Vanguard Group and Fidelity Investments manage hundreds ofbillions of dollars in defined-contribution money for thousands ofretirement plans with millions of participants. Against competitionlike that, a foray into 401(k) plan management by a unit ofrobo-adviser Betterment, a company with $6.2 billion in assetsunder management, seems quixotic, to say the least.

Betterment for Business, which began signing up corporateclients in January, announced today that it has more than 300companies on board, with plan assets ranging fromhundreds of thousands of dollars to more than $25 million. (Itdoesn't break out assets by business unit and won't give anumber for total assets in the 401(k) unit.) Clients range fromtechnology companies such as project management softwaredesigner Trello to mattress maker Casper and midsizeprofessional service businesses such as law andarchitecture firms, as well as medical and dental practices,Betterment said.

It may be good timing. The Department of Labor's fiduciary rule,which takes effect in April, requires advisers for retirementinvestments to put a client's interest before their own. A2015 government report estimated that adviser conflictsof interest cost investors some $17 billion a year. The rule couldbe a regulatory catalyst for growth, said Tyler Cloherty,senior manager with Casey Quirk by Deloitte.

“There will be more impediments to moving small-balance accountsto advisers, so more money will likely stay within the 401(k),” hesaid, rather than be rolled into an IRA, for example, with theplan's outside administrator.

Why would a company choose a 401(k) upstart over thelong-established pros? Among the reasons ticked off by Cynthia Loh,general manager for the product, are lower fees; managed,personalized portfolios for all participants; no conflicts ofinterest in fund selection; and a modern, intuitive userinterface. Betterment 401(k) accounts also can use a newalgorithmic service the company launched in September that aims toimprove a portfolio's tax efficiency, which adds to returns overtime.

“The opportunity is that innovation has to happen, and the401(k) space is not blessed with innovation,” said Alois Pirker,research director for Aite Group. “It has been a shielded kind ofspace.”

Others have made inroads with online 401(k) advisory services,although they don't tend to have a soup-to-nuts operation thatstretches from record-keeping to asset managementas Betterment does. Financial Engines, a well-establishedonline advisory service that acts as a fiduciary for 401(k)plans, works with about 700 companies that employ a total of10 million workers. It offers basic portfolio advice for allaccounts and more personalized advice for an additional fee.Morningstar is also a player in the managed account advisorybusiness for 401(k) plans.

Betterment's 401(k) offering operates much like its regularadvisory service. It creates portfolios of exchange-traded fundsbased on your age and answers to a risk questionnaire, and itrebalances portfolios to your planned asset allocationregularly. It charges an asset-based fee ranging from 0.1 to 0.6percentage points, depending on plan size. The ETF fees aretypically 0.1 to 0.12 percentage points in the tax-deferredaccounts.

Betterment for Business can do more customization of portfoliosthan savers can get with a generic target-date fund geared toa retirement date, Loh said. If, as she hopes, users sync uptheir external financial accounts with their 401(k) account, their401(k) portfolio's asset allocation can be designed witha more complete financial picture taken into account, whichshould result in a better overall result.

New York City-based Trello is moving its 90-person 401(k) planover to Betterment. Brian Schmidt, Trello's vice president ofoperations and general counsel, said that with his old 401(k)administrator, software-driven issues made it hard to create the401(k) program he wanted. Betterment's big draw for him was theuser experience, for individuals and on the administrative side,that he found thoughtful and easy to use.

“You can encourage good behavior by making something enjoyableto use,” he said. “That's the nub of what Betterment has done.”

Bloomberg News

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