Financial wellness is a dismal failure and a huge success
It’s amazing how the focus on contributing attendees dominated the conversation and focus of industry professionals almost overnight. Everyone wants to help people solve their financial and performance-related problems in the workplace, but providers and consultants need to figure out how to make those efforts financially viable to justify the time and capital expenditure.
The shift in focus to the participant was inevitable. DC plans are an illusion – they’re just individual accounts merged to get discounted rates and a way to serve those with small balances more efficiently. The financial services industry has recognized that the workplace is a very efficient way to attract customers and accounts because there is trust, access and data.
There are other factors. There is a talent warfare as more people than expected are retiring, making benefits – especially savings and retirement plans – key to talent retention and recruitment. There are several state-level requirements for employers to offer retirement plans, and a federal mandate could come. Workers now expect most of their financial needs to be resolved in the workplace.
Private equity has added value to record holders and retirement plan advisors based on the ability to monetize participants.
There are two types of DC participants. Some can afford traditional wealth management and personalized financial planning, but 95% of the 90 million development cooperation participants can’t because they don’t have enough investable assets.
The wealth management industry has developed stellar technology and service models to serve the wealthy and even wealthy masses. But no one has figured out how to help the rest with what we call “financial wellbeing.” It requires clean data, technology and a new generation of financial coaches. In other words, it’s a new business model.
Three or four half-hour annual meetings with some planning documents and reminders have not dramatically changed the behavior or lives of a significant percentage of workers. The ignored or underserved workers need more help than the rich and affluent, who might be able to raise themselves and help themselves.
Because of this, the DC industry needs to be realistic and admit that financial health is largely a failure, an acknowledgment that is an important step on the road to success. Because we cannot afford to fail.
On the other hand, financial wellness can be viewed as a great success. There are products and services that are being introduced to help the 95% who don’t need to hold hands. Behind this is the performance of automatic functions such as managed accounts and the qualified standard investment alternative. Employers also use appropriate contributions to help with student loans and emergency savings. Firms like Financial Finesse that employ virtual CFPs work for larger organizations that are willing to support and pay for it.
Wellness is a great way to attract new plans as the demand from plan sponsors grows. It is also a prospecting tool to find the rich and affluent within a plan like CapTrust does. Firms like Fidelity and Edward Jones have developed business models to make money with IRA rollovers.
But to say that financial health has moved the needle and changed the behavior of DC attendees is delusional and dangerous, because accepting this could cause the industry to stop investing and innovating. Until we figure out how to monetize financial wellbeing, the chances of success are slim.
At a recent wealth management industry event, Envestnet CEO Bill Crager noted that 20 years ago many technology and services companies didn’t exist. He wondered what the next 20 years would be like.
Perhaps, just maybe, we can leverage and transform robust wealth management technologies, processes, and services to profitably serve the ignored and underserved DC participants.
Income from the standard “Triple-F” services – funds, fees and trust – is declining. RPAs need to focus on monetizing and serving the participants by taking their advantage as a trusted advisor at work where they may be the only financial advisor most people will ever meet. But we have a long way to go.
[More: A student loan crisis is looming. RPAs can help clients prepare]
Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also an associate editor of InvestmentNews’ RPA Convergence newsletter.
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