While the term financial wellness can be ambiguous (or not), at its most fundamental level it emphasizes holistic advice and goes beyond a participant’s workplace retirement savings account.
It includes financial budgeting, emergency savings accounts, cash flow management, and debt optimization
And now new findings from a SPARK Institute report and conducted by Cerulli Associates indicate that financial wellness programs are an area of strategic focus for many defined contribution (DC) recordkeepers.
The report combines qualitative and quantitative feedback from 26 recordkeepers representing $5.9 trillion in DC plan assets, 443,000 plans, and greater than 80 million participants.
“There is increased awareness among retirement industry stakeholders that plan participants do not save for retirement in a vacuum,” Dan Cook, a research analyst at Cerulli, said in a statement. “The average participant has several competing financial priorities, which can be challenging to manage without access to personalized financial advice.”
Participant Performance
Participants in the mass-market (less than $100,000 in investable assets) and middle-market ($100,000 to $500,000 in investable assets) cohorts are less likely than their more affluent peers to select “financial advisor” as their primary source of retirement advice.
These individuals are more likely to rely on their retirement plan provider or indicate they have “no source” for advice.
“As such, DC recordkeepers play a key role in providing guidance to this group of underserved individuals,” Cook adds. “Oftentimes, a financial wellness program is the most effective framework through which to deliver this guidance.”
Cerulli notes that educational content is a key component of financial wellness programs, but these programs cannot be solely founded in educational resources—rather, these programs must be measurable and embrace technology to help participants seamlessly move from ambition to action.
The majority (71%) of DC recordkeepers measure the effectiveness of their financial wellness programs by participation in education sessions.
An additional 67% use website activity (e.g., click rates, interactions per website visit) as a measure of effectiveness.
“There are a variety of ways to track the progress of a financial wellness initiative,” Cook concludes. “For recordkeepers, it is important to focus in on key metrics that are most relevant to each plan sponsor’s top priorities.”
Individual plans, such as 401ks, are “a proven success, enabling millions of Americans to save trillions of dollars for their future,” Cerulli claims.
While individual plans come with higher levels of employer responsibility and fiduciary duties, these plans allow employers customization to suit their workforce and achieve organizational and employee benefits goals, such as attracting and retaining talent and ensuring that employees can transition to retirement when they want.
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.
