Financial wellness, like its predecessor financial literacy education, has not significantly changed participant behavior. But before we give up on it, it’s important to understand where it went wrong and why the retirement industry must get it right.
Imagine if people could only get access to a doctor for 30 minutes every year — at work, along with group meetings with a physician. How many more people would be ill or die early as a result of that lack of access?
Participants get limited access to advisers through their retirement plans — and for the vast majority, that is the only time they get to meet with a financial adviser. There are more than 80 million such workers, not counting the 80 million more who don’t have retirement plans at work.
As Christian Mango, president at Financial Fitness for Life, wrote in an email, “There’s a difference between the hunted and ignored. The traditional [advice] model is not designed for the ignored.”
The financial services industry has a huge opportunity to reach a vast population of workers. It has access to participants’ data, and it benefits from the trusted position of being chosen and overseen by the employer. Maybe that’s why low-margin record keepers are selling at eye-popping multiples, as are retirement plan advisers.
It’s also why defined-contribution plans and workplace benefits have become the center of attention for financial service companies, government, the press and financial advisers. Ask 12 people to define financial wellness, and you likely get 12 different answers — but we all know what financial illness looks like. Most of us, even the wealthy, feel a sense of financial insecurity.
The task of replacing defined-benefit plans is not easy. Automatic features and an ideal plan design solve for the savings side, but we are just beginning to tackle the spending side.
Yet just 42% of smaller DC plans use auto enrollment, 40% offer a target-date fund and just 18% deploy auto escalation, according to the 2020 SHRM benefits study.
A newer development is student loan repayment options within a DC plan, which enables financially overburdened younger workers to get the company match, even if they can’t participate in the plan. And the current financial crisis is showing the need for emergency savings accounts that would fit perfectly as a sidecar to DC plans, especially with an automatic or opt-out feature. With the advent of high-deductible health care plans, health savings accounts with triple tax benefits are becoming more popular.
What’s missing is a combination of retooled technology, different types of advisory services and access to smart data. Most record-keeping systems are built with ’90s technology, which makes it difficult to be more than a relatively primitive accounting and omnibus brokerage platform. Meanwhile, real-time smart data are needed for artificial intelligence, and consumers expect rich digital experiences. Changing that is like trying to put a Tesla engine into a Pinto without pulling over.
Most retirement plan advisers help the retirement committee with fees, funds and fiduciary support, which, while important, do not cover participant services. Most wealth managers and financial planners have no idea how to provide advice to people with less than $1 million in assets, let alone less than $250,000.
But the demand by plan sponsors is enormous, the need among workers is great and the stakes are high.
One problem inherent within the DC industry is how providers charge plan sponsors and participants — they hide fees within the investments and charge based on assets, not for the services rendered or results achieved.
“Advisers lack confidence [selling financial wellness],” Mango said. “They don’t have conviction to push it.”
Pricing, access to data and the ability to deliver wealth management services are the three major issues impeding advisers from offering financial wellness, said William Chetney, senior vice president at GRP Advisor Alliance.
It’s easier to sell something if people think it’s free. But the value is diminished, and as fees decline, so are the services. And if the only goal of financial wellness is prospecting, we will never achieve a real solution.
“It can’t be all about conversions,” said Steve Wilbourne, CEO of Questis. “The long-term success for financial wellness is to reach the hearts and minds of employers. Then you can charge a lot and take care of their employees.”
Though unemployment rates have skyrocketed, attracting and retaining the best and brightest workers will always be important to employers. So is their employees’ welfare.
“If employees are not financially sound, they are not likely to take risk at work,” Wilbourne said.
Younger workers now expect that most of their financial needs will addressed at the workplace — and it’s simpler, because that’s the source of most of their income. Providing rich, not necessarily expensive, benefits, especially around financial planning, is a way for employers to distinguish themselves.
“Wellness can be golden handcuffs for the rank and file,” Wilbourne said.
We have a long way to go. But the demand and opportunity are real. Maybe the DC industry can learn from the health care world, using telemedicine and artificial intelligence to help cure the financial illness we know exists, especially now.
As our second lead editor, Cindy Hamilton covers health, fitness and other wellness topics. She is also instrumental in making sure the content on the site is clear and accurate for our readers. Cindy received a BA and an MA from NYU.