The ability of DC recordkeepers to build accurate, detailed participant profiles is key to serving clients’ overall financial needs, a new report from Cerulli suggests.
With recordkeepers having access to more participant data than ever before, and leveraging that data, they can help providers and fiduciaries make more informed decisions that not only resonate with participants, but also address their broader financial needs beyond saving for retirement, according to Cerulli Associates’ U.S. Retirement Markets 2021: Solidifying Relationships with Plan Sponsors and Participants.
Moreover, providers are uniquely positioned to help participants with recommendations beyond saving for retirement, according to the report. Cerulli’s data indicates a majority of participants consider their retirement provider to be at least a “somewhat trustworthy” source of advice, with 40% considering their provider “very trustworthy.”
Additionally, Cerulli’s annual survey of retirement end-investors finds that most participants are either “comfortable” or “very comfortable” providing many distinct personal data points to their plan providers, as long as that data is being used to personalize their investment advice and financial wellness experience.
This suggests that participants may be comfortable giving their retirement plan providers a greater presence in their financial lives, rather than having to vet alternative providers, the report notes. “Since participants already have their DC assets with their recordkeeper, they may view their recordkeeper as a path of least resistance for their other financial needs and may appreciate the simplicity that comes with having many or all of their saving accounts, products and advisory services through one financial institution,” explains Shawn O’Brien, Senior Analyst at Cerulli.
Holistic Solutions
Cerulli notes that plan sponsors and providers are capitalizing on the opportunity, dedicating significant resources to helping participants address their financial situations more holistically. According to its data, the vast majority (94%) of recordkeepers offer a financial wellness program, whether it’s a proprietary program, a third-party program or a combination of both. In addition, 66% of 401(k) plan sponsors offer a financial wellness program, up from 62% in 2019.
Not surprisingly, large plan sponsors (with at least $250 million in plan assets) are more likely to offer a financial wellness program than small plan sponsors (less than $25 million in plan assets).
And while this includes addressing financial planning subjects, such as budgeting, debt management and short-term saving objectives, the report observes that there are no universal criteria for what constitutes a financial wellness program, and the structure and efficacy of programs appear to differ from one provider to the next.
For recordkeepers seeking to win and retain plan sponsor business, cost is always an important consideration, but the value of high-touch, resourceful relationship management cannot be understated, particularly in the smaller end of the market, the report emphasizes. In fact, about one in five 401(k) plan sponsors indicate they are actively seeking a new recordkeeper, with the most common reason being to consolidate vendors (e.g., they want a recordkeeper that can also administer HSAs or equity compensation plans), followed by cost and technical capabilities.
Participant Profiles
To be effective, Cerulli notes, providers must gather a variety of participant-level data points (e.g., compensation, non-retirement savings accounts, personal debt) to piece together comprehensive financial profiles of the participants on their platforms and deliver actionable guidance tailored to the participant.
Cerulli recommends that recordkeepers use participant engagements—both virtual and phone-based—as opportunities to further build participant profiles. The report suggests that providers ask thoughtful questions about participants’ financial concerns and goals and recent life changes to update their existing profile. Answers to these questions also prompt opportunities for providers to raise awareness of potentially useful products or services in real time, the report notes.
“With more accurate and complete participant profiles, providers can make participants aware of investment products, savings accounts (e.g., 529 plans, HSAs, IRAs), and services (e.g., banking, advisory) that are likely to address their needs at that point in their life, further integrating themselves into the financial lives of their participants,” says O’Brien.
Moreover, he emphasizes, providers should strive to make these engagements objective and educational, outlining the pros and cons of the savings accounts, advisory services or financial products under discussion.
For a more in-depth discussion of the importance of participant data, a panel of industry execs at a workshop discussion at the 2021 NAPA 401(k) Summit addressed various questions and concerns 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.
