In Practice March 13, 2015

Advisers Still Behind on Client Tech Demands

Financial advisers are not adequately preparing to deliver advanced digital capabilities to meet the expectations of younger generations of investors, according to Aite Group research.
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The research from Aite Group and Scivantage, a technology provider for financial services firms, is targeted at advisers working in wealth management, but the takeaways are also applicable for retirement specialist advisers, given the overlap of practice interests and significant technology investment in the qualified plan advisory space.

In “The Race to Easy: Reevaluating the Wealth Management Technology Strategy,” researchers suggest the passage of more and more wealth to Generation X and Millennial investors requires firms to launch new service models that blend high-tech and classic adviser services.

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“Evaluating how digital technologies complement and enable existing adviser services should be a priority for firms to ensure they remain competitive over the long-term while they continue to meet the needs of existing clients who now expect self-service tools and digital access to their wealth information,” notes Sophie Schmitt, senior analyst, wealth management at Aite Group.

According to the report, the majority of today’s financial advisers are still under-prepared to deliver the digital experiences that investors need and expect. Further complicating matters, the adoption of mobile and tablet devices for accessing and managing personal finances is increasing steadily across all generations, not just Millennials. As a result, advisers need to prioritize information technology advancements that contribute to the success of all client segments.

The report maintains advisory firm owners have another reason to implement technology improvements beyond ensuring client satisfaction, cited as a key technology innovation driver by 72% of advisory executives: Improving technology will also be critical for attracting and retaining younger advisers to the firm. This is especially important for firms leaning heavily on longtime advisers forming the backbone of a practice’s book of business, who may be approaching their own retirements.

These points are further supported by data showing just 55% of advisers have their own websites. Within a few years, this number is expected to reach 80% as advisers recognize the importance of a digital platform for attracting younger talent and clients. Over 40% of advisers recognize “the importance of providing digital self-service tools to young clients that offer a combination of high-tech and high-touch service,” Aite Group finds.

While younger generations are more likely to tap into digital tools to build their financial knowledge base and access their investment portfolios, Baby Boomers look to traditional investment firms and financial advisers as their primary source of support. According to the report, nearly 60% of Boomers receive help from a traditional investment firm or financial adviser, compared with only 27% of Millennial investors.

“This disparity in advisory preferences highlights the crucial need for firms to prioritize investment in their financial advice platforms with an eye on Millennials,” adds Chris Psaltos, vice president for product management at Scivantage. “While the role of financial advisers is changing rapidly, they are far from being obsolete.”

Instead, firms must expand their offerings by introducing more digital touchpoints—such as “robo-advisory” and collaboration tools, which are taking on an increased role for today’s investors. Overall, client-facing technology is considered most valuable to investors when delivered alongside an adviser, the report concludes.

“As firms initiate projects in digital wealth management, they must first understand how new technology can be applied to better meet clients’ financial needs,” Psaltos says. “While technology adoption between younger and older generations varies, the underlying takeaway is that investors across generations have a need for financial planning, and the advisory firm of the future should be equipped to respond to this with a combination of high-touch and high-tech solutions.”

The full report can be downloaded here.

Data & Research March 12, 2015

Fiduciary Fitness Related to Financial Wellness

Adding a financial wellness program can cut plan costs and reduce a plan sponsors’ fiduciary risk. 
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According to Matt Iverson, CEO of Retiremap, a strong financial wellness program can boost participant engagement and outcomes, and may lead to plan savings in fees, Social Security taxes and even potential litigation costs. A quick poll of webinar attendees found that one-quarter (26%) of attendees do not have a financial wellness program in place, while 59% do and another 15% intend to implement one in the next six months.

These programs complement the health and physical wellness benefits most employers already provide, and can help to reduce employee stress as well as ensure that workers are able to retire successfully and on time. Employees can leverage financial wellness to help them reach individual goals, such as buying a home, saving for a child’s education or simply building up an emergency fund.

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Most people have financial concerns, and that stress can negatively impact their health and job performance, Iverson says. The costs of those problems go back to the employer, but assisting employees in developing a financial plan and eliminating any existing debt are two helpful steps plan sponsors can take.

Similar to an investment policy statement (IPS) or a third-party administrator (TPA), a financial wellness program is not required under the Employee Retirement Income Security Act (ERISA), but can be very beneficial for the plan and plan participants. Better-informed employees, who are able to make prudent decisions about their participation and investments, present less fiduciary risk to the sponsor. The improvement in employee outcomes also can lead to a reduction in complaints and possible lawsuits against the plan.

The biggest benefit, Iverson says, comes from savings when older employers are able to retire on time. If they are not, that cost can be anywhere from $5,000 to $10,000 per year, but sponsors can expect an average benefit of $7,000 per employee-turned-retiree per year. By offering the flexible benefit, employers can save up to $1,247 per participant, and giving workers the tools they need to handle financial stresses can net employers $300. Of course, he adds, increasing employee engagement and satisfaction with the plan is valuable, though difficult to quantify.

About a third of webinar attendees (31%) reported that half or more of their plan sponsor clients had expressed an interest in financial wellness; more than half (54%) said that 20% to 50% of clients were interested in fiscal fitness; and just 15% said that less than one-fifth of their plan sponsors asked about such a benefit. 

To measure the impact of a financial wellness initiative, Iverson suggests five markers of success: behavioral change; employee engagement; employees’ freedom to request and the company’s ability to provide plan assistance; the rate at which participants complete the program; and employee evaluations. Retiremap’s “recipe for success”—Engage, Act, Measure and Refine—encourages continuous improvement in communications efforts with participants.

  • Engage workers by making the education relevant to their goals and using key communications strategies. Embrace social media and use mobile technologies to facilitate more productive and personalized retirement workshops.
  • Act with a compelling case for the plan’s call to action. Highlight participant challenges and show a way out, make it easy for participants to reach and speak with a real person, and show the plan as part of a holistic benefits system. Human interaction is critical here, as feedback from participants can inform and improve the message the plan sponsor delivers.
  • Measure by defining metrics for plan success and knowing how those results break down within the plan over time and between different demographic groups.
  • Refine the process by using data analysis of the previous steps to drive future communications. Iverson notes that people respond more positively to messages that are targeted to their concerns and interests, so the more often this cycle is repeated, the better the response the plan sponsor can expect to see.

Still, there are some barriers that may prevent plan sponsors and advisers from pursuing a financial wellness program. Webinar attendees cited the time involved in running and managing the program as a reason not to adopt one (59%); followed by cost concerns and ensuring a return on investment (56% each); and finding a provider (26%).

For plan sponsors looking to persuade their plan committees of the benefits of a financial fitness benefit, Iverson suggests explaining that adding one will ultimately save the company money, and fees may even be paid out of plan assets, if the plan’s governing documents allow it. As with any other plan service provider, the financial wellness provider must deliver 408(b)(2) fee disclosures and maintain reasonable fees.

A sample performance report would investigate employee engagement, behavior and feedback; break down participant financial wellness and note any differences between employee demographics; and list the top five goals the sponsor should have for participants, prioritized according to the needs of each demographic, as well as next steps. 

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