The Value of Data

For several years, recordkeepers have used behavioral finance to give plan participants a personalized experience. Increasingly, they are adding data analytics, artificial intelligence (AI) and machine learning to their efforts, the combined effect leading participants to make better decisions to improve their retirement readiness.

“The use of artificial intelligence and machine learning is becoming increasingly important among recordkeepers, to find insights into participants,” says Jason Grantz, director of institutional retirement consulting at Unified Trust Co., N.A., in Highland Park, New Jersey. “They’re sitting on a treasure trove of data. As AI becomes more sophisticated, you’ll see them improve their understanding of participants and offer better suites of services.”

“We’re starting to see the beginnings of an ‘ABCD’ approach by recordkeepers. That is, the use of AI, blockchain, the cloud and digital,” agrees Tim Slavin, senior vice president, retirement, at Broadridge Financial Solutions Inc. in Glen Head, New York. “AI is definitely the future, but among recordkeepers has a way to go. However, I do see a great deal of advancement in digital communications and personalization.”

In the past three to five years, the expectations of both retirement plan participants and plan sponsors has changed, says Kevin Collins, head of retirement plan services for T. Rowe Price in Owings Mills, Maryland. They expect information presented to them to be personalized, he says.

T. Rowe Price has achieved that, even by way of personalized two- to three-minute videos. “These personalized videos engage with individuals, using real-time data about them,” Collins says. “People love being the star of their own two-and-a-half-minute video.”

But to deliver information to them, T. Rowe Price stepped back to create what Collins calls an “integrated ecosystem” that sends consistent messages across every communication channel, be that email, the Web or a mobile application. “I’m not a believer that any decision is single-threaded. A participant isn’t going to decide to increase deferrals because of one visit to our website. I want our messages to look the same across all media,” he says.

In addition, T. Rowe Price tailors messages to what is relevant to participants at their life stage, Collins says. “We have reshaped our tools to simplify the messages and get individuals to focus on one issue at a time,” he says. “Historically, you would see websites that would try and get participants to do three to five things at once.”

The next step for recordkeepers, of course, is to use data analytics to anticipate a participant’s next move, says Nathan Voris, head of strategy for Schwab Retirement Plan Services in Richfield, Ohio.

Ascensus has its own approach for anticipating participants’ needs and tailoring communications to them. “Leveraging predictive analytics and business insights—including plan comparisons, proprietary research, and value and fee benchmarking—we synthesize data from multiple sources to give plan sponsors and their financial advisers a customized plan to help employees save for what matters most,” says Jason Crane, head of retirement sales at Ascensus, in Chicago. “Plan sponsors start by understanding the specifics of their plan and then compare those with other plans at Ascensus.”

Currently, Schwab’s Smart Communications program prompts people to make important decisions about their retirement savings such as to name a beneficiary or increase their deferrals to meet the company match, Voris says. “We place these messages on the website.” Participants still have to log on to see them, he adds.

Vanguard has built its recordkeeping platform for participants on a “personalization engine,” says Shannon Nutter-Wiersbitzky, head of participant strategy and development at the company, in Valley Forge, Pennsylvania. That platform combines data analytics with behavioral finance to assess what kinds of information and visuals people respond to, in order to present them with a customized experience, she says.

“We are continually advancing the participant experience and have a culture of constant experimentation,” Nutter-Wiersbitzky says, noting that even small improvements can yield big results in terms of improving participants’ retirement readiness.

Likewise, John Hancock Retirement Services uses AI and machine learning, says CEO Pat Murphy. Together, those create “active intelligence that can make predictive and prescriptive intelligence, to tell us what we should be doing, going forward, to help plan sponsors make better plan design decisions and participants, better investment decisions.”

This AI and machine learning, which John Hancock has been using for the past six years, replaced sophisticated algorithms. “As participants interact with us more, we have a larger store of information that has become more reliable and useful for us,” Murphy says. “In fact, it has changed our communications with participants and sponsors in a meaningful, transformative way in the past three to four years.”

To oversee these data analytics efforts “and ensure that data is turned into intelligence from which we can gain insights,” Murphy says, Hancock now has a chief data officer.

Like other recordkeepers, Hancock presents one idea, one action, out of a repertoire of 17 to 18 items, to participants at a time, Murphy says. “If we were to hit participants with more than one idea at a time, it could be overwhelming and cause inertia. Instead, we present them with the next best step they can take to move themselves forward.”

As part of the new, personalized experience that recordkeepers offer participants, T. Rowe Price no longer considers retirement income its sole purpose to communicate with participants, Collins says. Yes, they should hear about having adequate savings, “but if they’re 25 years old and a calculator tells them they’ll need $2,300 a month in retirement income but they’re projected to have only $1,900, they don’t know what that means. Instead, we get them to focus on their deferral rate, their allocation and financial wellness issues such as student loans and debt.”

Indeed, Buck Global LLC, a benefits consulting and technology services firm in Chicago, is seeing recordkeepers offer financial wellness programs that help individuals with all of their financial goals, says Scot Marcotte, Buck’s chief technology officer. Many also offer aggregation tools that let participants see their entire financial picture, not just the assets in their retirement plan, Marcotte notes.

“So often, we see retirement plan advisers struggling to get this data together,” he says. “Today, recordkeepers are starting to make that process so much easier.

“The intersection of an individual’s physical, emotional and financial well-being is where the technology is heading,” he adds. “Recordkeepers will begin helping individuals think about where they are today and where they want to be. That’s the future—it’s not just a person’s current financial picture.” 

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Art by Jing Wei