A Conversation With America’s Best 401(k) CEO Tom Zgainer And Board Member Carter Reum
A 2011 AARP study of 401(k) plan participants revealed that 71% of respondents were unaware that they paid fees for their 401(k), while 62% did not know how much they were paying in fees for their plan.
Along with thousands of other readers, Tony Robbins’ book Money: Master The Game opened my eyes to the exorbitant fees I was being charged in my own 401(k). Robbins mentioned a company called America’s Best 401(k), which helps plan participants examine 401(k) fees and offers small business owners low fee plans for their employees.
The company just announced that Robbins, Salesforce co-CEO Marc Benioff, M13’s Carter and Courtney Reum and The Female Quotient’s Shelley Zalis were all joining its Board of Advisors. I had the chance to discuss the company and the state of 401(k)s with CEO Tom Zgainer and Board member Carter Reum.
Karl Kaufman: Tom, what was your inspiration for forming America’s Best 401(k)?
Tom Zgainer: I’ve been in the business since May of 2002. Over the course of those years, it started to grate on me that employees could end up leaving 30 to 40% of their nest egg on the table due to fees that they don’t understand or don’t know exist. These fees are eroding their savings over time.
For most Americans, their income from their employer is the money they must save because they don’t have residual and passive income. When they stop working and look at whatever balance they’ve saved they might say, “Is that all there is? How is that going to sustain me for 25-30 years?”
44% of business owners have no idea what their 401(k) fees are. Close to 70% of participants have no idea what their fees are. So we decided to start a company to essentially rescue people that didn’t even know they were in the water drowning.
Kaufman: How did you get involved with Tony Robbins?
Zgainer: In 2013, I was with my family on vacation. My phone rang and the caller ID said “Robbins Research International.” I thought it must be someone from Tony’s company that wanted me to attend one of his events.
It was actually his HR director who said, “We’ve heard about what you’re doing. We think we might have a problem with our 401(k) plan. It’s with a big insurance company and we’d like you to take a look at it.”
We took a deep dive into his plan, which paid about 186 basis points all in for a $3.5 million plan — 300 people just getting crushed on fees. We went through this entire due diligence and they chose to move forward with us. Our company was only seven months into its inception and now we’ve got quite the signature client.
A couple months after that, he wrote about us in his book and he and his son, Josh, became partners in the company. He used his social platform to help thousands of participants, who otherwise might not have heard about us if they hadn’t read about us in the books.
If you know anything about Tony, you know his biggest mission is to end suffering. His books were his pivot to end financial suffering.
Kaufman: Carter, what’s your background and how did you get involved with America’s Best?
Carter Reum: My brother and I both used to be investment bankers at Goldman Sachs and we got inspired 12 years ago to be entrepreneurs. We started a spirits company which we subsequently sold 2 years ago. Along the way, we’ve invested in consumer tech brands like Bonobo, Warby Parker, Ring doorbells, Lyft, Pinterest, Snapchat — we built up a portfolio of about 125 companies.
Now we have a new firm called M13 where we are both investors and operators. We take an institutionalized approach to accelerate consumer brands at scale and we build and operate brands.
What got us excited about America’s Best is pretty simple: obviously Tony and Josh and Tom and the team in place, but one of the things we love about technology is that anytime technology bridges something, it either makes it more transparent, more accessible or makes it more efficient. America’s Best does all three of those things.
There were two stats that stood out to us that made us really want to be part of this mission: first, that 90 million Americans rely on their 401(k) plan as their primary retirement vehicle and second, that a 1% reduction in fees could extend someone’s retirement savings 10 years.
Kaufman: Tom, where do you see the company in 5 years?
Zgainer: The 401(k) plan has been around for over 35 years, but everybody did it the same until we came along. We are modernizing an antiquated way of doing things.
The existing players in our industry— the big insurance companies, the big brokerage entities, the national payroll entities, the fund companies — they’re not going to proactively change their way of doing things. Only when someone like us shows up will they reduce investment fees to try to save a piece of their business.
Our growth opportunity curve is so extraordinary because of the vastness of the people and companies we can help. There are so many of these plans still to reach that have not yet heard about us.
Six years into the company, this is a sea change for us, bringing along Carter and Courtney, Tony, Marc and Shelley. They have been wildly successful in their line of work and recognize that all the people they serve are facing the same problem that we are trying to fix.
Kaufman: Carter, with some of the companies you invested in, did you find that a lot of them were not offering their employees 401(k)s? Or that the 401(k)s they were offering had exorbitant fees?
Reum: 100%. One of the biggest challenges, when you’re an entrepreneur, is that you just never have enough time. You try to do the best you can, but the financial services industry is convoluted. There are a lot of middlemen, and it’s a very difficult sector to navigate as a founder. When we talked to the companies we invested in, they all said either they didn’t have 401(k)s set up for their employees, or if they had one, they were aware that they’re getting gouged on fees, but with the hours of the day it’s just not high on the priority list. That’s what really got us excited about this opportunity.
The impact that we can make is enormous when you think about how many Americans rely on this. As we all live longer, this is a problem that is not becoming smaller.
Zgainer: Too many business owners look at a 401(k) plan as a checkbox item. “It’s something I need to have or something I should have.”
Many 401(k) participants become accidental investors as a result of a decision that their business owner made for them. Oftentimes, that decision is made as a matter of convenience.
For most of these employees, this is the only savings bucket they have that’s going to have to sustain them when they stop working. If they don’t make sure its done properly while they’re working, they’re going to be faced with some daunting financial concerns that are not going to allow them to live a life of security and dignity 20-30 years forward.
We work with business owners so that they make time for it now, and then they can go back to the business. We don’t view this as a checkbox item. Everybody on our team is passionate about this. When you know that you can impact someone’s financial future, that’s really the driver for all of us. We’ve got to live up to our name every day and that’s what we try to do.