Financial wellness research and insights.
Financial wellness research and insights.
At the 401kWire Influencers Summit we were treated to a presentation by Schwab’s Jim McCool on the next (4th) generation of the 401k. Jim is the EVP of Institutional Services at Schwab and his presentation was about the evolution of the 401k indsutry as Schwab sees it.
Jim is a great platform guy and he gave a presentation that highlighted the need for two things:
Thankfully, Jim kept the slides simple and visual (it was post-lunch) and his presentation used the concept of “piloting participants,” which came naturally for him since he is, in fact, a pilot. As most presentations do, Jim started off with the pain points, which are pretty familiar:
– 3 in 4 Americans are not on track for retirement
– More participants think their 401k plan is more complex than their healthcare plan
– Only 1 in 10 participants receive advice, though when they do, their outcomes are dramatically better
Then Jim got in to some numbers that I thought were interesting (being a recordkeeper, Schwab must have access to current data)- for a mid sized plan (I’m guessing around $20mm), the all-in cost for services is 55-95 BPS. If you add advice to that, the cost for the same plan can almost double (+60 BPS) to 115-155 BPS.
Jim then cited a report from Financial Engines and Hewitt on the impact of receiving help through a retirement plan. It’s a pretty fascinating report that you can download at http://corp.financialengines.com/employer/DCHelpReport_Jan2010.pdf. One of the key findings Jim highlighted illustrated the potential outcome of a “Help Participant” versus a “Non-Help Participant” after 20 years, where each invests a lump sum of $10,000 at age 45:
Having worked with financial advisors for a few years now, we recognize that they are a busy bunch often running in many different directions.
To make things easier for them, we are formalizing the Retiremap sales and implementation process so that all they really have to do is come up with a list of plan sponsors who would be interested in improving plan outcomes and reducing fiduciary liability and then make the introductions. We’ll take it from there. Of course, the advisor is always part of the process, but they do not have to drive the process and we make sure to stay in regular contact.
This flow chart helps make Retiremap’s sales and implementation process more clear for advisors, so that they better understand all the ways that the Boulevard R team provides support. Our mantra is:
“You make the introductions and we will do everything else.”
In addition to creating a landing page like this for advisors (you can request your own landing page here), we will also create a powerpoint slide deck that you can present on its own or we can incorporate it into your Overview of Services presentation. Here is a firm-branded version of the presentation:
Finally, to make things even clearer, here are some common FAQs that advisors have about implementing Retiremap:
How do we get participants to use it?
Boulevard R helps you actively promote plan education and engage participants through unique delivery options that include:
How do we roll it out?
Once the agreement has been signed, Boulevard R will work with you and the plan sponsor to create a timeline for an initial participant webinar, as well as presentations and email campaigns. Our support team is also available to do presentations throughout the year and can coordinate email campaigns or tablet (eg. iPad) deployments based on your schedule.
What if I do not meet with participants?
Retiremap offers more personalized educational value to participants than most plan education meetings and in significantly less time. For participants seeking advice or financial planning assistance, you can refer them to a qualified advisor you trust through your Advisor Management Interface.
Not everything that happens in Vegas stays in Vegas. Last week I attended the 401kWire Influencers’ Summit, as well as the ASPPA 401k Summit and after a brutal five days of hardly ever seeing the light of day, I learned a lot.
Let’s start with the 401kWire Influencers Summit, since that was where the industry leaders and top advisors gathered to discuss what is happening in the industry. I’ll outline the top trends that struck me and then expand on a few below and hit on more in a later post.
While we’re new to the 401k space, what stuck me is that advisors and industry leaders were thinking about retirement in the same way we were when we started Boulevard R in 2006 (focus on improving plan outcomes). The main difference is that the landscape has shifted with the market of 2008, fee disclosure, the ascendance of behavioral finance and the growth of mobile technology.
Improving Plan Outcomes
One of the panelists at the 401kWire Summit asked the audience to think about not only their profit motive, but also the social good that 401k plans provided. It’s pretty clear that Obama and many Democrats see 401ks as a vehicle for social good and new regulations aim to improve outcomes by lowering costs and reducing the industry’s profit margins.
The challenge is that the 401k was designed to be a secondary vehicle for retirement savings and as companies have cut defined benefit plans, they are not willing to increase the cost of their 401k plans. Even though they save thousands of dollars per employee with a 401k plan, employers are hard pressed to add any cost to the plan, even if that means a further decline in plan outcomes. The challenge is then to identify plan services that deliver no or little value (eg. daily trading capabilities, enrollment/educational brochures, etc.) and replace them with services that can measurably improve savings rates.
The further challenge is that plan sponsors don’t really want more participants to max out the company match, making the plan more expensive. So we need to create some tools and processes to improve plan outcomes, while restructuring the company’s contribution in such a way that the overall cost to the plan sponsor is insignificant.
