Getting the Financial House in Order

The value of financial wellness – and the role of the adviser.

PAJA16-TL-TRowe-Price-image.jpgPatrick Delaney, VP, DCIO Marketing; Dave Eikenberg, Head of U.S. Intermediaries RetirementTen years ago, the Pension Protection Act [PPA] was passed with the goal of making retirement savings easier and more attainable for retirement participants. Since then, automated plan solutions have solved for improving enrollment and investment allocation, as well as decreasing the need for traditional education around investments or plan design. However, despite these enhancements in plan design and administration, Americans still aren’t achieving retirement readiness. Many people appear to be living in a state of financial “unwellness” that not only prohibits their ability to save for retirement, but also may be affecting their productivity on the job and even their overall physical health. In response, a wealth of so-called financial wellness programs and solutions have developed and are slowly being embraced by retirement plan sponsors and their advisers.  PLANADVISER spoke with T. Rowe Price executives Dave Eikenberg, Head of U. S. Intermediaries-Retirement and Patrick Delaney, Vice President, DCIO Marketing, about the value for retirement plan advisers in implementing financial wellness with plan sponsor clients.

PA: Why has the topic of financial wellness caught on recently, and what do you mean by the term?

Dave Eikenberg: Over the past 15 years, plan design features such as automatic investment and auto-increase have helped participation rates and are raising deferral rates; the opt-out feature has been hugely successful, industrywide and drove much of this success. The introduction of target-date funds [TDFs] also had an impact; basically overnight, participants could invest in age-appropriate portfolios and remain correctly allocated.

Recently, advisers, consultants and plan sponsors have started broadening education and really honing in on the two huge demographics in a plan: Millennials and pre-retirees. Research says Millennials are burdened with credit card and college debt. And pre-retirees have to design a drawdown strategy for income in retirement. Both sets of needs are driving the trend in financial wellness programs. To sum up, it’s the convergence of plan design and asset-allocation innovation coupled with shifting demographics that have led to this notion of financial wellness and why it’s so important.

As for the definition, we define it as the ability of individuals and households to manage their daily finances while setting short- and long-term savings goals—for example, paying down debt or saving for children’s education or more for retirement. Then we say financial wellness results from adopting healthy savings and investment habits that are both attainable and maintainable.

PA: Why does an asset manager and recordkeeper such as T. Rowe Price care about this topic?

Eikenberg: A few reasons. Everything we do is client-specific—if you take care of the client, everything else takes care of itself. So whether we’re the recordkeeper or we’re operating in a DCIO [defined contribution investment only] capacity on another recordkeeping platform, it’s about helping participants save to have financial security in retirement.

We always say, “Good things happen when participants have their financial house in order.” We also believe it’s in everyone’s best interest—especially plan sponsors—for employees to be able to retire, and financial wellness programs are a big part of that. So we talk about the three Rs: Recruit, Retain and Retire. Sponsors can use financial programs as a good tool for both recruitment and retention, and happy employees tend to stay at companies longer. For advisers, financial wellness is a huge opportunity to differentiate their practice; we know that about 89% of plan sponsors want to focus on financial wellness, but only 20% have a formal program [Aon Hewitt 2016; PSCA 58th Annual Survey 2015].

PA: How does the retirement plan adviser get in the door to talk about this?

Delaney: Advisers should understand they have a place in this conversation. Many human resource [HR] or benefit departments were offering holistic wellness programs but without a financial component. About three years ago, that changed, largely due to rising health care premiums, so the link between financial wellness and the rest of holistic benefits is becoming clear. Also, participants can’t save more without the capacity to generate savings to begin with. If they have competing financial needs, it’s hard to save. The adviser can link all of that together: fit the financial wellness program into the holistic benefits program an employer already offers, optimize that benefit and help participants use it to increase savings.

PA: Why is financial wellness good for plan sponsors, and why should they care?

Eikenberg: We put the reasons in two broad buckets: cost mitigation and paternalism or benevolence. In terms of the first, there are really two types of costs—hard-dollar and soft-dollar costs. The biggest hard-dollar cost is health care, with older employees being more expensive for sponsors to insure than younger ones. So, if your employees are not retiring or saving enough to retire, over time your health care costs will rise. Also we know that financial stress affects people’s health, so even your younger employees could be less healthy if they’re under financial stress. Health care cost is very measurable to the plan sponsor and something an adviser can point out.

The soft-dollar costs are harder to identify. These show up as lost productivity when employees experience financial stress, which leads to absenteeism, tardiness and basically being distracted at work by financial worries.

The other bucket is paternalistic factors. A study by Aon Hewitt said 85% of the plan sponsors participating wanted to offer a financial program because “it’s the right thing to do.” These also help with recruiting employees, with increasing the tenure for your best employees and with preventing stress so they can be happier, healthier and more productive.

PA: What then are the key considerations in selecting a financial wellness provider?

Delaney: The first is budget or cost. The financial wellness provider landscape is in its infancy and seems to be changing every month. There are new entrants with new value propositions offering new services, products and features. Sponsors will have to evaluate: Can we afford it; how will we pay for it; and what value will we get from that provider? Some providers just give you access to a full suite of financial literacy materials, with a link, and say, “have at it.” If your employees are self-starters, with the right mobile technology, they can access this information and read at their own pace. Generally speaking, that will be cheaper than a provider offering customized programs and call centers staffed with CFP® professionals [CERTIFIED FINANCIAL PLANNERTM professional].

Also, will the sponsor, supported by the adviser and provider, do it themselves—what we call an enhanced employee education program? Advisers have access to a wealth of holistic financial education materials from providers they work with. Can you combine forces and create an educational program that exceeds your traditional defined contribution education program without much added cost—something the sponsor can work into its normal 401(k) communications.

The other top consideration is data-reporting capabilities. You’ll want to measure for success. Are participants using the program? Are adoption rates high? Have plan statistics improved as a result? You might not be able to continuously track these things but at least get some good indications 18 months later.


To get more information on financial wellness tools, visit