Holistic Attack on ‘Real’ Retirement Problem

Dave Ramsey’s SmartDollar takes a holistic approach to retirement education, focusing on behavior and teaching people the basics: budgeting, saving for an emergency and getting out of debt.

Retirement plan participants who are broke can’t save for retirement, says Dave Ramsey. The solution? Get them financially well.

Ramsey, the personal finance guru, host of a daily finance show and author of several books on getting out of debt, is looking to bring a program to plan sponsors with common-sense information about making and sticking to a budget, eliminating debt and building (at least initially) a $1,000 emergency fund are at the root of the program.

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“SmartDollar is a retirement education platform for advisers and plan sponsors to use to drive participation and contribution rates by focusing on the real problem,” says Brian Hamilton vice president of financial wellness at Dave Ramsey. The real problem, Hamilton tells PLANADVISER, is behavior.

The pain points plan sponsors and plan advisers see in a 401(k) plan are rates that should be higher. Citing statistics on the low average balances and poor participation by workers, Hamilton says Dave Ramsey’s methods get to the root of why people aren’t saving. “Because they are broke,” he says flatly.

Other alarming statistics Hamilton cites—that 70% of Americans live paycheck to paycheck, and 24% of the average household paycheck goes to paying off consumer debt—point to a widespread problem for Americans, he says, that being broke is normal for many people. “They are deeply in debt, have no money in the bank, would have to borrow money to cover a $1,000 emergency,” he says.

The Dave Ramsey franchise believes that personal finance is 80% behavior and 20% “head knowledge.” Hamilton explains that means people know what to do with their money, but when it comes to doing the right thing, simply lack practice. Comparing financial behaviors to diet and exercise, he says, “Everyone knows how, but it’s the doing that makes a difference.”

The retirement industry’s problem, Hamilton contends, is that it is asking people to do something they are simply unable to do, given their current financial state. “(In sales), we’re told not to call on an unqualified prospect,” he says. “In the retirement world, we’re trying to get people to invest when they have no money.”

The Wrong Methods?

Until retirement plan participants have money, Hamilton says, there is no point in talking to them about where to invest.

The industry has tried to get people on track, Hamilton says, but it uses the wrong methods. The industry has tried treating the symptoms—low contribution and participation rates, and small balances—with “boring one-hour financial seminars that talk about asset quality and rate of return. Who cares about the beta of a mutual fund if you don’t have any money in the mutual fund?” he asks.

The crucial part of retirement savings success is savings rates, Hamilton says. Auto-enrollment and auto-escalation are positive features, but they have limits: “You can’t ‘auto’ broke people,” he says, and the rates start people off at 3%, which is too low, and takes too long to get people to a 10% savings rate, which is still inadequate.

Hamilton is also dismissive of investment advice in the form of calculators, forms and tools. No one uses them, he says, comparing them to a treadmill in the basement, with clothes hanging on it. “It works if you use it,” he observes.

Getting back to basics is the only thing that works, Hamilton says, and the Dave Ramsey program has kept statistics on people who have implemented the steps: “They’re able to invest 15% into retirement,” he says. The average person can accomplish the first “baby step”—accumulating an emergency fund of $1,000—in about one month. What the program provides is the education and motivation to get started.

“People don’t know where to start, Hamilton says. Starting with the concrete, achievable amount in the emergency fund gives people a very clear direction. The program then dictates achievable goals to give participants a feeling of traction.

The focus on real life money is effective. Last fall, the Fiduciary Plan Advisors team at HighTower adopted SmartDollar for its retirement plan clients. The program’s approach is radically different from most other financial wellness programs, says Jania Stout, managing director and co-founder of Fiduciary Plan Advisors. “It’s a huge difference, from talking about asset allocation,” Stout tells PLANADVISER.

Eliminate Debt

 “You weren’t really changing lives.” So far, Stout says, the reaction to SmartDollar has brought positive emails from participants, and the impact is bigger than from financial education.

Dave Ramsey’s books and show concentrate on ways toeliminate debt, and so does SmartDollar. Instead of asking people to wipe out their largest debts first, SmartDollar starts with the smallest. This allows participants to create a debt snowball, Hamilton explains, in which the eradication of debts gathers momentum as each is crossed off the list. “You can pick up more speed going down the hill,” he says. Paying off debts quickly keeps people inspired. Once debts are paid, the participant has freed up his income, the largest wealth-building tool, and can now begin to pay 15% into a retirement account.

The program is a fresh approach, Hamilton says, and proven to work. It has the advantages of a scalable, turnkey program with creative and marketing department support that personalizes the program for participants, who can access the platform via mobile device 24/7. Mobile access is a key driver, according to Hamilton, because it allows people to do the program at their own pace and get spouses involved. About two-thirds of the traffic comes from mobile use, he says.

Program cost is based on the number of participants, and is an allowable ERISA expense, Hamilton says, according to a Groom’s Law attorney. Employee success and engagement rates are kept confidential but are aggregated back to the adviser and to the plan sponsor. The information can be used internally by a company to market the program.

“Changing people’s behavior is hard,” Hamilton says. “If it was easy, everyone would be wealthy.” But the average types of financial education have not worked. Why focus on the wrong way, when a holistic approach gets results?

More information is at the Dave Ramsey SmartDollar website.

Merrill Lynch Unveils Expanded Capabilities

Merrill Lynch Clear has announced the roll-out of products enabling clients to better prepare for and live comfortably in retirement.

To help people navigate to and throughout retirement, Merrill Lynch Clear has defined seven life priorities: health, home, family, finance, giving, work and leisure. With the roll-out of its holistic wellness program in May 2014, Merrill Lynch Clear has provided resources to 8,600 of its advisers, enabling them to have more effective conversations with clients.

Merrill Lynch Clear has expanded its capabilities to include:

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  • Exclusive access to luxury travel advisers – Through a partnership with travel network Virtuoso, Merrill Lynch clients will have access to travel advisers who can assist them with their travel arrangements.
  • Longevity training program – The program offers insights into the sociological, psychological and physiological aspects of aging, with access to videos, online courses and reference materials, as well as Web-based presentations and knowledge sharing. It is aimed at helping advisers and retirement specialists better understand and address the evolving needs of the nation’s aging population and their families.
  • Applications (apps) – A suite of iPad “Discovery Apps” are designed to help facilitate more effective conversations between advisers and their clients. The sequence of returns app illustrates the risk associated with receiving low returns on a portfolio in early retirement, helping advisers bring personalized scenarios to clients concerned about outliving their money or unaware of the risk of poor market returns. Additionally, the Merrill Lynch Clear discovery app, goal explorer app and investment personality assessment app have been integrated into a single application that allows clients to adjust their goals and the importance they attach to each life priority.
  • Expanded resource library – More than 130 articles, videos, guides, seminars and other content have been added since last May .
  • Insights into retirement realities – Merrill Lynch has partnered with Age Wave to conduct a series of retirement studies, including Americans’ Perspectives on New Retirement Realities and the Longevity Bonus (May 2013); Family & Retirement: The Elephant in the Room (November 2013); Work in Retirement: Myths and Motivations (June 2014); and Health and Retirement: Planning for the Great Unknown (September 2014). The next study, focused on the hopes and concerns of retirees and pre-retirees when choosing the type of home and community to live in during retirement, will be published later this month.
“We’re continuously exploring and adding powerful capabilities to Merrill Lynch Clear,” says David Tyrie, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “This dynamic approach is helping to better connect more people’s lives to their finances through broader, more personally meaningful conversations with their financial advisers about their priorities.”

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