PANC 2017: Financial Wellness

Starting off her panel, Thursday, Day 2, of the 2017 PLANADVISER National Conference (PANC), moderator Brea Dantin, a principal and retirement plan adviser at ProCourse Fiduciary Advisors LLC, said most retirement plan participants want financial wellness, and this is why advisers need to take note. “If you don’t offer it, your competition will. If you’re not talking about it, your competitions is,” she told attendees.

All panelists agreed there is no single, common definition for financial wellness. Michael Domingos, vice president, national corporate strategy and distribution at Prudential Retirement, said advisers have actually been in the financial wellness business, using the term loosely, for a long time, but the industry is at the beginning of a new phase. “Look at physical wellness; years ago, it was a fad, and we didn’t know if it was going to stick,” he said. “But, today, physical wellness programs are very real, with most producing outcomes for employees and employers.”

Jon Shuman, national sales manager, workplace solutions, at MassMutual, added that the reason wellness programs have worked with health care is there is a return on investment (ROI) that shows employees and employers save on health costs. Advisers should have a definition of financial wellness ROI of their own, for lack of a standard one, he said. For example, if participants are able to retire on time with adequate income, you have shown an ROI for financial wellness programs.

According to Nathan Voris, managing director, strategy, at Charles Schwab & Co. Inc., for 30 years advisers have offered articles about college savings, budgeting, etc. But doing that without tying it into a specific strategy for participants is ineffective. However, he believes the lack of a common definition of financial wellness is good. “The way we do it is to look at data and figure out problems, then figure out solutions,” he said. “The solutions could range from helping participants set up emergency savings to setting up a trust for heirs, and anything in between.”

A survey of panel attendees showed 75% of them offer financial wellness programs, but 61% are just winging it, as far as a particular strategy.

NEXT: A financial wellness business model

According to Domingos, advisers should first identify outcomes to be achieved and what the benefit is for plan sponsor clients in offering a holistic financial wellness program. “There are real bottom line results for employers. In our point of view, it is a work force management tool,” he said.

He suggested that advisers not overcomplicate this for individuals; a financial wellness program needs to be simple. Prudential has heard from participants that they want help managing day-to-day finances, saving for specific personal goals and protecting what they’ve accumulated so they can retire when they want. Advisers can create business models to target one of those three, all of them or a combination.

Domingos suggested three adviser models:

Leverager – The adviser becomes a subject-matter expert on financial wellness providers and matches his clients with the one most appropriate;

Aggregator – The adviser offers some part of financial wellness but will integrate with a provider offering and do it in partnership; and

Integrator – The adviser builds a financial wellness suite of tools to offer clients.

Shuman added that financial wellness is not just about saving for retirement; participants can’t pay for health care with a credit card while fully funding retirement. They may need to save for health care or prevent their home from going into foreclosure before focusing on retirement savings. When building a financial wellness program, advisers should try to define why plan participants would not be able to retire at the age they would choose, he said.

Aaron Tabela, head of institutional marketing at Financial Engines, said participants need to get financial foundations in order before saving up to the match in a defined contribution (DC) plan. “It doesn’t make sense to max savings in a 401(k) when participants have thousands of dollars in credit card debt,” he observed. “Financial wellness programs need to be really prescriptive about ‘do this next.’”

Shuman suggested that a financial wellness program could include adding an executive compensation plan because executives can never save enough in a qualified plan. Also, having support tools for benefit decisions to help employees determine how to spend their money is an additional wellness solution.

Voris said he sees the most success in financial wellness programs when plan sponsors, advisers and recordkeepers acknowledge what they are good at, and how they can work together, capitalizing on what each provides.

NEXT: Costs for financial wellness

A poll of panel attendees found 78% do not charge separately for offering financial wellness, and 48% said doing so is unprofitable for their business.

Dantin noted that DC plan sponsors been driving down recordkeeping costs, and now providers and advisers are asking sponsors to pay $10 to $20 dollars per employee for financial wellness—a challenge with no easy solution. What’s the trick for getting plan sponsors to pay?

According to Shuman, with five or six points of data, advisers can provide a report to plan sponsors and ask, “Do you want to pay to fix all of these issues now, or pay for the issues of an aging work force later?” Larger businesses are more concerned about their earnings next quarter, so advisers need to quantify and prove ROI. “If it gets participants on the right track to meet their goals, isn’t it better to pay $10 than leave them on their own with no outcomes?” Shuman queried. “Plan sponsors really need to pay for outcomes.”

To prove ROI, it’s important to measure results for both the employee and employer, Domingos suggested. Are plan participants increasing savings and reducing withdrawals? For employers, are the employees who need to retire doing so, and are younger employees getting a chance to move up in the organization?

Voris added that there are several ways to pay for financial wellness programs. Fees can be paid by the plan sponsor, but also by the plan or participants.