Vanguard retirement head talks financial wellness and what it takes to get there

Investors may be at different places in their financial journeys, so the first step is to identify common, high-value opportunities to improve one’s personal financial situation.

Just as the Covid-19 pandemic forced Americans to concentrate on their physical well-being, this year’s spike in inflation and stock market volatility are making them focus on their financial wellness.

InvestmentNews caught up with Dave Stinnett, Vanguard’s head of strategic retirement consulting, to learn how financial advisers can put their clients on the path to financial wellness and make sure they stay on it.

InvestmentNews: How do you define financial wellness?

Dave Stinnett: Vanguard’s definition of being financially well is the ability to meet current and near-term financial obligations and be on track to meet future long-term goals. It’s also the feeling of confidence for investors when they understand their finances and feel secure in their ability to pay bills, weather financial shocks and participate in activities that they enjoy most without jeopardizing their longer-term financial security. This can be accomplished by removing the most impactful barriers to financial health in a personalized and actionable way to support retirement readiness.

IN: How can an adviser measure the financial wellness of a client? Is there a test?

DS: The measure of financial wellness will be different for each investor based on their individual goals and their confidence that their financial plan puts them on track to meet those goals. Financial well-being tools and assessments are just a few ways to gauge specific needs.

IN: Where do most clients fail when it comes to financial wellness? What problems do advisers most encounter?

DS: Too much information or too many choices can potentially overwhelm and confuse investors. A targeted approach that is tailored to investors’ individual situations is key, and a focus on getting investors to take the next best step. Investors may also need support handling financial uncertainties, which is why setting aside funds in case of an emergency is a good rule of thumb. An effective way to help hedge against some financial emergencies is to establish savings for when an inevitable or unlikely event occurs.

IN: What’s the first step to putting a client on the path to financial wellness?

DS: Investors may be at different places in their financial journeys, so the first step is to identify common, high-value opportunities to improve one’s personal financial situation. For example, it’s important to identify financial goals and set budget priorities. Some other early steps can be increasing contributions to an employer retirement plan and maximizing employee matches if offered, making an additional payment on credit card debt or setting aside money for unexpected future expense. All of these actions can increase money available for future spending or expenses and may have benefits beyond an individual’s finances.

IN: Once a program is set, how can a financial adviser make sure the client is staying on the wellness track?

DS: The path to financial wellness is a journey, requiring personalization to deliver the most value. Investors sometime need help and guidance to assess their individual situations, backed by education and nudges to take the next best action. Vanguard Advisor’s Alpha research has suggested that advisers can deliver value to clients and help keep them on track toward their financial goals through asset allocation, cost-effective implementation, rebalancing, behavioral coaching, withdrawal order for client spending from portfolios and total return versus income investing. Advice is ongoing and the key for advice providers who want to maximize value for their clients is to consider each client carefully and match them to the advice solutions that are likely to provide the most value in the most efficient manner.