“Don’t be an analog phone.”
It’s a weird way to start a presentation on retirement benefits, but attendees of an industry study group last summer knew to be patient; Hugh O’Toole was about to make a larger (and important) point.
“I have an analog phone that only my father-in-law uses to call me. I wouldn’t have it if it wasn’t part of a cheaper, bundled package,” O’Toole said, before warning the gathered retirement plan experts to avoid the analog fate, stay relevant and offer real value and insight to the sponsors and participants with whom they work.
His solution?
Human capital risk management, a competitive differentiator that’s revolutionizing the way in which 401k advisors deliver their services.
It’s a drum O’Toole, an early pioneer, has been banging for years, first as the founder of a regional TPA and then as developer of the Viability platform now owned by MassMutual.
By encouraging retirement and benefits professionals to “look across sight lines” and shed myopic views of any single offering to better address total client needs, he’s helping them impact the employer’s bottom line.
It involves a deep dive into the data, with proper interpretation as its key. Doing so can hit upon commonalities and trends (both positive and negative) and more customized strategies for the benefit of everyone involved.
Call it financial wellness on steroids, with human capital risk management as the underlying PED. A clunky metaphor, but top 401k advisors understand that data and technology are fostering convergence, convenience and cost-reduction—and CFOs, HR reps and plan committees will only demand more.
“Is your business in data, information, knowledge or wisdom?” O’Toole rhetorically asked, before noting that wisdom (or interpretation) “is the highest margin business on the industry pyramid.”
O’Toole recently joined Pittsburgh-based Innovu as CEO, a firm that provides “insight based on integrated data.” It’s something the advisor can take and work with the employer to determine “how controlling the demographic trend of an organization will better align them with their employees to control health benefits cost, decreasing retirement delays, and managing P&C risk drivers.”
And, he added, the 401k is the way to control that demographic trend, primarily by fostering and encouraging diligent saving.
For instance, “Older employees provide stability and experience, but they should only continue to work if they want to, not because they have to because they can’t afford to leave.”
So how do advisors take advantage of a human capital management approach? It’s something with which O’Toole has seen many struggle.
“Advisors absolutely get the interconnectivity of retirement benefits, health/welfare benefits and property-casualty benefits, but they have no idea how to change their business model to make it happen.”
Naturally, Innovu offers a way to make it happen. Here’s how.
“The first step is data collection,” he explained. “Can you even trust the data that is available to you? It’s the single point of truth.”
What matters to a CFO are short-term, intermediate and long-term savings. The way to fund short-term solutions is through immediate interventions that lower the employer’s costs while increasing effectiveness.
The evolution of the human capital risk story would, therefore, start with the largest and most immediate expense—health care—and then work into retirement and property and casualty.
Yet O’Toole argues that over the last 10 years, the industry has been so siloed that even when all three disciplines coexist, they don’t necessarily speak to one another. And not all decisionmakers view and understand their population in the same way, something that compounds the issue.
“Do they even realize that 10 percent of their population is over the age of 60? Do they understand that they have a certain number of diabetics, or a certain amount of people that might have a high body mass index? Do they understand that maybe only 40 percent of their population is on track to retire, and that means they’re going to stay longer? Do they understand that they have safety issues with their employees, and that all these things are interrelated?”
The data must be framed in a way that both the advisor and the employer can digest, and “once you see those areas of potential opportunities, you can actually aim that data and really dig into it.”
Solutions that directly address the data then present themselves, which the advisor can deploy.
“And we snap a line in that data to say, ‘On this date, the advisor put this solution in place,’ and we’ll track it into the future to see if that solution is actually working.”
Innovu was the data aggregator and cleanser, and O’Toole overlaid the interconnectivity piece. The synergy fit so well the company asked O’Toole to take on the leadership role, which he did in October.
“At the end of the day, it’s helping advisors drive revenue, increase retention and uncover cross-margin opportunities, which just means if you’re in a benefits shop, your P&C offerings should drive health care sales, your health care sales should drive retirement sales, and so on.”
Rather than anecdotal stories, it’s deploying data to look at an employer’s actual results. The advisor then puts solutions in place that will positively change those results.
