Financial wellness, when done right, can make you a partner in your employees’ financial security. Nothing will replace the gold watch, the monthly pension checks, and fully-funded retiree medical that used to mark retirement and secured employee loyalty for decades. But financial wellness is the next best thing, and it can be deployed for a very, very small fraction of the amount it used to cost companies to guarantee employees’ financial security.
It is the glue that drives how employees feel about and use their compensation and benefits to achieve their financial goals. It’s also a major indicator of your culture and commitment to your employees. The financial wellness benefit you decide to offer to your employees helps define what kind of company you really are underneath the marketing messages and what you really stand for and believe in.
Granted, after twenty years in the financial wellness business, I have a bit of a bias — both emotionally as the founder of a financial wellness company and pioneer of the movement but also experientially. We have the privilege of working with some of the largest and most well-regarded employers in the country who truly invest in their people. I’ve seen financial wellness tested with the best, most committed, most resourced companies so I know what’s possible when financial programs are designed and deployed the right way.
Now, based on the success these large employers have had with financial wellness programs, financial wellness is becoming much more common. 81% of employers recently surveyed by AON Hewitt indicating “it’s the right thing to do for their employees.” As a result, our Financial Wellness Think Tank is increasingly asked to analyze the effectiveness of various programs and approaches, doing commissioned work for organizations looking to better define how to implement an effective financial wellness program.
This post boils down years of research collaborating with companies, actuarial consulting firms, and industry thought-leaders into three universal criteria that HR and benefits managers should use to vet financial wellness offerings. Based on your employees’ needs, your culture, and your strategic HR and benefits objectives, you will likely need to add to these questions to make sure any financial vendor you select is well-equipped to handle your specific needs. But regardless of what those are, these are the first three questions every employer considering financial wellness should ask prospective vendors in order to fully protect their employees and set their programs up for success:
1) What is your business model? Please share all the ways your firm makes money, including any financial arrangements with financial services companies. Please also indicate if your firm is owned in part or in whole by a financial services company.
This is absolutely critical for two reasons. First, most companies holding themselves out as financial wellness providers sell financial products and services or are owned or affiliated with companies that do (meaning they direct employees to specific products or services under the guise of providing a “personal financial wellness assessment” or “financial coaching session”). You do NOT want your employees used as a sales channel for insurance, annuities, mutual funds, or any other products and services. As their employer and the fiduciary of their retirement plan, you have a moral and legal obligation to make sure that any financial guidance offered to their employees is in their best interest.
Financial services salespeople masquerading as financial wellness coaches can put you and your employees in a precarious position by selling your employees financial products and services that might not have the most favorable fees or terms and neglecting their most important financial issues in the process if those don’t generate income for the advisor. We’ve seen hundreds of cases where employees with student loan debt, with no dependents, and who are living at home are recommended life insurance when that money would be much better channeled to paying down their debt with ongoing coaching and mentorship to help them amass enough savings and begin realizing their larger, more proactive financial goals. And that’s just one scenario. Many firms focus their financial wellness efforts in areas that are even more dangerous to your company and your employees.
The most common are financial advisors, typically from large financial services firms, who encourage employees to roll over their 401(k) plans into IRAs with their money invested in high-fee investments that drain their returns and compromise their ability to make their money last through retirement. There are even firms that focus on “divorcees” or “widows and widowers” under the guise of providing “specialized financial planning support” to these groups, who are typically in no position to make major decisions and are easily swayed to purchase expensive financial products and services thinking they are protecting their financial future. To the extent you sanction this advice by providing these firms access to your employees as a “financial wellness benefit,” you put your company at risk.
Second, even if the firm offering financial wellness does not sell financial services, you need to understand the other lines of business they are in and what percentage of their business is devoted to the delivery of financial wellness programs. If they mainly focus on health wellness, benefits communication or employee assistance programs, there can be issues with quality and effectiveness when financial wellness is not their core business. Far too many companies have rolled these programs out as comprehensive financial wellness programs, only to get complaints from employees who are expecting a highly personalized, in-depth coaching program and aren’t even able to get all their questions answered because the financial coaches do not have the level of experience needed to go beyond specific financial topics or questions. Typically the most effective financial wellness programs are delivered by firms whose sole focus is financial wellness. In other words, they make all their money from selling financial wellness programs to employers as an employee benefit, with nothing else impacting their financial success or taking their focus away from delivering successful financial wellness programs.
2) Who will be working with my employees and how are they compensated?
If you aren’t satisfied with the answer to #1, there is no need to go any further as this is by far the most important criteria when looking for a financial wellness vendor. But if the company really is a financial wellness company or has a formalized partnership with a financial wellness firm to deliver the services, this question is absolutely critical. To truly meet your employees’ needs, the gold standard is a vendor who employs CERTIFIED FINANCIAL PLANNER ™ professionals as full-time financial coaches and requires them to give up their licenses to sell securities as a condition of joining the firm. However, it is expensive to employ a large team of exceptional financial planners so many companies that provide financial wellness cut corners to save money. There are two red flags to look for here:
- Stay away from firms that outsource to a “network of financial planners.” Generally, this means the company doesn’t have to pay a cent to the planners who work with your employees—and they may even be charging financial planners for the privilege of joining their network! Not only does this present a huge conflict of interest where your employees are likely to become a sales channel for planners struggling to make ends meet through their normal course of business, BUT there are also quality control issues since this model does not allow for proper oversight around the financial guidance these advisors are offering.
- Be careful of firms that put relatively inexperienced employees (typically recent college graduates) through a 1-2 month “financial bootcamp.” Financial wellness requires in-depth experience across the full spectrum of financial planning. You need true professionals, who have both extensive experience and critical industry training and certifications or you run the risk of your employees getting inaccurate information and making important financial decisions based on it.
3) Please share the impact your financial wellness programs have had in improving employees’ financial lives and if possible, the impact this has had on the employer’s bottom line.
Financial wellness, done right, is an employer-paid benefit, where employees have unlimited access to best in class financial coaching. As an employer or a consulting firm vetting programs on behalf of an employer, you want to make sure that the benefit is actually having a positive impact on employees. The best way to measure this is to ask the vendor for studies on how their programs have impacted employees’ financial wellness. Look for third party validation of actual financial improvements employee are making. By third party validation, I mean multiple case studies that show research done with actual employers to measure these results or with a highly respected research organization, across a large number of employees using the company’s services.
If your vendor is able to meet the standards above, they are likely highly effective and can actually limit your risk as a fiduciary of your company’s retirement plan instead of increasing it. There are often additional questions to ask based on your company’s unique needs, but these three questions should at least ensure that any firms you are looking at are legitimate financial wellness firms and not financial services companies posing as financial wellness companies in order to ultimately sell your employees their products and services. More important from a growth perspective, vendors who meet these standards have the ability to make you a true partner in your employees’ financial security as part of your culture and commitment to your employees. And that’s a true differentiator for any company who believes people are their greatest asset.