Why financial wellness is a dismal failure and a huge success

It’s amazing how the focus on defined-contribution participants came to dominate the conversation and focus of industry professionals almost overnight. Everyone wants to help people solve their financial and benefit issues at work, but providers and advisers must figure out how to make these efforts financially viable in order to justify the time and capital spent.

The shift in focus to the participant was inevitable. DC plans are an illusion — they are just individual accounts pooled together to get discounted pricing and provide a way to serve those with small balances more efficiently. The financial services industry realized the workplace is a very efficient way to gain clients and accounts, because there is trust, access and data.

There are other factors. There’s a war for talent as more people are retiring than expected, making benefits — especially savings and retirement — key in retaining and recruiting talent. There are several state-level requirements for employers to offer retirement plans, and a federal mandate could be coming. Workers now expect most of their financial needs to be solved at the workplace.

Private equity has pumped up the value of record keepers and retirement plan advisers, based on the opportunity to monetize participants.

There are two types of DC participants. Some can afford traditional wealth management and personalized financial planning, but 95% of the 90 million DC participants cannot because they don't have enough investible assets.

The wealth management industry has developed outstanding technology and service models to help the wealthy and even mass affluent. But no one has figured out how to help the rest with what we call “financial wellness.” It requires clean data, technology and a new breed of financial coaches. In other words, it’s a new business model.

Three or four half-hour annual meetings with some planning documents and reminders have not dramatically changed the behavior or lives of a significant percentage of workers. The ignored or underserved workers need more help than the wealthy and mass affluent, who might be able to educate and help themselves.

That is why the DC industry must be realistic and admit that financial wellness is largely a failure, an acknowledgment that is a key step on the road to success. Because we cannot afford to fail.

On the other hand, financial wellness can be seen as a huge success. There are products and services being adopted to help the 95% who do not require hand-holding. Behind that is the power of automatic features like managed accounts and the qualified default investment alternative. Employers are also leveraging matching contributions to help with student loans and emergency savings. Firms like Financial Finesse that deploy virtual CFPs work for larger organizations that are willing to support and pay for that.

Wellness is a great way to win new plans, as the demand from plan sponsors is growing. It’s also a prospecting tool to find the wealthy and mass affluent within a plan, as CapTrust is doing. Firms like Fidelity and Edward Jones have developed business models to make money from IRA rollovers.

But to say that financial wellness has moved the needle and changed behavior among DC participants is delusional and dangerous, because accepting that could cause the industry to stop investing and innovating. Until we figure out how to monetize financial wellness, chances for success are slim.

At a recent wealth management industry event, Envestnet CEO Bill Crager noted that 20 years ago, many tech and service companies did not exist. He pondered what the next 20 years will look like.

Maybe, just maybe, we can harness and convert robust wealth management technology, processes and services to help the ignored and underserved DC participants, profitably.

Income from the standard “triple F” services — funds, fees and fiduciary — is declining. RPAs need to focus on monetizing and serving participants using their advantage as the trusted adviser at work, where they might be the only financial adviser most people will ever meet. But we have a long way to go.

[More: A student loan crisis is looming. RPAs can help clients prepare]

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ RPA Convergence newsletter.