Patrick Murphy

Patrick Murphy, President, John Hancock
Retirement Plan ServicesPA: You recently released the results of your third-annual Financial Stress Survey. How does John Hancock benefit from studying financial stress and what have you learned?

MURPHY: Recognizing the effect of financial stress, we started conducting research to identify the real sources of that stress and develop solutions to combat it.

We weren’t surprised to learn poor retirement planning is a huge cause of stress.

But what are the financial barriers and distractions that are making it difficult for people to take the action they know they need to take?

We needed more data to help us prioritize our product-development opportunities and strategies to better engage participants and create better outcomes for them.

We discovered that people with high incomes have similar challenges, when it comes to creating and sticking to a budget, as those with lower incomes, and that causes a significant amount of stress. Almost 80% of people making more than $100,000 a year don’t know basic budgeting. So we know this is an area where everyone needs help.

Also surprising was that near-retirees are more confident than maybe they should be when you consider that, as a group, they’re probably the least prepared – especially compared with Millennials, because automatic features are helping Millennials get closer to where they need to be.

PA: So, how do you fix this? Does broader education or financial wellness help?

MURPHY: Education can help when it’s relevant to the participant and delivered in the right context. We want to avoid bombarding people with too much information about too many topics and hoping it sticks. Instead, we want to use plan data, participant data, outside information, and even behavioral data to personalize what we give participants.

An example is the My Best Next Step solution we have on our platform. It’s an algorithm-based program that’s part of our participant experience. It starts with enrollment, and then feeds into proper investment, proper contribution rates to max the match, and contribution rates to replace 70% of a participant’s income.

Then it looks at things like investment allocations and budgeting. It knows if someone has accessed the online education center and videos. It uses behavior and data to encourage taking each step: There’s a progression, and people get a message about the next step they should take.

For the disengaged, we put auto solutions into our plans at the sponsor/plan-design level. Nearly 80% of our mid-size and large plan sponsors use auto enrollment, and we’re trying to get them to go a step further with automatic increases or annual sweeps.

PA: How can plan advisers leverage these solutions?

MURPHY: A key element for a successful plan is strong collaboration and coordination between adviser and provider. We have good partnerships with advisers, and together, we create strategies for plans that promote participant success.

However, to be most effective, we also need the plan sponsor to be fully engaged. So, it’s important for us to fully understand why a sponsor is offering the program. Perhaps they care about retirement readiness for altruistic reasons, or they view it as a recruiting and talent-management tool. A number of our clients are creating overall wellness programs and including the 401(k) plan in order to relieve financial stress, so people are healthier and more productive, which reduces healthcare costs.

Then it’s a matter of working with advisers to deliver consistent messages to participants and sponsors, and understanding our role in servicing participants.

As the recordkeeper, we have the websites and the phone centers, the data and the information. Participants interact with us regularly. We also frequently engage advisers, and refer participants to them for help when it’s part of the adviser’s service model.

PA: Considering fee compression, are complex solutions like you discuss practical in today’s market?

MURPHY: It would be great if our industry could change the conversation from one about cost, to one about overall value. The industry has spent tens of millions of dollars developing interesting technological features that don’t move the needle. While these features and services look great on a spreadsheet, they often have low usage and don’t significantly impact retirement readiness. Firms that focus on what truly affects participant outcomes will be successful going forward.

That’s why we developed solutions like My Best Next Step. And you’re right, some of these can be quite complex. But the delivery doesn’t have to be. In the case of My Best Next Step, the algorithms and technology supporting it are complex, but it’s simple for participants to use. It guides them toward retirement readiness, and we’re helping companies have healthier, more productive employees. That’s valuable to everyone, and it strengthens the relationship between the sponsor, the adviser, and John Hancock.

So, the race to the bottom – where everything is commoditized and it’s all about cost – is a mistake. We’re taking a more strategic approach to product development, and we’re focused on building what actually makes a difference for the individual and the plan sponsor.