In Practice May 3, 2016

CFA Survey Finds Stubborn Pockets of Robo-Resistance

A little more than six in 10 CFA charter holders say they have some familiarity with automated financial advice tools, “implying a fairly high level of awareness overall.”
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A large poll of chartered financial analysts (CFAs) conducted internally by the CFA Institute found widely varying opinions of the state of the robo-advice industry—with a sizable plurality of charter holders suggesting they have little interest in the new wave of fin-tech.

Just 19% of those polled said they were “very familiar” with the so called robo-advice tools and services currently out there on the market, and “a not insignificant 16% of CFA members are not at all familiar with such tools.”

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The findings come from a new report published by the CFA Institute, which it put together at the request of European banking and market authorities interested in learning about the state of robo-advice globally. Explaining the results of its global member survey, the CFA Institute says the North America region clearly has the highest level of familiarity when it comes to integrating data and automation technology into portfolio management and financial planning. Interestingly, developed European markets actually lag behind some emerging markets in terms of charter holders’ awareness of and openness towards robo-advisers.

Looking across all its responses, CFA Institute finds asset management (54%) is considered to be the sector that will be most affected by automated financial advice tools, followed by banking (16%), securities (12%), and insurance (8%). According to the survey report, many of the open-ended responses put forward under “other” noted financial advisers and wealth management as being the specific group that will be most affected.

“These findings are intuitive given the increasing proliferation of robo-advisers,” CFA institute suggests.

Taking a step beyond simple awareness, CFA Institute also asked charter holders how individual investor clients may be impacted by the increased use of technology. Most respondents felt that “most financial advice tools offer relatively unsophisticated advice based typically on offering a diversified portfolio.”

“It is likely because of this stylized fact that 70% of respondents think mass affluent investors will be positively affected by automated financial advice tools, followed by other investors (67%) and high-net-worth individuals (41%),” the report explains. “The higher the wealth, the more likely that respondents do not think investors will be affected by automated financial advice tools, which are not yet capable of offering complex, tailored advice.”

NEXT: Other anticipated impacts among CFAs

According to the CFA Institute poll, the rise of automated financial advice tools may impact consumers through several mechanisms.

“Some of these impacts may be positive, others negative. Our survey suggests that cost, access to advice, and product choice are all viewed as more likely to have a positive impact on consumers,” the report says. “Respondents are most divided on opinions of the impact of financial advice tools on market fraud and quality of service, with quality of service being the most negatively impacted.”

Related to this, many CFAs apparently lack trust in the technology underpinning robo-advisers. Many suggested the increase in automated financial advice “may lead to new risks or the re-evaluation of existing risks. Forty-six percent of respondents note that flaws in automated financial advice algorithms could be the biggest risk introduced from automated financial advice tools, followed by inappropriate selling (30%) and privacy and data protection concerns (12%).”

However, even those advisers who are otherwise skeptical of the benefits of robo-advice highlight the potential cost-effectiveness of the approach. In the North America region, for example, 90% of CFA holders polled said greater use of robo-advice would have positive benefits from a cost perspective for individual clients and consumers in general.

Other specific concerns called out by CFA holders were that “automated financial advice tools are not likely to be able to account for behavioral biases in clients or to account for personal circumstances in a satisfactory fashion,” and the “increased risk of herding as more and more investors are directed towards passive strategies.”

Additional survey results are reported here. 

Client Service May 3, 2016

Employers Increasingly Interested in Financial Wellness Programs

There are several different approaches they can take.
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Moderating a panel at the 2016 Plan Sponsor Council of America (PSCA) annual conference in Nashville, Tennessee, Kenje Mallot, financial solutions product manager in the Retirement Strategy & Solutions unit at Aon Hewitt, pointed out that employers are increasingly offering help to workers with financial wellness.

According to Aon Hewitt’s “Hot Topics in Retirement and Financial Well-Being” survey report, a majority of large employers (55%) now offer help to workers in a least one category of financial wellness, such as budgeting, debt management or the financial aspects of health care. Mallot told attendees that 85% of employers said they offer financial wellness help because it is the right thing to do.

Steve Smalley, managing director of client experience at Schwab Retirement Plan Services, noted that a spectrum of organizations have emerged to help employers provide financial wellness tools and programs to employees. They use a convergence of technology, data analytics and behavior finance.

For example, Yodlee is a firm focused on account aggregation for employees. It helps employees see their financial situation in a single view to let them know where they are and whether they are moving in the right direction long-term. GuideSpark focuses on providing information, using brief presentations to explain complex financial issues. In addition, HelloWallet merges data analytics and technology to frame employees’ savings and spending habits and compare them to their peers. It also provides scores to help employees see if they are improving on their savings scores, or debt scores, for example.

“No one sees retirement savings in a vacuum,” Smalley said. “They look at savings in comparison with their total financial picture.”

According to Smalley, a good financial wellness program includes:

  • Assessment tools;
  • Financial literacy and wellness content addressing behavioral finance;
  • The ability to plan, from budgeting, to emergency savings to longer-term savings; and
  • The ability to execute the plan.
  • He added that employers should find out the unique needs of employees—what they are most stressed about financially.
NEXT: Three approaches to providing financial wellness help
Liz Davidson, founder and CEO of Financial Finesse, a financial wellness program provider, said it is not an employer’s responsibility to help with financial wellness, but it is in an employer’s best interest. “You can’t give employees financial security with rich pensions and retiree health benefits, but you can enable it with tools and programs,” she told conference attendees.

Employers may use a tools-based approach. Maybe employers have a limited budget for financial wellness, Davidson noted, or they have one specific population to target. They can provide tools to help employees with finances, for example, student loan re-financing for Millennials or debt consolidation for Generation X employees. Davidson noted that the one tool she’s seen move the needle the most in getting employees to address their finances better is a retirement readiness estimator.

Whatever tools employers use, they must market the tools and incentivize employees to use them. When vetting which tools to use, Davidson advocates using conservative tools to best prepare employees, and when vetting providers of tools, make sure they are diligent about data security.

Employers may also use a program-based method of offering financial wellness help. Davidson explained that this method targets segments of employees that need more than just a tool. Employers target specific needs of employees with a goal to change behavior and develop better financial habits. They use unbiased, ongoing education and coaching through a set structure or series.

Finally, there is the benefits approach to providing financial wellness help. Davidson explained this is a holistic program provided to all employees and fully integrated with other benefits to help employees make the most out of their pay and benefits based on their personal situations. Employees are provided with unbiased personal coaching, online or in-person, and other education resources are also provided, either online or in meetings.

NEXT: Providing financial wellness help in action

At Robert W. Baird & Co., a wealth management, capital markets, asset management and private equity firm, all the tools and resources provided to clients are provided to employees, Lisa Mrozinski told conference attendees. The company has 70% engagement from employees in these tools and resources.

She said there can be a stigma about using financial wellness help from employers. Especially in a company like Baird, employees don’t want the employer to know what they don’t know—“they feel they should know this stuff already,” Mrozinski said.

But, Baird was noticing issues with its Millennial employees and its pre-retirees. It offers financial planning resources for Millennials, as well as automatic enrollment into the retirement plan at 6% of pay. It also offers a know-your-score tool.

For Baby Boomers, Baird started a “retirement experience” event, not only so pre-retirees could know whether they are financially prepared, but whether they are emotionally prepared as well.

Baird looked at all demographics in its employee population to determine the issues and what programs and tools it could put into place.

Mrozinski said one thing that was important and increased engagement from employees was to engage managers to be advocates for the financial wellness offering.

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