Let’s start with some good news: the Employee Benefit Research Institute found that “the nation’s retirement confidence continues to rebound from the record lows experienced between 2009 and 2013.”
However, study after study still shows that Americans obviously aren’t saving enough. Opinions as to why range from a lack of investor confidence to the high cost of living that affects what they can put away to even just plain laziness.
Michael Brown, managing partner at Clearpoint Financial in Bellevue, Washington, recalls the time his firm was hired to develop individualized financial plans for more than 100 executives at a particular company. The employer was even underwriting the planning costs to encourage its executives to participate.
“Though this was absolutely free for the employee, only about 10% of them took us up on the offer,” Brown remembers.
This type of apathy is also observed when individuals have the opportunity to sign up for a company 401(k) plan.
“Employees lose the forms,” says Jay Wells, AIF, an advisor with Foresight Wealth Management. “They skip key steps which leaves holes in their profile. Or they fill them out wrong.”
Simplifying this process for plan participants is one of many solutions that experts say will help increase retirement accounts for Americans. In what are fast being referred to as the “old days,” hurdles that included the cumbersome process of filling out risk questionnaires and then converting it into a contribution strategy are now minimized, thanks to technology.
“Advisors are the boots on the ground, but there has been a lack of tools at their disposal to impact employees,” notes Retiremap CEO Matt Iverson.
Iverson decided to modify his company’s direct-to-consumer offering so that advisors could use it to service company plans. The program allows advisors to interface with plan participants and obtain detailed information from individuals including retirement goals, debt, contributions, assessment of the household income, assets, home equity, number of kids, zip code, etc.
“Our focus is to engage the employee around their financial goals and wellness while also allowing advisors to be more impactful,” Iverson notes. “It’s a win-win.”
He says Retiremap’s premise is based on behavioral research by noted academician Dan Ariely, who found that future dollars were difficult for people to comprehend. The solution? Focus on retirement goals versus dollar amounts.
Iverson claims about 50% of clients approach an advisor and request a meeting after completing the enrollment steps.
“Record keepers don’t always have the luxury to put money into cool participant tools,” Clearpoint’s Brown adds. “Companies like Retiremap create that financial ‘eye candy’ that engages participants. It allows employees to consume boring financial information in a more intriguing way. They can then ask more intelligent questions throughout because they are more fully involved in the process.”
The fact that his firm and the plan sponsor can co-brand these platforms is also a plus, he says. More importantly, Brown notes, it’s “night and day” when comparing the number of employees that convert under this type of system, versus using a traditional questionnaire.
Sandy, Utah-based Foresight Wealth Management took an even bolder step. The firm hired a software architect to create a proprietary system to manage the accounts of the more than 100 retirement plans they represent, from small startups to those with thousands of employees. The software allows them to be completely paperless.
“No booklets, no statements, no printed forms and employees can even enroll on their cell phone,” says Wells, who acted as the primary liaison with the software developers. “Our platform allows employees to plug in their income and other pertinent details to help make a retirement savings projection. From there, our advisors can interact much better and determine where the employee is today, where he wants to be and how to get there. If the software says you need to contribute more, advisors can connect to the profile, make the changes and then the employee just needs to select ‘I agree’. It’s incredibly fluid.”
One common theme comes through from both technology companies and advisors: data is king.
“The thirst for data is insatiable, which is a good thing,” says Riskalyze CEO Aaron Klein. “There needs to be technology that allows the advisor to definitively make decisions based on data, not gut instinct.”
His Sacramento, California-based company created a system which allows advisors to capture participant data to better estimate risk tolerance. Call it the risk version of a “sleep number;” comprehensive information is collected to help determine a “risk number,” which can range from 1 to 99. Once a number is assigned, advisors can better understand how much risk a client can absorb. They can then use it to determine if the level is compatible with portfolio goals and choose an investment option that fits.
Klein feels that Riskalyze help risk tolerance hold steady no-matter how markets are performing.
“In the past, advisors had to assess whether a client was optimistic or pessimistic, traits that can fluctuate wildly depending on how the markets perform. This type of guesswork does not help an advisor do his job.”
Advisors can ensure they are properly investing in ways that are definitively tied to the actual client, not the basic demographic profile of the client.
“Studies show that about half of investors do not fit their aged-base risk stereotype,” Klein notes. “If you are young, you aren’t always aggressive and if you’re older, you aren’t necessarily conservative.”
Klein feels that it is imperative that advisors get the risk tolerance correct for their clients, otherwise “they will be inaccurately served by their stereotype.”
Riskalyze implements a customized portal that works in conjunction with planning software a particular firm may already be using.
“We are solution agnostic. We can develop a secure ecosystem that brings the software platforms together.”
While technology offerings are centered on accomplishing certain data-driven goals, all agree that the human element must be maintained. The simplification of the enrollment process has actually improved the one-on-one interaction, advisors say.
“We still hold root meetings with employees. But we use this time for education, not how to fill out the enrollment form,” remarks Wells.
He also estimates that he addresses his client groups between 50 and 60 times a year because “employees are more active and concerned post-2008. They don’t want to invest and not look at it again for 30 years.”
Brown agrees, and feels his clients have a better baseline when they’re an active part of the process. This progression has resulted in more educated inquiries from participants around implementation, allocation and contributions, he says.
Retiremap’s Iverson clearly champions the use of technology, but says it is most effective when married with advisor involvement.
“There needs to be accountability and interaction to have a measureable impact on the sponsor, and of course, the employee. The two are critical to accomplish an individual’s financial goals.”
As for the near-future, opinions vary on the next major growth area for 401(k) planning technology.
“Integration is in demand,” says Wells. “It’s cumbersome to have multiple logins for your 401(k), payroll, health benefits, etc. The pieces need to come together and have a one point login.”
For his part, Iverson optimistically feels data opportunities are large and growing.
“Data allows advisors to easily understand employees. This information can be leveraged for providers and advisors which, in turn, can help them drive next steps and predictions. Outside data can take a black and white financial snapshot and turn it into a full-color portrait.”
Klein argues that the door will soon open for more open-architecture technology solutions. The approach is not reliant on a vendor or particular system to run.
Mobility is of course increasingly high on some lists, and technology developers like Iverson think that participants will want personalized information pushed to them via their mobile device. However, other advisors aren’t completely convinced.
“There’s nothing sexy about checking your 401(k) status on your cell phone,” Brown concludes with a laugh.
Lynn Brackpool Giles is former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA). In this senior management role, she oversaw all corporate and strategic communications, media relations, legislative communications and consumer affairs for the national association.
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