It was literally a sign.
Eugeny Prudchyenko hit upon a unique retirement saving idea at the start of a family road trip.
“About 15 or 20 miles down the road, I saw a Prudential billboard that said, ‘The best donation is the donation to your retirement,’” Prudchyenko recounts. “I immediately made a U-turn, which was not a good move from the standpoint of a husband and wife relationship, but it was ultimately a great decision.”
He and his business partner, Dan Tseytlonok, were at the tail end of a different (and failing) venture, one similar to AmazonSmile; if a shopper uses a certain portion of the digital retail giant’s website, a percentage goes to the charity of their choice.
“Surprisingly, we failed to compete with Amazon, and two and half years ago we were thinking of shutting the doors completely,” Prudchyenko says with a chuckle. Fate intervened and, like something from a Woody Allen film, the billboard was an epiphany.
“I immediately thought to myself, ‘What if we could channel credit card cashback commissions and loyalty points to 401k plans in order to increase retirement savings?’”
The result?
EvoShare, a mash-up of “evolution of sharing.”
It not only seeks to positively impact saving behavior but spending as well. Rather than using rewards points to accumulate and consume more stuff, it encourages financial responsibility and plainly illustrates the time value of money in the process.
“The mission of EvoShare is to make saving for retirement a daily habit,” Prudchyenko notes. “We can increase contribution rates in addition to what people are already doing. We don’t replace anything; we just add a new source of money. And we bring the ‘future to the present.’ Each time money is saved through our program, we tell them what it will be worth at retirement.”
The repetitive messaging is helping alter participant behavior. Similar to impulse spending (where it’s easy to end up with a checkout-line Snickers bar that wasn’t on the shopping list), EvoShare makes it just as simple for people to save, which they call impulse saving.
“Every time a user receives a cashback notification, he or she sees a future value of whatever the amount is. It’s a positive moment and one in which they’re particularly vulnerable to better decisions. We decided to utilize this vulnerability, if I may say, to encourage people to save out of their own pockets. Every time people get this message, we encourage them and say, ‘Hey, add $5 or $10 dollars or $20 out of your own pocket.’”
Initially a B2C play mainly for IRAs, they quickly saw interest from HR departments and devised a way to funnel rewards cash through payroll. Yet plan sponsors often called their 401k advisors for input before committing.
“We said to ourselves, ‘Okay, the employers are going to their advisors right away, so we probably need to go through advisors.”
That naturally raised an important question—qualified plans don’t allow third-party contributions, so did it require permission or a private letter ruling from the regulatory powers-that-be?
No, according to Prudchyenko, “because the system already exists.”
For example, a person might join EvoShare and grow $100 in rewards and interest in three months. Once per quarter, EvoShare will send $100 to their personal checking account. The employer will then be informed to make an additional deduction, in addition to what the participant was already doing, in the amount of the cashback total. It’s essentially offsetting an additional deduction to a 401k plan in advance.
“You could be saving for retirement by drinking scotch at a favorite bar, and getting cash back,” he says. “If your spouse gets on you about it, you can just say, ‘Honey, I’m saving for retirement!’”
Get Smart
EvoShare recently announced a partnership with Money Intelligence, a hybrid automated/advisor retirement plan provider and fintech fellow traveler that’s making saving simple, easy and cheap, which is encapsulated in the company’s “401k made easy” tagline.
Its vision, says founder and CEO Monte Malhotra (his LinkedIn profile lists him as “Chief Dream Enabler,” seriously) is to get retirement plans in the hands of as many companies as possible, and then indirectly, as many employees as possible.
“There are two main psychological barriers that businesses think about,” he claims.
“The first one is that it’s really expensive for a, say, 10-person company that has $1 million in a plan—there’s the TPA, asset fees, mutual funds, the advisor. And there’s also the soft cost of having to upload employees, change deferrals and upload payroll, and that’s another cost. So, they’re not making it easy for you to sign up.”
Money Intelligence automates that work and integrates it with payroll, which allows the firm to then focus on adding value through plan design, testing and high-quality advice.
“And what if, within that design, there’s a way to get hundreds or thousands of dollars every year of incremental retirement contributions,” Malhotra explains. “That’s where EvoShare comes in. The math compounds really well, and if the sponsor doesn’t offer a match, the participant is maybe making up for it with the cashback rewards. That extra money could be worth thousands or tens of thousands by the time they’re 65.”
