This is a great article by Chris Carosa in Forbes, on the history of developing business by inventing a new subcategory in an existing field and then filling it. Although the article is in Forbes, Chris is probably better known as the force behind the retirement industry publication Fiduciary News, which to my recollection, he founded sometime around when I first launched this blog sixteen years ago.
The article is worth a read, partly for the substance and partly for the fun of it – who doesn’t want to read an article that includes the invention of the hamburger and the first entrepreneurs to sell gas grilled sausages at carnivals – but I can sum up its central thesis for my purposes. Chris explains that the key to developing a business isn’t to invent a whole new area and attract buyers into it (as Chris nicely puts it, that’s a hill too high for most of us to climb) but to instead go where the money already is and create a new subcategory in that market that hasn’t been mined yet. In other words, find a business area where there is already a lot of money and fill an open niche in it. As Chris nicely puts it, everyone knows where the money is in a particular marketplace and “there will no doubt be a long line waiting to get to that money. That’s why it’s critical that you find the void.”
So why I am writing about this on a blog about ERISA and insurance? It’s because you should think about this every time someone wants to bring a new financial product or investment option or other alleged breakthrough to 401(k) plans and immediately complains about regulatory or other barriers to entry. I am thinking of the complaints about the Department of Labor pushing back on the rush to include crypto in plans, but also of older events, like the push to add target date funds to plans. Some, like target date funds, turn out fine; I have my doubts whether the same will be true about crypto.
But my point isn’t to forecast whether a particular new product in this area will or won’t bear fruit. Instead, it is to be a gentle reminder that no one is pushing new investments or products or innovations into the retirement market except because it gives them a new void to fill in a market where there is already massive amounts of money being spent by customers, and the provider of the new product is looking for a way to get some of that money. It’s a perfect match for Chris’ discussion in his article – only here, we are talking about large investment providers, not sausage makers, looking to create and fill a new niche. It’s worth remembering what is really going on when a new product or innovation is pressed into the defined contribution market in particular, to not just blindly accept claims that the new development is a boon for participants, and to instead bring a healthy skepticism to any new product that is chasing the investment dollars of plan participants or the distribution dollars of retiring participants.
There is nothing wrong with this dynamic – that’s how capitalism is supposed to work. But it’s also not wrong for regulators, plaintiffs’ lawyers or others to push back against new products, and to insist that their role in the defined contribution space actually be to the benefit of the participants.