Advisor Is Ascendent
It was no coincidence that the 401kWire’s event focused on advisors (aka Distributors) for the entire first day. Vendors echoed the importance of advisors as “boots on the ground” and the key changes agents when it comes to improving plan outcomes. One panelist characterized advisors falling into one or at most two of these personality types:
As the industry moves towards independence, transparency and meeting fiduciary needs advisors are playing an increasing central role. My guess is that more advisors will start breaking into the direct sold marketplace, since they have a better story to tell and can often provide a better mix of low cost investment options.
There was significant discussion about the generalist or advisor who dabbles in 401k plans, being pushed out of the market as plan specialist take away their share of the business. However, it was also pointed out that many of the plans are run by advisors who have a personal relationship with the business owner or fiduciaries (eg. brother in law, college buddy) and that it won’t be so easy to terminate these relationships.
Though I don’t remember this being discussed explicitly, rollovers are a massive opportunity as the huge demographic shift from Accumulators to Retirees starts to happen. According to Cerulli, by 2015 at least $2T or 48% of $4.6T will be “in play” which is why I’m guessing that Schwab is rolling out a new service that couples low cost ETF funds with some type of professional advisor/advice model for each participant (more on that in another post).
Leveraging Mobile and Social Technology
There was a lot of talk about using mobile and social technology to improve plan outcomes. Personally, I think it’s hard for participants to have a very quality interaction on a cell phone. They’re good for games, but I don’t think participants want to play a 401k games. Where I see a real opportunity is with iPads and using both the interface to engage participants around their financial goals, as well use tools like video conferencing to reduce costs and improve outcomes. There will seemingly always be a need for an advisor, but how do we make that experience more effective for both parties?
When it comes to social networking tools, I see the Fidelity’s of the world having a hard time getting traction on Twitter and Facebook. Partly it’s a compliance issue, but mostly it’s a coolness issue. Who wants to hear what a cooperation has to say, unless it’s hip, relevant and can save me time or money (JetBlue)? Why would I want to add Putnam or Schwab to my flow of information overload?
Disruption: From Where?
I think most key industry players recognize that the 401k industry has been complacent. What motivation did they have to change with such healthy profit margins? It was pointed out that many of the current CEOs of major financial services companies came up through the DC side of the business, but are those really the people who are going to risk the future of a company in order to re-invent it?
While there is a need for a new way to evaluate the success of 401k plans and get them on track, I’d be surprised to see it come directly from the 401k industry. I know Putnam has developed a monthly income forecaster, but most DC-IOs have few if any tools and even then, they are proprietary and provide no data through to the advisor.
Looking out across the 401k landscape, the only new disruptive company that I can think of is Brightscope. All the rest are geared toward just helping vendors or advisors do a better job. Financial Engines has had a somewhat disruptive impact in the Jumbo plan space, but they now sell by partnering with the vendor and have a big payout in the form of their Cost of Revenue.
The key to disruption is developing processes and software that leverage the impact of the advisors and cut out ineffective costs, while getting more assets into the plan by making it easy and compelling for participants to save more. This is an approach that Boulevard R is committed to seeing through with Retiremap and look forward to sharing our results as we roll it out for the initial plans in the coming months.
Boulevard R’s new Retiremap product is designed to improve retirement plan participant outcomes with more engaging education, while limiting plan sponsor fiduciary liability with automated 404(c) compliance and helping plan advisors uncover new ways to deliver value-added services.
Since plan advisors are who we know best, we’re providing them with customized data sheets that they can then pass on to plan sponsors. If you’re an advisor who’d like to use Retiremap to get ahead of your competition by:
then we’d be happy to create a custom branded data sheet for you (see Mike Montgomery’s data sheet below).
Get Your Own Data Sheet
To request a custom firm-branded data sheet just fill out this short form:
To move advisors and plan sponsors to action, we came up with the following sweetheart, low-risk pricing, since our biggest focus right now is getting plan sponsors signed up:
This pricing is only available for the first 10 early adopting advisors and plan sponsors. For any plan sponsor you think would be interested, we’d be happy to do a demo. If the they sign up, we’ll do at least one educational webinar for their participants.
For more information, email us at email@example.com
Here’s the sample data sheet we did for Montgomery Retirement Plan Advisors (Scribd.com is not rendering the second page correctly (though it’d be fine on your firm-branded version), since it’s trying to fit a landscaped (wide) page onto a portrait (tall) page format):
* To qualify for this special pricing, retirement plans must have at least 50 enrolled plan participants.
Retiremap is a research-backed employee financial wellness program designed with renowned behavioral economist Dan Ariely and his team from Duke to help employees achieve their financial goals.
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