Financial wellness: What’s in it for advisers?

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Despite financial wellness quickly rising to prominence in the retirement industry, there are many retirement plan advisers who won’t go near the topic. They see themselves as an investment analyst, a plan design expert, or a quantitative resource for the plan. Yet, a recent informal survey found that advisers feel their No. 1 metric for being evaluated by their clients is a plan participant’s retirement readiness.

In today’s environment, the shift in savings responsibility from the employer (in the defined benefit or pension model) to the employee (in the defined contribution model) has left many American workers ill-equipped to save for retirement. If employees don’t have the capacity to generate any savings in the first place, then they can’t save adequately for retirement. We’ve witnessed this challenge firsthand by examining our own recordkeeping data. For instance, in 2015 we found that 26% of the plan participants within the plans for which we recordkeep were not participating in their 401(k) plan. In addition, we found that nearly one quarter of our plan participants have an outstanding 401(k) loan.

Therein lies the disconnect: If employees don’t have the capacity to save, but advisers are being increasingly evaluated on how successful employees are at saving, this may compromise the integrity of the adviser’s business.

The good news is that plan sponsors are starting to pay attention to topics that go above and beyond traditional participant education. A recent T. Rowe Price Retirement Plan Services survey found 52% of sponsors now offer an education program that includes budgeting and managing spending. Thirty-nine percent of plan sponsors that do not have these programs in place said they would consider offering them. We believe more employers will begin to widen the lens with respect to more holistic and fully integrated financial wellness programs in the coming year, which creates an opportunity for advisers.

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Employers are observing a working population that has changed and is under increasing financial pressure. Another recent survey from the American Psychological Association reports that approximately 64% of workers note financial issues as the No. 1 source of stress in their life. The same percentage said they couldn’t cover a $1,000 emergency without borrowing the money. These numbers go hand in hand with the alarming statistic that nearly a quarter of Americans’ paychecks go to paying off consumer debt (US Census Bureau et al, 2014).

For many employees, developing a successful, long-term financial strategy requires getting the immediate financial situation under control first.

On the company side, this can only be good as employers increasingly believe that offering some additional guidance on handling finances will decrease the time employees spend at work tending to financial issues. Rising healthcare costs could be mitigated, hours of lost productivity could be reclaimed, and retention could be increased, as could overall morale and job satisfaction.

Employers know that financial wellness is important and they’re hearing a need for it from their workforce, but they don’t know who to talk to about it. Traditionally, they think of their plan adviser as “just the investment person,” and that’s where advisers have a tremendous opportunity to proactively address financial wellness with their clients and differentiate themselves from their competition.

Evaluating criteria
Advisers can position financial wellness as a solution for employers who are concerned about employees under financial stress, employee retention efforts, as well as workforce management, to name a few. Ultimately, we do not believe there is a one-size-fits-all solution for every plan, and encourage advisers to weigh the following criteria when evaluating financial wellness programs:

1) Program content: Does the program’s specialization (budgeting, debt management, general financial knowledge, investment knowledge, large purchase planning, financial planning, estate planning or charitable giving) align with the key needs of the employees? The content must align to the employer’s objective and should also cater to the employee demographic.

2) Engagement experience: Does the program offer a structured format for employees to follow or a different approach? Can the provider show actual adoption rates with existing clients? And more, is the program resulting in behavioral change and improved outcomes?

3) Alignment with current retirement recordkeeper: Does the program integrate with the participant services provided by the plan’s retirement recordkeeper?

4) Reporting and measurement capabilities: Can the program provide detailed reporting on usage, impact, and progress against agreed-upon organizational goals?

We feel it is critical for advisors to leverage financial wellness with their clients and prospects. Beyond the retirement plan and through the lens of holistic overall financial health, the adviser has an opportunity to impact an individual’s financial prospects on a level that can positively influence their daily well-being.

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