“With the advent of the 401k, we’ve been good about telling participants to save, but bad about listening when they said they cannot,” Mike Palace, Senior Retirement Sales Executive with T. Rowe Price Retirement Plan Services, told members of the Retirement Advisor Council. “About four or five years ago, the industry began to ask why not. Well, people have competing financial priorities, and they’re stressed about it.”
The RAC hosted its Financial Wellness Fair in Denver on Monday, and Palace held forth in a post-lunch presentation.
“Version No. 2 of financial wellness, which is what we’re on now, looks very different from financial wellness of just a few years ago,” Palace added. “Lots of individuals are saying it’s a fad or a passing trend, and one advisor I spoke with said it’s the most overused phrase in the industry. Maybe so—but make no mistake—we cannot get people to a secure place without it.”
Claiming a strong financial wellness offering can increase an advisor’s chance of winning a plan by as much as 70%, he said fee compression is forcing advisors to broaden their services.
As for the top reasons advisors currently say they offer financial wellness services and/or products, Palace listed:
- It’s an innovative and compelling way to broaden their value proposition
- A way to capture rollover IRA assets and additional investment opportunities
- Differentiates their practice from competing advisors
- It’s where the industry is headed
He rhetorically asked if financial wellness really provides a competitive edge, before answering with more qualitative research from T. Rowe Price of individual advisors.
“Given the retirement crisis in the U.S., you can’t NOT talk about people being financially well or you’re just not dedicated to this space,” said one.
“It does,” said another. “I think it shows greater understanding and a more robust service offering that tends to only be offered by the most specialized teams.”
A third advisor was more direct, warning, “If you are not offering financial wellness, you are dead in five years.”
Palace then offered a “framework” for financial wellness, which consisted of:
- Define goals and objectives for the business and the employees
- Identify the relevant topics—like retirement savings, budgeting, debt, emergency savings
- Determine how it will be deployed in the workplace
- Determine how it will be monitored and measured
“We mentioned why advisors offer financial wellness, but what about plan sponsors? Why do they offer financial wellness? The top three reasons are employee satisfaction, retirement success, and recruitment/retention.”
Measuring outcomes
The financial wellness program’s success metrics will be both financial and non-financial.
“Financial metrics tend to be more strategic, and longer-term. They include average deferral rates, self-reported levels of debt and emergency savings, and the percent of participants with loans.”
Nonfinancial metrics tend to be more tactical and shorter-term. They include employee engagement with promotional activities, financial stress/confidence levels, and employee satisfaction.
Palace concluded with a nod to “nudges,” Nobel Prize-winning behavioral economist Richard Thaler’s subtle prodding for better participant behavior.
“You can be choice architects. Take these gargantuan topics and shrink them down to daily nudges. The inputs may be different, but the outcome is all the same, which is behavioral change.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
