Telling the Right Story
Getting participants to become engaged in a plan takes a carefully thought-out message, a sender, a channel, a receiver, comprehension, and then, if you’re lucky, action.
Deciding what the message is can be complicated, however.
David Boucher, an adviser with Boston-based Longfellow Benefits, remembers what participants used to hear. He has been in the retirement industry for 14 years and when he started, the message focused on how to invest. There was a metaphor that described mutual funds as a pizza pie, with different toppings representing different stocks, he reminisces; how foolish that was, he thinks now. Trying to teach employees about stocks, bonds, and mutual funds before they were even enrolled was not very wise he says, because the investment gibberish was just that to most employees.
The message Longfellow now presents at enrollment meetings or any educational session has evolved to a “budgeting” angle, says Boucher. “We tell participants to look at every dollar they’re paid and ask them to think about how they can use those dollars most efficiently; how can you enjoy life—and save?” Moving the context away from investing and over to real-life budgeting makes it more tangible for participants.
The message needs to be “holistic”—meaning all components of an individual’s financial situation need to be considered—a concept that is cropping up more frequently in the industry, says Diane Gallagher, Head of Product Marketing at J.P. Morgan Retirement Plan Services. She says J.P. Morgan uses five guiding tenets in all of their communications. They are: 1) Make it personal—participants are more likely to become engaged in the plan if they feel an adviser is considering their unique situation, 2) Make it simple—investment jargon or complex plan design features will likely cause a participant to tune out, 3) Connect money with emotion—saving for retirement is not just about taking money out of your paycheck; try describing it in terms of independence later in life, 4) Diagnose before subscribe—before suggesting a solution for participants, try to understand where they’re coming from first, and 5) Cultivate long-term relationships—having a relationship with a financial adviser can help participants feel in control of their situation.
Gallagher says the “Diagnose before subscribe” notion is relatively new and certainly critical when crafting messages for participants. When a patient goes to see a doctor for the first time, he or she has to fill out a form describing any past medical conditions as well as a family medical history; only then does the doctor begin an evaluation and can diagnose whatever the ailment may be. After a diagnosis, a doctor might prescribe medicine. The same process needs to be used for participants, says Gallagher; evaluate and diagnose the participant’s situation, then offer a solution. “It’s really about knowing your audience and creating tactics and messages designed around them,” says Gallagher.
For some, that still involves investment education. Dana McCullough, Assistant Vice President of Marketing for The Hartford’s Retirement Plans Group, says that, since the recession, teaching participants about asset allocation and diversification can help them mitigate risk, which is something everyone can appreciate after the market returns of the last few years. The approach is still different from a decade ago, she agrees. It’s not just explaining how a mutual fund works, but explaining why it is worth understanding. The Hartford uses a “Riskology” method to help participants understand the variables that can affect their investments. A “Periodic Table of Retirement Risks” covers topics such as inflation, the market, longevity, fixed income, and withdrawals.
“Sponsors used to be more focused on tests, but now it’s more paternalistic,” McCullough says. “It’s more about wanting the participants to succeed, not just enroll.” The Hartford believes that, in order for participants to genuinely succeed, they should have some understanding of how their money is being invested.
What’s missing?
If participant-directed messages were 100% effective, then every participant in an employer-sponsored retirement plan would have a deferral rate to reach at least the company’s match and everyone would be perfectly diversified—clearly, this is not the case. So what messages are not getting through?
Research has shown there is a significant disconnect between what people know and what they actually do. In one study, ING Retirement Research Institute found 97% of respondents knew it was important to start saving for retirement as early as possible, yet only 53% were saving actively, and 47% did not know how to begin.
The team at ING U.S. Retirement Services relies heavily on information like this to assess how their messages should be constructed. Lisa Margeson, Head of Marketing & Communications for Corporate Markets, and Bill Elmslie, Head of National Intermediary Distribution & Service, say that, by using behavioral finance research, they can better understand where participants stand and how they should craft messages accordingly.
