The revelation about financial wellness versus results has many people questioning whether offering meaningful personalized financial planning to the masses is realistic. Coupled with the limited commitment and cost of helping the less affluent, the results have been discouraging with some high-end wellness providers raising significant funding from erstwhile VC firms seeking a soft exit.
Does the defined contribution model present unique opportunities to deliver advice to the masses, something that the B-to-C model that digital robo-advisors have been using proves to be economically unviable?
Along with access to at least some data through data custodians, payroll providers, and healthcare systems, there is more trust and oversight in the workplace, making employees feel more comfortable and more likely to engage with the only financial advisor many will ever meet.
To overcome cost barriers, many wellness platforms lead with digital solutions, some with limited live support, which usually means limited results and low single-digit engagement. Ultimately, someone will have to pay for the applicable models and, if not the plan sponsor, that someone, whether an advisor, recordkeeper or wealth manager, will likely try to subsidize the cost by selling other services.
This presents another obstacle: if most participants have limited resources, how profitable can they be?
Some advisors, like Captrust, use third-party wellness tools while offering one-on-one advice to everyone for $20-$50 per employee, knowing that only 20% will engage, most likely more the rich without an adviser. They estimate that one in eight will have at least $1 million, which, while applicable to Captrust, does little for the other 97%.
American Funds, in partnership with Financial Finesse, may have found a model to help all types of workers whose employers offer a 401(k) or 403(b) plan without cross-selling.
In a limited pilot launched in spring 2022, they offered FF's digital and call center to 10 customers using their target date fund, non-retention and 10 new plans through an adviser who will to make their TDF QDIA.
The results are promising. Four of the 10 prospects were willing to switch to the $65 million American Funds TDF, while advisor Sean Bjork in the Chicago area was able to bring in another $185 million by offering FF service to prospects on two plans . At 40 basis points, that's over $1 million in recurring and cumulative revenue. They kept the 10 investment-only clients and are now offering the same deal to larger note-taking clients.
The program appealed to Bjork because there is no cross-selling by non-licensed FF CFPs, and he commented that the program not only helped him differentiate his services, but was actually a “game changer “.
Ultimately, however, results must be achieved not only for US funds, but also for the plan sponsor and participants. “Buying in sponsors is key,” Bjork noted. “Without promotion, only 10% of participants use the service, which increased to 30% – 45% for engaged plan sponsors.”
Tightening financial finesse with most other welfare providers, especially those who lead with digital service, is not fair. Led by founder and CEO Liz Davidson and launched in 1999, FF employs 29 CFPs and has 20,000 clients. “It's easier to work with a single team at larger employers,” Davidson said. “They are being held responsible (for results). But Capital Group made it easier (for smaller plans) as they went through the layers. The engagement was off the charts.”
Davidson sees a 60% increase in call activity due to personalization and AI.
There is a lot of money spent (and wasted) on employee education and advisor value-add programs that have little or no practical results. Although Bjork extolled the value of the American Funds pilot, he emphasized that the funds had to win on their own merits and were only used to break a tie.
Although there are more regulations, obligations and layers to navigate in DC plans, the American Funds pilot with Bjork and Financial Finesse collaboration is an example of a workplace model that can make financial planning and advice available to everyone or at least many more workers. .
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.