Data & Research October 11, 2013

Advisers Scout Financial Fitness as Skill Set

Financial wellness is getting more attention from plan advisers, according to speakers at a webinar by Financial Finesse, a provider of financial education services.
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The term is being used more and more, said Liz Davidson, chief executive and founder of Financial Finesse. “From 2010 to 2012, there [was] a significant increase in inquiries from companies interested in these programs and using the term ‘financial wellness.’”

According to an Aon Hewit survey, in fact, a growing majority of employers (80%) said they plan to implement such programs or implement financial wellness programs. (See “Employers Making Readiness a Top Priority.”)  

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Barbara Delaney, principal at Stone Street Equity, noted that plan sponsors want this type of planning for their participants, and the work seminars they had been providing were ineffective. Delaney has added financial wellness seminars to her practice.

Participant finances need to be seen holistically, making financial wellness programs critical. “Our world is changing,” Delaney told PLANADVISER. It is no longer enough to look at someone’s 401(k) balance in isolation, she said. Participants wake up and have a number of things on their minds besides their retirement plans: minor illnesses and other financial stresses, such as paying for a child’s college education.

It can also be a big differentiator in an adviser’s value proposition, Delaney said. “The large and midmarket retirement plans definitely want programs like this. They want meetings to be meaningful, not just concerning 401(k)s but all aspects of [participants’] financial lives.” More and more, she said, they incorporate the principles of financial wellness into all communications. “It’s more engaging for participants, and clients enjoy a more holistic view,” she observed.

As more people realize that saving is the most important part of achieving retirement security, Davidson said, focusing on financial wellness can help employees improve how they approach this. The financial wellness industry is experiencing triple-digit growth, she said, “because employee retirement preparedness is not where it needs to be.”

Stress Impacts Health

At the same time, Davidson pointed out, “companies increasingly realize it is damaging to the employer if an employee cannot retire. The stress caused by financial problems—including health care costs—make preventive measures a key component.”

For every year a worker delays retirement, the cost to the plan sponsor can be $10,000, she said. Financial Fitness has forecast numbers as amounting to some $480,000 for a company with 20 preretirees. Using the standard figure of 80% to calculate those who are unprepared, that would mean 16 employees delay retirement. If they work just three years longer ($30,000 per employee) the amount in terms of additional health care costs and other factors could be staggering.

Effective programs and providers use the principles of behavioral finance, Davidson said, and services are not linked to selling specific investment products or managing assets, but instead focus on the behaviors and habits that participants can learn to achieve savings and financial goals.

“Financial education is a process, but financial wellness is a lifestyle choice,” Davidson said, “a result that will impact financial security.” When financial wellness is achieved, a person can eliminate financial stress by having control of his finances, accumulating emergency savings and proactively saving or actually achieving his goals. “Debt is eliminated or being controlled,” Davidson said.

Davidson stressed that, just as one workout does not make a person physically fit, one financial wellness seminar does not make a person financially fit. “Financial wellness is a lifestyle choice,” Davidson said. “It’s a process, not an event.”

More information about Financial Finesse is at their website.

Compliance October 11, 2013

SEC Strategy Targets Minor Offenders, Too

Admitting that the Securities and Exchange Commission (SEC) has resources “not nearly sufficient to the enormity and scope of the responsibility” it faces, SEC Chairman Mary Jo White outlined new “force multipliers” with which her organization is pursuing major and minor lawbreakers alike.
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“One of our goals is to see that the SEC’s enforcement program is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small,” White said in a speech at the Securities Enforcement Forum in Washington.

“Investors in our markets want to know that there is a strong cop on the beat—not just someone sitting in the station house waiting for a call but patrolling the streets and checking on things,” White said.

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That philosophy will translate to a policing approach targeting not just major securities fraudsters but those committing more minor violations, as well. White likened the approach to that adopted by former New York City Mayor Rudy Giuliani, whom she worked with while serving as the U.S. Attorney for the Southern District of New York.

“They essentially declared that no infraction was too small to be uncovered and punished,” she said. “They wanted to avoid an environment of disorder that would encourage more serious crimes to flourish.”

Taking an approach that focuses only on major offenses is not an option, White continued. This is because, if minor violations are constantly overlooked or ignored, they will go on to feed the bigger violations and, more importantly, start to foster a culture where laws are “increasingly treated as toothless guidelines.”

“Retail investors, in particular, need to be protected from unscrupulous advisers and brokers, whatever their size and the size of the violations that victimize the investor,” White said. 

The bottom-up strategy translates to four concrete changes for SEC operations, she said.

First, the SEC is expanding its field of vision by leveraging the strength of its exam program, incentivizing individuals to step forward, collaborating with regulatory colleagues, and harnessing the power of new technological capabilities.

Second, the SEC will focus on deficient gatekeepers and pursue “those who should be serving as the neighborhood watch but who fail to do their jobs.”

Third, the SEC will continue to look for “broken windows” in the markets—a term White used to describe violations that frequently go unpunished and contribute to a perception of poor regulatory oversight—to avoid breeding an environment of indifference to SEC rules.

Finally, White said that the SEC will continue to prioritize the biggest cases—pursuing and punishing major offenses by significant and high-profile market participants “to send a strong message of deterrence to the industry” and boost the confidence of investors.

A full copy of White’s October 9 address can be found here.

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