J.P. Morgan research has found a similar disconnect, says Gallagher. In its 2010 Retirement Plan Participant Survey, J.P. Morgan found that, although nearly all respondents knew they are responsible for retirement savings, it came in a distant second of financial priorities at 17%, with 48% citing monthly expenses as the most pressing concern. People know they have to save, yet too many are still fighting it, says Gallagher.
Boucher says the most important message that is not being communicated loudly enough is that every individual is responsible for his or her own retirement. The evolution of retirement has gone from “some” of the burden falling to an individual to “all” of it, he emphasizes. “When I started doing 401(k) education meetings, I explained that Social Security would produce roughly 40% of your retirement income needs. Today, my expectation is that Social Security will provide roughly 25% of one’s retirement income need, if you want to retire at age 65. I believe this downward trend will continue, so my recommendation is to minimize the Social Security benefit from your financial plan, or remove it altogether,” he says.
A message for the future
Tom Clark, President of Lockton Financial Advisors/Lockton Investment Advisors in Baltimore, pointed to another trend in the industry, further away still from the mutual fund definitions: talking to participants in terms of retirement income or income replacement.
“Participants should be thinking in terms of a monthly income figure, not ‘I need to have two million saved in the bank’,” says Clark. “If they do that, it becomes so unattainable, why even try.”
Gallagher says J.P. Morgan has embraced the concept of income replacement and includes it on all communication materials. Now, J.P. Morgan takes an account balance and says to a participant, “If you keep doing what you’re doing now, you will have X amount as a ‘salary’ in retirement.” Some people will be comfortable with this figure, others will not be, and those who are not are more likely to take a positive step than if they saw their account balance alone. “They don’t know if an account balance of X is good or bad, so you have to put it in context,” says Gallagher.
Another new way to make participants think about deferring more or changing their investment strategy is peer evaluation. ING Retirement Services created INGcompareme.com, after research found peer comparison to be a significant motivator. It is a public site, where anyone can compare information with others in the demographic. “We compare all aspects of life in order to improve,” says Margeson. “The response has been great, about 10% of users said they would increase savings, and 3% who were not enrolled before decided to enroll in their employer-sponsored plan.” However, the potential drawback of the comparison approach is if participants compare themselves to others who are not doing well, no one will improve.
The channel
It may seem wasteful or redundant to use multiple channels to communicate with participants. What is the point of using print brochures, enrollment packets, e-mails, intranet sites, phone calls, group meetings, one-on-one sessions, all to get the same message across?
There are two main reasons for using multiple channels. One is that everyone learns differently; not only do people in different demographics tend to favor one channel over another, but even participants in the same demographic can prefer one method over another, says Clark. Secondly, the more places a message is posted, the greater the likelihood for that message to register, Gallagher noted.
Gallagher says J.P. Morgan includes the income replacement figure on all communication materials sent to participants. From 2005 to 2010, J.P. Morgan found income replacement figures improve by about 20%. “It’s about a consistent message across multiple media and you need to use all of them for the message to sink in.”
Boucher agrees participant communication requires using more than one channel. He says every time Longfellow gets one message out successfully, they look at it as a small victory. Sometimes, the victory is very small. During a semiannual meeting for one client, Boucher says about 20 people showed up at the presentation—when about 600 employees worked in the building. However, another 140 logged on to the live stream of the presentation. Then, after the presentation was complete, an e-mail was sent out to all employees summarizing the presentation. It is the sad reality that many participants may not have even opened the e-mail (nor attended the presentation, nor watched the live stream)—but the more places you put the messages, the more opportunities a participant has to listen.
However, as many advisers in the business already know, nothing compares to in-person, targeted communication to cross that seemingly impenetrable line to get a participant engaged. Boucher says that, at Longfellow, they provide an array of workshops for different demographics: a budgeting workshop for the younger employees, another focused on college funding, and soon they’ll be introducing a workshop focused on consolidating assets. The workshops should speak directly to a particular demographic, and the plan sponsor and management should encourage their employees to attend.
From those group workshops, Boucher offers participants the possibility of signing up for a one-on-one session. “Think about the most important documents in your life, a will, for example,” he says. “You wouldn’t want to take care of a will online, so the same should go for retirement planning. Participants should feel they’re being taken care of by their employer and that they’re taking care of themselves.” —Nicole Bliman