To successfully engage 401(k) participants, the financial industry must embrace the opportunities a data-driven revolution offers. We must be able to effectively send targeted messages and relevant information to participants. Meaningful conversations with a participant are made difficult when a participant’s financial picture includes only name, date-of-birth, gender, age and contribution levels. We need to access a 401(k) participant’s comprehensive financial picture to understand what they need now, 10 years from now, 25 years from now, and beyond.
If we could link the retirement industry’s back end systems to create a connected financial network, we would have the ability to aggregate a rich series of data points for every 401(k) participant: loans, credit card debt, insurance, banking, mortgages, etc. With meaningful data points, we can look at a book of business, and identify and strategically service financial profiles by segment.
For example, these segments include:
Paycheck-to-paycheck spenders: They contribute the minimum to their 401(k) or not at all. Looking at their holistic financial picture, does this participant have credit card debts? High student loan payments? Not saving at all? Offer these participants access to a financial education course. We can build their trust while improving their financial savvy.
Early savers: They likely have many large purchases to make before retirement: car, home, paying off college loans. This group could appropriately benefit from personal guidance about making the immediate purchases while not forgetting about retirement goals.
Mature savers: They having been saving for a while and likely have assets spread in many places: cars, vacation homes, children in college. They are informed but now may need assistance with strategy going forward and how to prioritize and effectively leverage assets.
Transition planners: Retirement is not far off for them, and they need to know that their financials will align with their retirement goals and needs. This includes not only projections, but approaches to consider that will help fill in any potential gaps.
Retirees: They need help monitoring their savings, making sure that unplanned healthcare or other events can still be amply covered, etc. Part of this monitoring of their “spend-down” of assets will include a gut-check of their comfort level as well.
The ability to access data in a connected financial network to provide advisors not with only insights, but opportunity for improved operational processes. Algorithms could be tailored send communications to specific participant segments for updates or educational sessions. Think about the relationships you could build with 401(k) clients if you could congratulate them on paying off credit card debt or a student loan.
With the impending fiduciary regulations, it’s also pragmatic in our industry to pursue improved data access. 401(k) advisors will need to prove they’re acting in their client’s best interest—something that is made easier if an advisor has access to more than four or five data points per participant. It is rapidly becoming more apparent that a connected Financial Life Network would not just be helpful, but essential.
Julie West is with Ithaca, New York-based 401(k) technology solutions provider Envisage Information Systems.
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.
