The advisers at Channel Financial in Golden Valley, Minnesota, believe the retirement industry needs to be more aware of how human beings make decisions in a “noisy world.”
“We live in a very noisy, short-term-oriented world filled with all kinds of misinformation … [T]his short-term-oriented focus can create anxious employees making poor financial decisions,” says Matt Gulseth, a partner in the firm.
On the other hand, less information—as well as a more long-term focus on their retirement future—helps employees and plan sponsors gain confidence. That’s why behavioral economics and behavioral finance research are behind most of the solutions that Channel provides its plan sponsor clients, and the advisory group has made adjustments over the years based on employees’ needs.
“We don’t just use behavioral finance as a marketing buzzword—we live it every day,” Gulseth says.
Many of Channel Financial’s clients have employees who are enduring debt and, as a result, are generally contributing too little to their retirement plan. To help employees remedy this situation, the advisory group provided credit-counseling education, but it quickly learned that employees did not just want to be educated about debt—they wanted help formulating a plan to get out of it. As a result, last year Channel partnered with a nonprofit debt counseling service to help employees reduce their debt and improve credit scores. The service is available to employees on an ongoing basis.
The advisory group measures plan and client success with two main questions. The first: How many employees are on the path to financial dignity? In other words, how many save enough with company contributions to replace the appropriate amount of their income in retirement when including Social Security? The second question, which is related to this, is: How many employees carry credit card debt, live paycheck to paycheck or feel financially stressed?
The team believes these are crucial benchmarks, for one reason because financial dignity and fiduciary duties are interrelated.
“If you are properly addressing an employee’s financial dignity, you are probably addressing your fiduciary duties as a plan sponsor,” says Gulseth. “We communicate this basic philosophy to prospective clients. Some plan sponsors might not agree with our philosophy, and that doesn’t make either of us right or wrong. We just might not be right for each other.”
Using behavioral finance principles, Channel has found that financial jargon and technical data intimidate most people and diminish their confidence when it comes to making decisions. Applying this knowledge, the firm infuses its communications, wellness programs and meetings with messages of affirmation that make people feel good about their current situation, leading to confidence in their financial health.
Learning along the way, Channel Financial has adjusted its education accordingly. Ten years ago, the company provided content-based classes and a wealth of information to teach employees about how to achieve financial wellness. But the advisers added a financial coaching option after realizing most people wanted this specific service.
Many prospective clients fear their fiduciary duties, Gulseth says, which is why Channel helps plan sponsors focus on their employees’ financial dignity and the best ways to achieve this. The individualized attention to participants’ financial wellness improves both the participant and plan outcomes.
The firm also generally benchmarks its clients’ fees annually, in regard to recordkeepers, investment providers and its own fee as investment advisers. In 2008, it was one of the first advisers in the nation to sign a contract with the industry benchmarking tool Fiduciary Benchmarks Inc.
“Our clients prefer to work with an advisory group that is constantly striving to improve the retirement solutions provided to their employees,” Gulseth says. —Corie Hengst