Zooming In

How much, and what kind of, education to provide to retirement plan participants is a consistently debated topic in the retirement plan industry. Regardless of how much education a plan sponsor offers to employees, the education might not matter if it is not culturally relevant to the group it is trying to reach. As the workforce continues to diversify, one-size-fits-all plan communication and education might not suffice, and retirement plan advisers are faced with both a challenge and opportunity to customize the retirement story for varying incomes, generations, genders, and ethnicities.

It is difficult to deliver a broad-brushed message for a group comprising different levels of age, risk tolerance, investor sophistication, and salary, says Benjamin J. Hill, Principal and Managing Partner of Blueprint Financial, a National Retirement Partners (NRP) member firm in Beechwood, Ohio. That is why Hill, like other advisers, pushes for more targeted meetings or, better yet, one-on-one meetings, as you “can’t be any more targeted than that,” he says.

Targeted communications can be fairly macro-level or granular. For instance, some advisers work individually with participants, but others who do not offer individual meetings might consider devising education for different participant groups based on the objective that needs to be achieved, such as enrolling in the plan or deferring more. Considerations for segmenting employees could be age, gender, or income level, among other criteria.

Todd Lacey, Managing Partner at The (k)larity Group, an NRP member firm based in Athens, Georgia, also believes in working one-on-one with participants; however, he recognizes that not all advisers agree that providing this level of guidance is necessary. When individualized communication is not an option, using targeted group communication might be.

Post-PPA Education

Retirement plan providers and investment managers have been unveiling increased targeted communication for participants—using props such as customized messages on post cards or enrollment information broken down by generation. Generic materials do not work for everyone, says Gayle Leavitt, Vice President of OppenheimerFunds Retail Retirement. “In this day and age, people are bombarded [with information]…and a lot of it kind of gets lost in the noise,” she says, “People respond better when the message is targeted to what they’re worried about today.”

Danelle Kronmiller, Assistant Director of Participant Marketing at Principal Financial Group, says focusing on different life stages of participants has been a priority at Principal. “We’ve found that when you send a more relevant and targeted message, you have a higher response,” she says, “You’re breaking through that participant inertia.” For instance, Principal put personalized messages on participant statements, suggesting actions such as increasing deferral rates, and 39% of people took action as a result.

Automatically enrolling participants is supposed to solve that inertia to making retirement planning decisions, but that does not mean targeted communication will dissipate. In fact, targeted communication might be more necessary in order to educate a more varied number of cultural groups brought in via automatic enrollment, suggests Mark Davis, Vice President and Financial Advisor at CAPTRUST Financial Advisors in Westlake Village, California.

Demographic groups of American workers, such as some members of the ever-growing Hispanic population, have been locked out of the retirement system previously (by no intentional racism, but just by cultural alienation), Davis notes. Now, they are being swept in by automatic enrollment, he says. The challenge for the retirement industry is this: As the trend toward automatic enrollment continues, vendors that previously did not have to reach out to a huge pool of workers will find they need to reach out to them, and will have more low-balance accounts to service. Davis notes that it will take more high-touch service: “You cannot just reach them with a Web site,” he says.

Davis is based in California, which has a large Hispanic population; however, other advisers, from Nebraska to Massachusetts, also report a burgeoning number of Spanish-speaking participants. Tom Ruggie, President and Founder of Ruggie Wealth Management and 401(k) Generation in Tavares, Florida, estimates that, for about every 100 plans, his firm brings in a Spanish speaker for five of the plans. “It’s important to have that capability,” he says.

The growth in that population speaks to the importance of relevant targeted education. As the traditional view of retirement changes, advisers are realizing that they cannot just assume people are retiring at a certain age, or that the man is the main source of income, or that a participant is even retiring in the United States. An assumption about the old image of retirement—that the man works until 65 with a pension—still lingers, but is no longer relevant, Lacey says. “The clean-cut 1952 family with the two kids and the dog is gone,” says Lacey. “I think that the definition of retirement is totally different from what it used to be, and that’s trickling down to the services we provide.”

For example, reaching out to the Hispanic population requires more than just throwing in a Spanish speaker; it requires communication be culturally relevant, Davis says. In some cultures, the family might be expected to take care of their elders, or perhaps an immigrant worker is planning on sending money home to his family—therefore, the concept of American retirement savings might need better explanation or tweaking. Davis admits to the shortcoming of being seen as the “white guy in the suit” in front of some of his plans, However, the solutions to overcoming the cultural barriers to retirement planning are still developing.

First Target: The Sponsor

The adviser cannot step in to provide targeted communication without the blessing of the sponsor. Luckily for advisers who want to reach out more specifically to participants, many sponsors seem receptive, advisers say. “The majority of [plan sponsors] I speak to want their employees to, one day, have the financial stability to retire,” says Ruggie.

Using the word “fiduciary” is often an effective way to get the sponsor on board—serving as a reminder of the legal responsibility sponsors have to provide sufficient information for participants to exercise control in making investment decisions. Hill suggests talking to sponsors about how they have a responsibility to communicate to participants, reminding them that “the more you do to make sure the message is conveyed in a meaningful and consistent manner, the better,” he says.

