401k Forum created the first online advice application for the workplace and quickly followed by Financial Engines. So the advent of online advice started in the retirement space back in the 90s. Interesting parallels of what we’re doing, obviously, in retirement space when you’re working on technology, everything begins and ends with working with record keepers since they’re the gatekeepers to plan sponsor relationships, who are themselves the gatekeeper to participants who end up actually consuming or leveraging the service you provide. So a lot of what we’re doing now in terms of signing up working with record keepers implementing very similar to those early online advice days. In fact, in both instances, back in the online advice days, we relied on a key advisory opinion, the Sun American advisory opinion in 2001, which spoke to certain advice and not becoming a fiduciary, which would have required a primitive transaction exception, right? Well, Retirement Clearinghouse, we started by getting an advisory opinion. But instead of not being a fiduciary, we’re a fiduciary. So we had to get a primitive transaction exemption. And that’s the guidance. That’s the enabling regulation that today, auto portability is built on, that will soon be replaced by the legislation that will take effect at the end of the year Better than Secure 2.0, which basically codifies auto portability. But a lot of parallels with what we’re doing today in the retirement space with portability, and then looking back in the 90s, with online in place.

Jack Sharry: So Spencer, you’ve been at this, you’ve founded Retirement Clearinghouse, and we’re at the dawning of the whole auto portability effort when you maybe give us a little bit of go beyond what Neal’s already shared and talk a little bit about the history, but also the challenges because you really had to get the big players in the workplace retirement area to work together. And I imagine you’re still having those discussions. But talk a little bit about that, because this is an area, many of our listeners are where from wealth and asset management, insurance, and annuity are getting more and more familiar with the workplace side, because that’s kind of how everything’s coming together. But really what, as I understand it, or as we’ve talked about it over the years, really what you’re doing as you’re trying to help people not do dumb things with their 401k. To put it bluntly. So talk a little bit about that and explain that, some of the challenges and really getting the industry to come together around the concept of auto portability.

Spencer Williams: It’s a great question, Jack. And there’s probably three or four major hurdles that we’ve managed to get over in the last decade or so actually been more than that now. The first one was if you have to kind of go back to the roots of you know, what is auto portability? It’s a very simple concept. The simple concept is, we create a mechanism by which a worker’s retirement savings, follow them from one job to another. I mentioned a few minutes ago that the population that we look at is undersaved and underserved. So we have this mechanism in place in the industry that came out of egg truck 2001, which is a plan sponsor can essentially cash someone out from their retirement plan, okay, push them out involuntarily. If they have a small balance, there’s lots of good reasons for that. But that particular event is executed by negative consent, meaning the worker can do something quickly with their savings, but they don’t really have a choice if they don’t do something their money moves. Okay. What auto portability does is it actually marries or pairs with the concept of you can get pushed out of a plan with the concept of we can then push your savings to your new employer plan on a negative consent basis. All right. Yep. So the first hurdle we had to get over was this negative consent concept. All right, Neal mentioned the advisory opinion and the PTE. We didn’t seek to get those at the beginning, we were actually in discussions with and this will come into play in just a second with six of the largest record keepers in the country. We sat down and said, Here’s a concept that has some very good business principles for you. We preserve savings, we incubate accounts for workers, you know, we just make the system healthier by doing this. And they actually said to us, well, great. There are a lot of fiduciary problems going on right now. You know, Phyllis Boise, in that era of the Department of Labor, the fiduciary rules, were all creating a lot of, you know, pull and tug in the system. They said, Well, you’re just gonna have to go out and get regulation from the Department of Labor that authorizes this. We said, Okay, we’ll do that. That turned out to take about seven or eight years and three administrations, okay. Before we, we got the Department of Labor to buy into the public policy good of retaining an individual’s savings in the system, you know, and incubating their account. All right, that was the first big hurdle. The second big hurdle was kind of Back to the Future, which is, okay. If you think about the essence of what’s going on as a worker is leaving Company A. And they’re now employed at Company B. And we want their savings to go from A to B. Well, A and B have different record keepers, we’ll just use Fidelity and Empower. Okay? Company A’s plans are recorded and kept by Fidelity Company B’s plan is recorded and kept by Empower. In order to make this work, we have to get Fidelity and Empower as well as companies A and B, to agree to allow this to happen. Okay. And so now you multiply that times the 5 million actions, it’s closer to 6 million workers a year who are subjected to these mandatory distributions from their plan. That’s a really big challenge. It optimizes the system optimizes the probability of the individual who has Company A showing up the Company B and us being able to move their money is optimized when we get everybody in the industry to play. From the recordkeepers, all the way down through the 630 Odd plan sponsors that are in the defined contribution system today. So there’s a critical mass for that. And this one is as difficult as it was to get regulation, the critical mass hurdle was equally significant. So I’ll pause there for a second because I can keep talking and forever on this topic. But you know.