Calling it “removing the friction” that impedes retirement savings, he believes it’s one more way to get Americans to engage in retirement planning.
“It’s a paradigm shift. There is literally no one who should not be participating in a 401k plan, and I think this is a key feature for us to get there.”
The Mechanics
It sounds great in theory, but how does it work in practice?
“Twenty years ago, we used credit cards and it was convenient,” GRP Advisor Alliance founder Bill Chetney (an EvoShare investor) excitedly explains. “Flash forward to now and we better get something for using that credit card. I either get a frequent flier mile, I get cash back, I get something, right? So, people have been trained to do that.”
The Millennial Factor
It especially appeals to younger participants at a time when the need to start saving earlier has never been greater.
For an industry that has typically been slow adopters of new technology, millennials are now, or will soon be, the primary economic drivers, notes Vince Morris, president of Kansas-based Resources Investment Advisors.
“They have a different viewpoint and desire on how to interact with businesses and invest their dollars, as well as how they’re communicated to,” Morris, also an EvoShare investor, argues. “It’s much more push-communication as opposed to pull.”
He was first introduced to the EvoShare concept at an innovation lab hosted by Ladenburg Thalmann in San Francisco. Multiple fintech startup firms presented, but EvoShare “won the day,” in Morris’ opinion.
“The appeal for me came from its innovation in the space, and not just around deferral and participation rates, but also communication. At a point in time when you purchase an item, they’re going to, No. 1, tell you if you can find it cheaper, and No. 2, they’re going to give you part of that transaction back. You can then do multiple things with it, one of which is to make a 401k deferral.”
Pairing With Financial Wellness
Better behavior and spending patterns that increase savings and decrease debt naturally lead to the hottest of hot topics currently in the industry—financial wellness.
“We’ve tried to educate participants on the value of the 401k, but that didn’t have nearly as much of an impact as automatic enrolling and deferrals,” Morris says. “I see the holistic approach to financial well-being in the same way. Can we automate that emergency fund? Can we automate those student loan payments?”
Since retail marketing is spending a ton of money on advertising to try to get the consumer’s dollar, “as a savings industry, we’re not budgeted or equipped well enough to capture those dollars back from the consumer side of the fence,” Morris says.
Pairing EvoShare with a financial wellness program that also applies that same credit card and debit card to a budgeting tool would identify areas of overspending.
Adding in the advisor to walk them through the financial planning process and to counsel them through volatile markets or life-changing events is what the “ideal practice of the future would look like,” he adds.
“I’d also like to see high adoption of EvoShare so that we can prove to the fintech industry that they should be looking at innovation and ideas in the DC marketplace, because we will adopt them.”
The Advisor Impact
If it feels like new research on financial wellness is released almost monthly, it’s because it is, and “everyone’s embracing it,” according to Mike Kane with Plan Sponsor Consultants, an early EvoShare adopter.
But most non-highly compensated employees, or those making less than $120,000 a year, live paycheck to paycheck, he says.
Millennials are coming out of school with student debt and single mothers are just overwhelmed with financial stress.
Financial wellness programs are instituted and begin to have an impact, when savings are hit by that perennial planning killer, health insurance premiums, upending the best-laid participant savings behavior.
“This is where EvoShare is critical,” Kane says. “This group of people is spending money and their entire paycheck is going out the door. But if I can have my credit or debit card dialed into EvoShare, whether it’s for student debt or my 401k plan or some other goal, it’s going to just take off. One of the problems we have getting people to save money is that it’s long-term, they can’t see it and it’s not immediate personal gratification.
By using this, it illustrates what this money means now right in their retirement. It’s so impactful.”
Yet any mention of credit cards, and tying something to them, would naturally conjure images of more spending and debt, something sponsors and participants might initially reject. In other words, is EvoShare a tough sell?
“It’s 10 times easier to sell than financial wellness,” Kane counters before relating the following anecdote.
“I introduced this to a plan with an IT firm with 750 employees. They’ve been a financial wellness client of ours now for six years. We were having our investment committee meeting and the CEO was very quiet and preoccupied with his phone. The next thing I know he looks up and says, ‘Guess, what? My daughter has a student loan and she’s already using EvoShare.’”
It didn’t take much convincing after that, Kane concludes.
“From a user standpoint and from an advisor standpoint, having experienced financial wellness programs], it is absolutely a new tool that I need to have.”
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.