Lacey says companies he works with feel accountable for retirement readiness, and have been receptive to giving as much support to employees as possible. He says the way to approach targeted communication with the sponsor client might be just to ask, “Do you think it would be effective if we segmented and, if so, which groups would you segment?” For instance, are there ages, income, genders, or languages that the sponsor would like to see specifically targeted?

Advisers do not have to come up with all the communication they deliver on their own. Outsourcing education might emerge as a possibility also, particularly as advisers who are not participant education-focused try to free up some of their business in order to focus on compliance-related concerns. For instance, Lovejoy Associates, owned by Sue Ellen Lovejoy, does only education for retirement plans.

Bryan Schneider, Senior Vice President in the Peterson Group at SMITH HAYES in Omaha, Nebraska, notes the opportunity to leverage the provider to help communicate to specific demographics, and other advisers seem open to more tools from the provider to help with this. Schneider says that, if a plan is looking to target specific groups, he looks to see if a provider is able to send different messages to each specific group. “Those providers that understand ‘this is an important component of providing that service’ will do really well in the future,” he says.

How much customized communication providers can offer is arguably limited, and advisers will have to choose from what is available, but providers do recognize the need for it. Principal’s Kronmiller says they are working on moving away from the “cookie-cutter” approach, specifically by targeting participants in the appropriate life stages. “A savvy adviser should be looking for a plan administrator who provides this type of targeted, segmented, and personalized education,” she says. Oppenheimer’s Levitt notes that, as new technology evolves, targeted communication becomes more possible. Advisers, for instance, might use Webinars to target specific groups of participants (see “Spinning the Web”).

However, there is a fee for more high-touch education, and so clients might be willing to settle for the basic translation of enrollment materials. However, Davis says, as time goes on, sponsors will be looking more into how they can better service the Hispanic population. More specifically, as automatic enrollment makes getting people in the plan less of a priority, Davis says the adviser sell will be to teach participants about saving for life.

Like many parts of the advisory business, there is no cut-and-dried answer to how much to charge for education, especially as many retirement plan advisers straddle between asset-based and fee-based service. Like other advisers, Schneider says his fee really depends on the client. Some clients might want full service, and others might look for just education a couple of times a year.

Education can solidify the relationship between the adviser and plan sponsor. The adviser first can approach the sponsor and develop an objective—for instance, increasing the deferral rate—and then the adviser (or whoever is developing the education campaign) can design the education around the objective. Then, in about six weeks, the adviser can go back to the sponsor and measure the results of the plan by demonstrating how employee behaviors have changed and/or how the value of the plan has increased. “This is a key way that advisers can make sure that they are retaining these plans that they worked so hard to build [relationships with],” Lovejoy says.

Lacey notes that he usually sees positive results after all of his one-on-one meetings that he can show the client, such as increased deferral rates. Eventually, the numbers gradually will decrease again, but then there is another spike, and that makes the client happy. Furthermore, employees are positive about the experience, and that filters back to human resources, he notes.

How To Target Participants

Lovejoy says she works with the sponsor to determine which groups might need or be interested in specialized education. She then suggests groups such as: newly hired/newly eligible; participants investing conservatively; participants overusing loan provisions; female employees; employees who have opted out of the plan; employees older than 50. Although women are more financially independent than ever before, they still might feel left out when it comes to investing. “I still talk to a lot of women who don’t really know much about investing,” Lovejoy says. She suggests some women might learn better and be more willing to ask questions in a room with other women.

Advisers also could target specific objectives rather than demographics—and, of course, there is always some overlap. Lovejoy offers some ideas for targeting specific objectives: increasing deferral rate; understanding investment choices; getting more comfortable with the Web site; and general education about the economy and markets.

Aside from cost concerns about education in general, what could be the down side or risk to grouping participants? Lovejoy notes the possibility of becoming too specific or too rigid with segmentation. For the most part though, she says targeted communication is a positive. It takes effort from the adviser to make it interesting but, this way, the adviser is not repeating tax benefits to people already in the plan. “It does take more effort, but I think employees will appreciate it,” she says.

Hill also notes the importance of making sure that whatever message the adviser sends is not insulting. For instance, salary is a sensitive point for employees. When giving salary examples, “usually, the lower the number the better,” he says. Advisers can work with the HR department to make sure lower-earners are not uncomfortably singled out in some meetings (such as a meeting for low deferrers)—for instance, by sending an e-mail rather than approaching them in front of others.

Targeted communication likely will continue to evolve as the industry adjusts to regulations that continue to broaden the scope of individuals saving for retirement. Providers and advisory businesses that say they have Spanish materials now might have entire Hispanic-focused operations in 10 years—said to be happening already at some firms.

From an adviser business perspective, putting resources into education might not always be easy from a cost/benefit analysis. Of course, there is always the adage about “doing well by doing good”—Ruggie notes that having proper communication in place is optimal for business anyway. “My view has always been, in business, if I’m more concerned about my client than my own selfish needs, that ultimately makes my business better anyway.”

To listen to an audio interview with Todd Lacey, click here.