What’s Right and Wrong with Financial Wellness, Fintech and 401(k)s

Fintech, financial wellness, 401k, retirement

Scott Colangelo

Scott Colangelo has strong opinions about the 401k and retirement plan industry—and thankfully doesn’t hold back.

“I feel like there are things that people are afraid to discuss,” Colangelo, chairman and managing partner with Prime Capital Investment Advisors (PCIA) says. “I’m at the stage of my career where I see them and we all know what they are, but no one wants to take them head-on.”

Fintech and financial wellness are key areas of focus for the Kansas-based wealth and retirement firm and its wellness brand, Financial Fitness for Life, but too much tech is leading to plan underperformance and participant outcomes that are “not good,” according to Colangelo.

“We realize that everybody’s out there trying to use fintech alone to solve financial wellness, which absolutely does not work by itself—it’s a failed model,” he explains.

Noting that the human element is still critical, he references the company’s large team with over 100 employees inhouse that provide financial wellness education services.

“It’s not a loose network of advisors putting together some branding to try to make it feel like it’s bigger than it is,” he adds. “Clearly, we’ve committed capital and resources, but it gives us an opportunity to collaborate with other great retirement practices, provide them with a solution that they can’t provide on their own, and build partnerships.”

It’s something that’s largely missing in the industry, Colangelo claims, with the defensive and protective nature of many firms hobbling growth and results overall.

“Instead of trying to compete and run individual practices while spending money to essentially do the same things, we should try to find ways to collaborate, which would save money, drive better results and build more of a community. In our industry, we’re very immature in how we handle that.”

Pain and gain

PCIA built its financial wellness service for its own advisors over the past two decades, innovating and adding resources along the way. More importantly, Colangelo admits, they made a lot of mistakes, but learned from them to be better.

“We eventually realized it had evolved into this fantastic model that drives results and outcomes that weren’t matched in the industry. We decided to put resources into growing it, rather than simply trying to win plan-level business. Since we’re all using the same technology and trained to deliver the same thing, we track the data and roll it up so we, again, get better and better.”

And while he’s critical on fintech-only financial wellness solutions, he emphasizes technology’s importance in the equation, nonetheless, and points to partnerships with Questis and Enrich as particularly helpful.

“I don’t want anyone to misunderstand what I’m saying. Fintech is extremely important, but just that as the solution alone to put in front of the customer is pretty much proven to deliver under 10% utilization, and most of the utilization is going to come from people who don’t need it.”

Claiming a 92% active investment election, he argues the industry overall is “miserably low” because participants default into target-date funds, and prevalent use of target-dates became prevalent in a 10-year bull market with low volatility.

“The reality is we have a massive disconnect between risk tolerance and where people are actually invested. These next 10 years will get more volatile and it will be the biggest problem in our industry—participants jumping in with allocations more volatile than they can stomach.”

Excited and engaged

Colangelo criticizes industry on-track ratios and an overreliance on auto features, citing his own internal research that shows 70% of employees lose sleep over financial concerns, which they admit affects productivity.

“If our solution to everything is auto features, then you have unbelievably unengaged participants. If you auto-enroll everyone at 3% or 4%, they assume that’s where they need to stay at. We meet with them face-to-face, sit down and hand-deliver them a Gap Report in a sealed envelope. They look at it and go, “Geez, I just need to go from 5% to 7.5% to hit retirement?”

The firm relies heavily on participant polling, which informs its advisors about what employees actually want, as opposed to simply assuming their wants, needs and goals.

“I have plan sponsors imagine that every employee is carrying a backpack containing weights. Some weigh 25 pounds and that may be their fear of Social Security; some may weigh 15 pounds that could be their fear of budgeting, not saving enough for long-term care for their parents or whatever. It’s a different mindset from trying to dictate to participants what we think we know about their situation. If we poll participants and if 75% say, “I need to know about Social Security,” then it’s what we talk about in the first meeting.

The fear too often simply comes from “not knowing,” which Colangelo and the firm combat with a targeted education meeting.

“Maybe 95% will walk out feeling better about it, and you, the sponsor, just pulled that weight out of their backpacks. It’s no longer weighing them down. That’s not to say that the other 5% don’t have legitimate concerns, maybe a disabled child or they’ve been married multiple times and don’t know how their benefits will work, etc., so we spend time discussing it with them. We believe addressing it this way is really the only approach.”

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