There are few processes in financial services as painful as rolling over retirement assets. A google search of “401k rollover” returns 6 how-to articles on the first page – each of which includes multiple steps, links to external websites, confusing terminology and instructions to contact companies you probably didn’t know existed. The articles are written in a way that is so convoluted that they would make even the most financially sophisticated customers uncomfortable. Take this screenshot from a prominent personal finance company’s website on the 401k rollover process:
Here are the basic steps: Contact your former employer’s plan administrator, complete a few forms, and ask it to send a check or wire for your account balance to your new account provider. The new account provider give you instructions for how the check or wire should be made out, what information to include and where it should be sent. You can opt for an indirect 401(k) rollover instead, which essentially means you withdraw the money and give itto the IRA provider yourself, but that can create tax complexities. We generally recommend a direct rollover.
There are so many things wrong with the “basic” steps listed above that we don’t even know where to begin. In today’s world of digital and immediate, to describe this process as broken is an understatement. This explains why most people that change jobs (15M+ annually) either cash out or leave their assets behind for an extended period of time. The result is that more than $20B+ is lost due to taxes and penalties on cash withdrawals, or through arbitrarily high management fees on left-behind accounts. Only 5M people transfer these retirement assets into another retirement account, which is – on average – the “correct” financial decision to make. This is an unacceptably low number and causes many hardworking Americans to be inadequately prepared for retirement.
Magical Product Experience
For our Vice President Greg Thome, Canapi is his third job out of college. This means he is also on 401k plan number three in the past five years. His first 401k was with T. Rowe Price, second with Guideline and third with MassMutual. At each job change he intended to rollover his legacy 401k assets into an IRA account but chose not to because it was confusing, required significant paperwork and appeared to be unnecessarily time-intensive. At the time, it didn’t seem like moving the assets was worth the pain of completing the work manually and without guidance. Enter Capitalize.
By contrast, Capitalze offers a Turbo Tax like experience for rolling over 401k assets that can be completed in minutes rather than days or weeks, and does not require significant attention to detail. Most of the process is already automated, from instantly locating your former 401k account, to matching you with an IRA, to initiating the rollover. Capitalize abstracts away all of the ambiguity and provides a consistent user experience, regardless of where your old 401k sits.
We knew we were onto something after Greg went through the process twice and immediately started texting us and his friends to let them know the service worked like magic.
Don’t just take it from us though. Capitalize’s Trustpilot page is filled with testimonials from users that love the product. We’ve included one of our favorite ones here, but they are all nearly the same.
“The high-touch service and personalized guidance has been wonderful. I’ve never experienced that from a financial institution before… overall, this was a stellar experience, one of the best I’ve had with any service provider ever.”
In a world where people change jobs 10 – 15 times in their life, and where retirement accounts are not portable, we believe Capitalize is the perfect solution to help consumers make the right financial choices with their retirement assets. Capitalize can help 15M+ Americans save that $20B+ in taxes, penalties and fees lost through “wrong” decision making.
The Process is Inefficient for Everyone
Asset managers, banks, and other fintech platforms spend significant amounts of money on customer acquisition, it’s the cost of doing business. Funding IRA accounts, however, is an entirely different sport. In our diligence we heard from several large companies that up to 60% of attempted 401k to IRA rollovers ultimately fail, placing significant constraints in asset flow across the industry while simultaneously driving up acquisition costs for converted accounts. The reason most of these attempts fail? The process is incredibly complex. Capitalize will be instrumental in helping these asset managers increase rollover conversions, creating a win-win for both the consumer and the financial institution.
The platform also provides significant benefits for employers. By removing terminated participants off active 401k plans, employers offering those plans are relieved of unnecessary administrative fees and exposure to potential lawsuits from employees that are no longer with the company. Capitalize can be integrated into employers offboarding or onboarding flows to enable a seamless transition. It’s rare that you find companies that have such a tremendous impact on an entire value chain, and Capitalize is just that!
Mission Driven Company
Capitalize was built to help create a world in which people do not have to think about their retirement finances because Capitalize manages it for them. The mission is shared by all of the early employees, including us at Canapi, and permeates every aspect of the company.
We couldn’t be more proud to partner with Gaurav Sharma, Chris Phillips and the rest of the Capitalize team by leading their $12.5M Series A. We are excited to join them on this next stage of growth, alongside other great investors: Bling Capital, Walkabout Ventures, Greycroft, and RRE.