Ask top advisor Dorann Cafaro what she needs from 401k fintech firms and recordkeepers and you’ll get a blunt, no-nonsense answer for which she’s known.
“I need technology to help in three areas,” the senior advisor and founder of New York-based Cafaro Greenleaf said. “The first is to find clients through a prospecting tool. The second is to keep my clients and make them happy with a CRM through reporting and monitoring, and the third is to protect myself and my clients as a fiduciary.”
If you sense a bit of frustration on her part, you’re not alone, but it’s not from a lack of effort.
Fintech vendors and 401k recordkeepers have their people, resources and money (lots and lots of money) dedicated to addressing the most pressing retirement plan problems of the day; from features that boost education, enrollment and deferral rates to overall financial wellness and more.
Indeed, Accenture reports that in 2017, $27.4 billion was poured into fintech startups worldwide, up 18 percent from 2016.
While their offerings elicit excitement—at least conceptually—with their potential impact on the 401k and larger financial-services industry, making them usable and granular remains an issue.
It’s one reason why, for instance, only a fraction of full CRM capabilities is realized by the typical advisor, many of whom use it for birthday reminders, mailings and scheduling, but little else, and therefore forgo the practice management turbo-boost it provides.
Not that it’s necessarily the fault of vendors alone—spreadsheet and calculator-wielding advisors reluctant to “learn new tricks” certainly share the blame—but it’s an issue nonetheless.
“All sorts of infrastructure was built between the 1970s and about 1989, as people turned from savers to investors,” Ian Sheridan, managing director of fintech-focused venture capital firm Vestigo Ventures, adds by way of explanation. “About $42 trillion in wealth was created, but now that technology infrastructure must be upgraded.”
Comparing it to World War II battleships that were still used in conflicts long-after, he noted that today, the vessels “sailing out of the harbor don’t even look like boats,” and 401k and retirement planning technology must engage in similar upgrades by ditching legacy products from past battles and develop new designs that look completely different from those previously seen.
Despite shortcomings, however, the benefits of employing a tech-centric advisor business are by now well-known.
Pershing recently found that “digitally-enabled practices” increased their assets more quickly than those that are more manual and traditional. Additionally, the percentage of digitally-enabled advisors who saw their business decline was smaller than their traditional counterparts.
- Over 90 percent of digitally-enabled advisors increased their assets over a 12-month period, with more than a third growing by more than 10 percent.
- Yet only 53 percent of more traditional advisors reported asset growth of 5 percent or more over a 12-month period, while over 20 percent experienced no growth or declined.
Digital practices also experienced higher growth in revenue.
- Over 70 percent of digitally enabled practices increased revenue by 5 percent or more, including 38 percent of practices that increased revenue by 10 percent or greater.
- By comparison, just over half of traditional advisors reported growth of 5 percent or more.
Forbes contributor Russ Alan Prince added that the overwhelming majority of advisors, 401k and otherwise, recognize the importance of state-of-the-art technology.
“And notably, those financial advisors with the highest annual incomes are more likely to see the value in technology and be thinking strategically and proactively about how it can be deployed within their practices to solve issues and effect specific outcomes than advisors who are earning less.”
Getting It Right
Although advisors might be frustrated with certain apps and software too esoteric to incorporate in everyday tasks, there are many providers that are extremely close, if not hitting the mark already.
This is particularly true with outcome-based offerings that are critically important to plan sponsors and participants with whom 401k advisors work.
High-profile advisor Barbara Delaney, principal and founder of StoneStreet Renaissance, a retirement and investment fiduciary advisory group in Pearl River, New York, pointed to a recent release from Empower Retirement as an example.
Headquartered in Denver, Colorado, Empower’s PlanVisualizer platform is a Monte Carlo-based simulator that allows 401k advisors to modify key variables in plan design to illustrate their effects in real time.
It provides plan sponsors “with a holistic view of their retirement plan in its current state, along with the ability to model how changes to key design elements can potentially affect participant preparedness,” according to the company.
It’s particularly timely, according to Peter Kapinos, head of advisor, sponsor and investment marketing with the company.
“This is about the advisor helping clients to, No. 1, measure their planned income replacement; No. 2 bring some plan design ideas in the context of whatever the client’s budget looks like; and No. 3 showcase new innovation with plan sponsors which, depending on who their provider is, they might not be getting today,” Kapinos said.
Featuring an intuitive design with drag and drop capabilities, the underlying algorithms are based on four elements: age, balance, salary and deferral.
“For example, a lot of clients like the idea of auto-enrollment but they’re not sure what the ROI is going to be,” he explained. “This gives you the return on various plan designs. The advisor can dial it up or down to see its impact on the percentage probability that employees are on track to reach targeted income replacement rates.”
“It allows us to do things like play with the match and stretch it out and see what it will cost,” Delaney noted. “We’ve never done that in real time.”
She plans to use it in an upcoming committee meeting for a prospect the firm is targeting.
“They have a low participation rate, between 50 percent and 60 percent, which is not what we’re used to, and it might have something to do with the fact that they’re in multiple states,” she added. “We like that it’s interactive and immediate rather than presenting just two or three scenarios. But we’ll use it first with current clients so we’re well-versed in how it works.”
RetireSMART, a joint venture from MassMutual and Chicago-based Envestnet | Retirement Solutions, made a major splash upon its release in 2015, and upgrades—including mobile app and even facial recognition capabilities—have made it more popular in the time since.
The clear, dashboard-driven design easily allows advisors and participants to see where 401k savers currently sit, and the steps needed to get them to their goals.
Specifically, the tech tool provides a graphic illustration of how much income savers will potentially need in retirement and whether they are saving enough to get there.
One area of advisor frustration is the inability to accurately include outside assets for a better gauge of retirement readiness, according to Delaney, yet it’s something that RetireSMART addresses.
Savers can automatically include other sources of retirement savings and income they may have outside of their current employer-sponsored retirement plan as part of their ongoing retirement income calculations.
They can “choose to implement the strategies by themselves, or work with a financial advisor on a recommended strategy,” according to Envestnet.
Value in Video
Anyone who read 401k Specialist’s recent cover story on Shlomo Benartzi (“When Nudge Comes to Shove: Shlomo Benartzi Talks Tech’s Transformation of Retirement Saving”) will remember his belief in the value that video has in getting participants to save more, especially when combined with other aspects of behavioral economics.
vWise, an employee benefit solutions firm for providers and advisors, is doing just that—producing interactive education and enrollment videos that are customized at the participant level.
Using professional actors to clearly explain important 401k concepts, the Aliso Viejo, California-based company can insert saver-specific account balance data into the presentation to effectively illustrate where the employee currently is, and where they need to be to realize an affordable quality of life in retirement.
“The video is a big piece of how people are digesting information,” Tony Mingo, chairman, president and chief executive officer with vWise explained. “But because we have [major] software development, it’s specific and about that one individual.”
“We have so much information that the participant has provided to us, that we’re able to build them up with the 401k,” he added. “But what we really want to do is take that and overlay the IRA, an HSA, health benefits, and have it automatically reach out every year to make intelligent, personalized recommendations. It will host people through very complex decision-making.”
Overall, advisor input into current 401k fintech offerings has innovation in the space increasing exponentially, especially in the areas of day-to-day practice management, as well as assistance in ensuring positive retirement savings outcomes for those they serve.
It’s only expected to get more targeted and effective as time goes on, resulting in a win-win (win) for vendors, advisors and, ultimately, participants.