Plan participant data allows advisors and providers to pinpoint more tailored and effective solutions to enhance overall financial wellbeing, according to a panel of industry execs at a workshop discussion at the 2021 NAPA 401(k) Summit.
There are questions and concerns, however, about the usage of participant data and whether providers are using that information to sell to outside firms, and what underlying security protocols are in place to protect participant data.
To break it down and get the perspectives of industry providers and experts, Jennifer Doss, Senior Director and Defined Contribution Practice Leader at CAPTRUST, led a panel discussion featuring:
- Lee Stevens, Head of Institutional Sales & Consultant Relations at T. Rowe Price Retirement Plan Services;
- Joe Smolen, Vice President of Core Markets at Empower Retirement; and
- Jim Smith, Senior Vice President and Global Head of Workplace Sales & Strategy at Morningstar Investment Management.
How does participant data fit into the overall value propositions for firms? Smith explained that within retirement managed accounts, participant data is very important. “What we’re trying to do with the data is personalize it, so how do we get the individual not just in the proper investment allocations, but the savings rate that they needed to achieve the appropriate retirement income,” he noted. All of that is fundamentally built on the data they’re receiving, both from the providers and the individuals.
What’s more, the amount of data providers are collecting has grown dramatically, as has the accuracy, according to Smith, who noted that if you go back 10 years, it was age, account balance, savings rate and maybe salary. Now, there is a huge wealth of data even before the individual participant inputs any.
Smolen noted that the information was primarily plan sponsor given, but is now much more participant given. “They want to give us more information, which then enhances their overall experience with their providers,” he said. “We’ve gone from just pure payroll, to now getting a full view of debt, outside accounts and partner or spouse accounts, so there’s a more holistic view and that’s typically fed by the participant to the recordkeeper.”
For Stevens, their approach is driven by their clients, so they tend to have two cohorts of plan sponsors: those that feel that if they could help even one or two participants improve their financial wellness or their situation, they’re open to giving all sorts of data; and a second group that has concerns or issues with time, risk and quality. A key concern, of course, is that when data moves, plan sponsors want to know how you are going to receive and store it and what are you going to do with it.
Smolen thinks about it two different ways: first the participant experience, with advice being at the center of that value proposition, and then from the perspective of the plan sponsor and how they interact. Not all HR systems are equal, he says, and some are not necessarily friendly to recordkeepers, but they try to gather as much data on the front end as they can to enhance the individual participant experience. “We view participant data as enhancing a participant’s retirement outcomes and we do that typically through advice or advisory services, whether that's through a managed account or through an advisor-based managed account in complement with the financial advisor,” Smolen says.
Benefits of More Robust Data
At T. Rowe Price, they use participant data to create custom “smart videos” for participants that can target specific areas in their journey to retirement, said Stevens. At the end of each video, she explained, there are action buttons allowing the participant to, for example, increase their deferral rate or name a beneficiary. Stevens notes that nearly 80% of people who receive a smart video watch it to the end, and 33% of those increase their deferral. “It’s not random, and it’s not spam; it’s in the moment and it’s useful, so that’s really what I see as being the benefit is—tell me what I need to know, tell me what I need to do and make it easy for me to do it right,” she emphasizes.
Smolen observes how the savings system is complex for the average American worker, so the data that is given allows them to simplify that complexity through a digital experience or a one-on-one conversation with a financial advisor. As an example, he explains that 10 years ago HSAs weren’t prevalent, but now they are, and your next-best dollar spent or saved could be in an HSA over a 401(k) or it could be in a person’s 401(k) either with a match or without one. “All of those complexities really require financial advice or some way to simplify it, and all of the different verticals that you could possibly go into then become simplified through that transaction,” Smolen said.
Similarly, for plan sponsors, having more data allows them to better predict outcomes for plan design changes, Stevens noted. For example, assessing what impact a higher match or an auto increase will have on the plan and on participants, and what are the costs to the sponsor. “It’s a much more robust conversation when you can give plan sponsors and their advisors more information about what their participants are actually doing,” she notes. It also allows for more focused communications with participants and opportunities they may not have known about.
Participant Considerations
Beyond helping participants, the panelists addressed considerations around using participant data, from cybersecurity and privacy concerns to the legal aspects.
For Stevens, the use of plan data has increased the cost and the complexity in terms of communicating with participants about keeping their data safe and making sure plan sponsors understand all the security procedures. “We’re all in the cybersecurity thing together against the bad guys, and so, just the time and effort and cost infrastructure of maintaining all of that is much more time consuming.”
Turning to multi-factor authentication on transactions, Smith observed that having additional plan data provides another way to double-check participant activities, such as address changes and distribution requests. “All of our organizations are very focused on this to be sure that we have protocols in place,” he noted.
Monetizing Plan Data?
When asked about contentions that recordkeepers are monetizing plan data to drive profitability for themselves, Smolen explained that they do charge fees for advice, but they don’t sell participant data. “We’re not gathering data and then selling it to a third party or using it for purposes other than enhancing financial wellness of plan participants,” he noted. Smolen adds that, in charging a fee for advice, they do take on the fiduciary liability for the advice given, and the reinvestment into cybersecurity and the participant experience is what those fees go toward.
Similarly, Stevens observed that everybody wants to run a profitable business, and different firms run different business models with regard to how they make their revenue, so it’s a question of what you have contracted for—i.e., whether have you been able to negotiate no cross-selling outside the plan. “It’s really just being aware of how the organization is making money in what products and the plan sponsors comfort level with it,” she emphasizes.
With respect to recent lawsuit settlements and whether there are any trends for plan sponsors wanting to have conversations about limiting the usage of plan data, Stevens noted that it’s changed the conversation and made plan sponsors more aware about what is in their contract and how firms can use their data. She noted that T. Rowe Price’s business model isn’t dependent on selling assets outside the plan, as they have a robust asset management capability.
“That’s a conversation we’re always willing to have, but it hasn’t changed how it’s being used and what’s being developed—it really just changes people’s awareness and their comfort level with permissions,” she explained.
Agreeing with Stevens, Smolen explained that, “When the discussions happen, it’s more around driving the outcomes and driving outcomes have to have the data, so I think as long as we’re not using it for something that they don’t want it to be used for, that discussion is pretty easy at this point.”
And this loops back to wanting to be assured that plan providers are protecting the data, added Smith. “I would hope the lawsuits don't change that; I think it’s good that plan sponsors are asking more and being more informed on what’s being done to protect that data. But I’m hoping it doesn’t stifle the data.”