“That’s a very different process than what we’re seeing today. Advisors currently tend to propose a solution, and then fulfill on it. They don’t actually take that first part, which is, ‘Based on their data, is this actually a problem for the employer?’”
As an example, O’Toole noted that not every employee in America should save 15 percent in their retirement plan.
“That’s a nice story but data doesn’t actually support it. For a lot of Americans that make under $50,000 a year, they’d be much better off buying core life insurance to protect their family, because Social Security is a pretty good income replacement vehicle for them.”
And integrating these silos of data together is a great way to discover mistakes.
One (very) large client of the firm had $27 million per month in claims. In one month, Innovu was able to uncover $900,000 in incorrect filings by pinpointing claims from individuals not covered by the policy.
“That was $900,000 that probably otherwise would never have been caught, and can now be more effectively deployed in other benefit areas.”
The opportunity to identify these issues and conduct what O’Toole calls “interventions” would obviously resonate with the client.
“Pharmacy coverage is around 20 percent of every health care dollar. Carving out to a specialty firm can potentially save employers 30 percent of that 20 percent when compared with keeping it at the incumbent company, and that equates to big dollars.”
Or, the data might point to a company’s diabetic population that’s not consistently taking their medications, which could be identified by prescriptions that go unfilled. If left unaddressed, it could become a catastrophic claim. Using de-identified information to comply with privacy laws, programs can be tailored to get them back on track.
“We also had a larger company with 800 employees take over 2,000 opiates in a two-year period. If a group like that is in manufacturing or trucking, you have a flat-out safety issue, and you’re going to have to intervene because you cannot knowingly have that information and not deal with it. It’s a hazard to the general public.”
Or there was the discovery of ambulance expenses for people that never arrived at a hospital, which pointed to a company that was committing fraud.
“That’s how it’s discovered, reconciling the ambulance expenses with the hospital expenses, and those patients supposedly in the ambulance that were never admitted to a hospital. It wouldn’t have been discovered without this kind of data analysis.”
Of course, uncovering such mistakes involving high-dollar amounts requires a lot of data with a corresponding amount of expertise.
Which raises the next logical question central to reader interest: how does a retirement plan specialist get into human capital risk management of this type?
“We look to certify firms in this type of specialization,” O’Toole said. “You either would have to be at a firm that has property-casualty and health and welfare businesses, or you need to network specifically with a health and welfare advisor.”
And here’s how it specifically involves retirement.
A cohort of employees between 51 and 60 making less than $40,000 per year has health care claim data that’s twice that of a similar group.
Why?
The demographic trend revealed that by aging just one year, their health care expenditures increased by 3 percent (all else being equal).
“This is where the retirement plan advisor would be out with their health insurance colleague, explaining how the two complement one another. The health insurance colleague would work with the employer to conduct the necessary interventions on their health care claims, and the retirement plan advisor would work with those dollars saved to get the employees financially well. That’s how the two worlds come together.”
Similarly, the same analysis could be performed for retirement readiness. O’Toole pointed to a printing business. Their compensation is low, but the employer offers a good retirement plan with a flat contribution and a match. When compared with the previous cohort of 51- to 60-year-olds earning $40,000, they’re actually doing much better.
“It says to the employer, ‘Yes, you do have a little bit of an issue, but you’re ahead of similar employers based on your commitment to your employee’s retirement. It’s a great example, because none of these people should be saving 15 percent for retirement.”
A similar analysis of every silo by the advisor will effectively identify where (and how) to spend the next available dollar, whether it be on financial wellness, health and wellness, workers compensation or any other benefit offering.
We couldn’t help but wonder if O’Toole and Innovu are ahead of the curve, and asked him about the level of education and awareness needed around human capital management, and whether this is the way the industry will eventually operate moving forward. His answer involved another increasing industry trend: aggregation.
“Health/wellness is already here, and a number of benefit firms with retirement plan divisions have a national relationship with us on the health and wellness side. But especially with private equity firms that are aggregating retirement shops, they realize this is the center point of their aggregation. Many now have hundreds of firms that have completely different business practices. In order to get their multiples out, they’re going to have to use data to understand where the opportunity resides, which of their firms are acting on the opportunity and which are asleep at the wheel.”
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.