Jack Sharry: Well, Neal why don’t you pick it up from there why don’t you talk about the challenges that Spencer just laid out here, because I know you spend a lot of time we both you guys spend a lot of time on this whole topic. So sounds like you got the government on board, whether you intended to or not, they seem to have done the right thing. And then now you have to deal with all these different record keepers, and then sponsors and all the rest. So why don’t you talk about, then what’s the rest of the story? How are you getting everybody to come together? Because I gather you’re making progress? I’m sure you’re not all the way through. But talk a little bit about that, if you would.

Neal Ringquist: Yeah, well Spencer touched on it with the key public policy benefit of plugging cash out leakage. That’s why all the players came together, you know, it helps everybody in the industry. Now the challenge, first you sign up the record keeper, then the record keeper implements, and then they take the service to their plan sponsor. And you know, we always joke internally about the speed of retirement, it just, takes a long time for new services in the retirement industry to take hold the retirement industry, that plan sponsors in particular are cautious by nature. Obviously, if you open up any of the trades, you see some new litigation against somebody in the industry related to fees or something that they’re doing with a plan. So, you know, rightfully so very cautious. And oftentimes, these things take time in the retirement industry to germinate. And at some point that tilts and it becomes almost a fiduciary issue if you don’t adopt something so good for the participant. And we think we’ll get there with this. I mean, if you think about it, Jack, looking ahead, where there’s been a behavior that participants have done, that has worked against their best interest, the industry has adopted defaults that require the participant to opt out of the good behavior instead of opt-in. Right. So you saw that with participation. You saw that with target date funds, investment management, and so forth. Now, portability is sort of the last and final frontier, if you will, in retirement where, because of the frictions involved, participants do the wrong thing and cash out by forcing them to opt out where the natural default path is that balance simply follows them when they change jobs. We think that’ll, you know, change the equation and we see defaults work on other areas. And that’s what’s going to happen here. And this won’t be a ubiquitous default in the retirement industry, auto portability, will be within three years.

Jack Sharry: So Spencer, give me your assessment of where things stand now. And then where things are headed. Because it sounds like we’re sort of halfway through the movie and things are getting worked out. So maybe talk a little bit about your assessment of where things are now and then where they’re going to be. When does auto portability become a thing that’s just done as opposed to something to be strived for?

Spencer Williams: Well, first of all, I hope we’re more than halfway through this movie Jack. It’d be a very long movie, you mentioned your favorite Greek mythological character Sisyphus pushing the rock up the hill. Okay, that’s us. But I think the rock at the top of the hill is starting to roll down. So here’s where we stand. There was a giant change in if you will, the critical mass equation that occurred last September 30th. And that change was we formed an independent entity Portability Services Network. It’s best thought of as a joint venture between Retirement Clearinghouse and at this point five soon-to-be six major recordkeepers, whom I can name because this is all public. Portability Services Network includes Fidelity, Vanguard, Elight, Mpower, and as of yesterday, TIAA, alright. Congratulations. Yeah, between them if you do this on a participant count basis, we have well over 50% of the entire participant population in the United States represented. Okay. They came together because of the public policy good, first and foremost, and I would be remiss if I didn’t mention Retirement Clearinghouse and Portability Services Network Chairman, Bob Johnson. Okay. Bob invested in this idea, you know, when we started, all right, but he didn’t just invest capital, Bob invested his personal capital. And, you know, including his ability to work with the Obama administration, the Trump administration, the Biden administration, okay. As well as you know, a who’s who have large employers, CEOs, NAACP, and National Urban League, there literally is not a place in the country, Bob can’t go or get access to.

Jack Sharry: Spencer, for those. There’s a lot of Johnson’s kicking around our industry, maybe describe Bob’s background.

Spencer Williams: Yeah, so it’s Robert L. Johnson. Bob is a true blue entrepreneur, even at his age, okay. He founded Black Entertainment Television, way back in the early 80s. And was probably the first black billionaire in this country. Very successful, you know, career, when he sold Black Entertainment Television off to Time Warner, I want to say 2002, I might be off by a year two, Bob said, You know what, I’m going to take some of my money, I’m going to start a family office private equity operation, and I’m gonna go find entrepreneurs that will, you know, take ideas that I can fund that will help the black community. That’s literally what he said when I met him. Okay, in 2007. Okay. I’m not sure we knew exactly what we were getting into then Jack, just to be honest with you. Okay. But I do recall telling Bob, that anything we do is going to take five to 10 years because it’s the retirement system. And that’s all our everything takes. And to Bob’s credit, he not only hung in there as an investor and Chairman but in terms of contributing his personal capital, so that Bob Johnson is a special guy.

