It may not surprise anyone working in the retirement space, but it may still disappoint them to hear that new data shows most participants are not taking advantage of financial wellness tools.

According to a new Cerulli Associates report—U.S. Retirement End-Investor 2024—most financial wellness products and services have usage rates of less than 20% among plan participants.

Somewhat more promising is that of 401(k) participants who used a financial wellness tool or service, 41% considered it very useful; that said, another 57% are ambivalent about the experience.

Moving the needle on financial wellness usage is not just about the near-term effect for participants, but can matter for the long-term relationship between them and professional advice.

“Often plan advisers have significant incentive to increase engagement with financial wellness programs, especially if the adviser is the one delivering the financial wellness program as opposed to the recordkeeper,” says Elizabeth Chiffer, an analyst at Cerulli.

Financial wellness programs can help build relationships with plan participants and gather richer participant data, she says. In Cerulli’s 2023 survey of retirement specialist advisers, financial advisers with 50% or more of practice assets under management held in employer-sponsored retirement plans 43% agreed that financial wellness programs create increased opportunities to gather retail assets.

Designing for Engagement

In Cerulli’s view, most financial wellness programs include the fundamental components needed to reduce participants’ financial stress and improve their readiness for retirement, but they are frequently not designed in a way that encourages participation.

Instead, the consultancy recommends that financial wellness programs give customers personalized, straightforward advice to produce greater results over time.

“Financial wellness programs that are most effective should evolve to include guidance that provides users with actionable and achievable steps to take that will improve their financial life,” Chiffer says. “Financial education alone builds financial literacy, which is only one component of financial wellness. Financial wellness programs must help users make positive financial decisions. Messaging to plan participants aimed at increasing use of financial wellness tools should be short and accessible, as not to overwhelm participants with information.”

In addition, she suggests that messaging should be framed positively, as financial issues can be a significant source of stress for plan participants. With the implementation of an effective financial wellness program plan sponsors will see a less financially stressed workforce and perhaps more productive employees.

While providers should work toward retirement savings being seen as a “net positive” for participants, Chiffer noted that, currently, about 40% of active 401(k) participants view contributing to their retirement savings as a sacrifice. Yet, nearly half of active participants (46%) believe their retirement income will come from funds in individual retirement accounts or 401(k) accounts.

The analyst also suggested that the best financial wellness initiatives take into account each 401(k) participant’s complete financial circumstances and offer coaching, financial planning or counsel.

“A key feature of personalized financial wellness programs, in general, is their ability to effectively account for key life events in the investor’s life,” Chiffer says. “Participant communications that integrate new, relevant information about participants’ financial lives in a timely manner are more effective at driving positive financial actions.”

Wellness vs. Education

Furthermore, Cerulli added that it’s common to confuse financial wellness with financial education. The distinction between financial wellness and financial literacy-related products and solutions is not always clear in the industry. Products and solutions cannot reach the right audience when terminology is used incorrectly, which also impedes the adoption of financial wellness programs, according to the firm.

Based on the research, 71% of 401(k) plan sponsors have implemented a financial wellness program, and over 90% of defined contribution recordkeepers provide financial wellness services to their clientele. The lack of their usage is the primary reason 401(k) plan sponsors decide not to offer a financial wellness program, according to Cerulli. Sponsors think participants won’t take advantage of the offerings.

According to Cerulli’s annual survey of 401(k) plan sponsors in 2023, Of those plan sponsors that did not offer a financial wellness program 28% cited “employees would not take advantage of the program” as the reason for not offering one. Others cited that a financial wellness program would be too expensive, or were unsure how to implement a program, for example.

“This highlights that while financial wellness programs have high adoption, they often face low usage, which is why these programs need to evolve to boost participant engagement and actually compel plan participants to make positive financial decisions,” says Chiffer.