Jack Sharry: Yep, for sure. And by the way, just a personal note, I’ve known Spencer a very long time, Neal, as well. And we’ve got started roughly around the same time, both of us pushing rocks all of us on this podcast, pushing very large rocks up very large hills. And both of us all of us can point to being on the other side of that mountain and see if we can catch up to the rock rolling down the hill, Neal, if you would pick up where Spencer was talking about the progress that you’re making, and fill us in a little bit if you would, where we are anything that left unsaid by Spencer, but also where do you see this going?

Neal Ringquist: Well, you know, the first challenge, obviously, is to get this up and running and fully realize the potential of auto affordability and create the network. When you create a network to solve the problem of affordability. Then you start to think Jack, have, you know what other valuable uses of that network are there? One good example would be to address the missing participant issue that is haunting the retirement industry, that is certainly the subject of a lot of DOL scrutiny over the years. One of the most accurate address records is the address record associated with an active participant. So if you have a record keeper that has a former employer with a stale address, one potential resource down the road is to tap into the network of record keepers and look for that active participant record address. And so there’s another potential solution that the network creates. So the network effects over time can be huge and can be leveraged to solve many problems beyond just affordability issues.

Jack Sharry: The only things I find fascinating about what’s going on in our industry, I describe it as the convergence of workplace and wealth that’s all coming together. And you’ll see places like Morgan Stanley, and empower and others that are trying to work both sides of it. In other words, whether they started as a wealth management firm and they’re at a workplace or they started as a workplace firm and added wealth management, it’s coming together. And in all cases, not just those two examples, but literally in every case what I see is love to have you both comment on this is that the industry is coming together around how do we make it easier for the client or the participant to do the right thing and to benefit from being smart about it. There’s As we know, tax advantages with 401k plans, there are ways, to manage it across multiple accounts and multiple product types, and so forth. So maybe Spencer when he started off, but can you talk a little bit about that convergence? I’m sure you were you guys have a front-row seat? What’s going on there?

Spencer Williams: Yeah, you know, we’re kind of working in the early days of a participant of our worker’s journey through retirement, right, which is in the small balance world, because that’s where the most obvious problem, the largest numbers of problem occur, you know, so, you know, we see our job, you know, part of our job is this concept I mentioned earlier about account incubation, right? It’s very simple, which is if you can encourage a worker in their first job, or second job, or even a third job, who has two, four or $5,000, to encourage them to keep that not only keep it but get it to their new employer plan, a left $5,000 becomes 10. Okay. And there’s a funny thing that happens, Northern Trust, did some research a number of years ago around account balance, the inverse correlation between account balance and cashing out, okay. And the inverse correlation is all of a sudden, a $10,000 account balance means something to a worker, whereas a $5,000 account balance might not be okay, and you get to 15. And they say, I have to be serious about this now, this is more money than I have anywhere else. So again, our job the way we see it, is that incubate that thing. But if you think about the benefits of that down the road, from an industry perspective, there shouldn’t be an advisor on the planet who was against auto portability, right? Yep. Because it simply creates better customers for them later. And they don’t have to lift a finger, no capital investment whatsoever. Right. So the great rollover IRA, we are not against rolling over IRAs. And this is not a Hatfields and McCoys thing or, you know, some crazy notion like that, we get that every once in a while, like, well, you guys are just trying to no no no if you get a healthy retirement saver making their way through the system, all of you who are managing money in whatever form is providing advice inside outside of the plan, however, it’s happening, you’re in better shape, so just let it happen.

Jack Sharry: Tell you a funny story or colleague LifeYield Paul Samuelson worked at the Ford Foundation’s first job out of college, he was an analyst there who had a 401k program that I think had maybe 10 or $12,000. I forget the exact number in the plan when he left and then sort of lost track of it. And they’ve lost track of him. And somehow or another, he gets, they found each other. And he had $750,000 in his 401 K plan. This a perfect example of incubating something. Talk about found money. Yeah, he’d just lost track of the paperwork and all that sort of stuff. Forget about to talk anyway.

Neal Ringquist: You know it’s a theme that we constantly try to talk to people and educate them on. Let compounding work for you. Yeah. Right. And that’s what happened. Right? Yeah.

Jack Sharry: Yeah. Neal, anything to add before we wrap up here?

Neal Ringquist: Yeah. You know, one other point. And this is probably a point that your listeners of advisors have wrestled with, which is, you know, rebalancing, you think of what we’re doing it is a systemic program of consolidation. And, you know, when you’re consolidating accounts, it makes it a lot easier to service your clients’ accounts when there’s just one primary tax-deferred account, wherever that is, ultimately, maybe an IRA. So it eases the servicing aspect of it, particularly around rebalancing.

Jack Sharry: Well buy and hold still works, always has will. And so especially, for another day talk about how you coordinate accounts, qualified, non-qualified, sold out tax advantage, which we at LifeYield know a little bit about, so maybe, perhaps for another time, so I’m just a smidge. So Spencer, Neal, thanks. It’s been a great conversation as we look to wrap up, but I’d like to hear from each of you. Typically, we ask our guests for three takeaways. One, I’m gonna ask two each. What are two key takeaways from our conversation? So Spencer, why don’t you kick it off?

Spencer Williams: Yeah, I think I’ll go back to the kind of principles behind auto portability. The key takeaway is to create an infrastructure, you know, we haven’t used that word in this conversation that enables the free flow of a worker’s savings to follow them to their new employer plan. And with the right communication, and it will just happen automatically, right, just like automatic enrollment, you know, we should see a gigantic change. So that’s the preservation of the savings is key. Otherwise, there’s no compounding. There’s no advantage and you know, investing in the US economy, which is essentially what the stock market is, you know, and the second one is active. Okay. There’s a call to action here. We haven’t got to the last, you know, hurdle that we’ve got to get over, which is plan sponsor adoption, plan sponsors, advisors, and record keepers, all have a role in that those decisions are generally taken jointly, right? The plan, the sponsor, the record keeper, but what will enable the record keeper side, and we’ve got a huge Coalition of the Willing on the record keeper side, we think they’ll do their job with plan sponsors, advisors need to weigh in and do the same.

Jack Sharry: Cool, cool, Neal.

Neal Ringquist: Yeah my two points are advisor focused. So you think about auto portability is a huge benefit for advisors and Spencer touched on this, the consolidation notion and account incubation just means and plug in cash out leakage. So it’s an N plus one concept where there are more assets that the participant has now to apply to goals, it just makes so much sense, you know, for advisors to have this in their toolkit for their clients. And then on the RPA side, for their plan sponsor clients, you think about what we’re doing over time, with auto portability, we’re reducing the number of accounts, but retaining the assets in the system. So over time, a key plan metric, like average account balance goes up. And there’s no cost to the plan. So it’s a great service for RPAS, to take to their plan sponsor clients. And it also has the residual benefit of addressing issues, like, you know, administrative hassles like lost and missing participants. So I think for the advisor, it’s really a win-win situation for all.

Jack Sharry: That’s great. That’s great. So Spencer, and Neal, it’s been a real pleasure to spend this time with you, we catch up from time to time, and it’s good to hear the professional version of what you all do. And congratulations, you’ve I know, you’ve put in a lot of hard work and really made a difference in the industry. So thank you for that. And as we do with each of our podcasts, my favorite question we ask as we look to close is what’s something you do outside of work that you’re excited or passionate about? What people might find interesting or surprising Spencer?

Spencer Williams: Well, I have many passions, but I’ll just start with the one and it’s probably going to sound routine when I start which is, you know, my family is my passion, Jack? Sure. Yeah. My spouse and I have been married for 42 years. We have 13 children. One, we have 37 grandchildren. So those of you who are looking forward to your golden years. I don’t have enough hours in the day. And yes, I know all of their names and birthdays. But I’ll bet most of your listeners will find that surprising.

Jack Sharry: I did not know, I’ve known you for years. I did not know that aspect. So thank you for sharing that’s wonderful, Neal.

Neal Ringquist: Well compared to Spencer, I am neither interesting nor surprising.

Spencer Williams: That’s not fair. I find that to be wholly false, anyway.

Neal Ringquist: I do have, and Spencer shares this with me, I do have a passion for wine. You know coming from Northern California. That’s not surprising. Not only do I drink, I collect it. I do have, you know a wine room that I built for it. And I’m about to start cultivating it. As I’m in the process of planting Chardonnay vines on our back hill. We have here in the East Bay of Northern California a great climate for Chardonnay grapes. So I’m starting my gig job, of wine grape hill.

Jack Sharry: Great, great. Well, I will have to see if it passes muster when next time we get together.

Spencer Williams: Get in line, Jack. Probably the optimal word there for the first couple.

Jack Sharry: Well good for you. That’s great that you’ve taken that on and made your passion, extended your passions. That’s great. So for our audience, if you’ve enjoyed our podcast, please rate, review, subscribe, and share what we’re doing here on WealthTech on Deck. We’re available wherever you get your podcasts. Spencer Neal, this has been great fun, great to catch up. Congratulations on what I know to be very hard work over a long period of time. You guys deserve a lot of credit for really making a difference in a whole lot of participants’ lives. And so thanks for that good work.

Spencer Williams: Thanks, Jack. We’re almost there.

Neal Ringquist: Thanks.