Should You Take Money Advice Where You Work?
Financial wellness programs sound good, but the jury's still out
Health wellness programs at work are so 20 century. Financial wellness programs are the new buzzy employee benefit, and if your employer isn’t offering one yet, it may soon.
In a new survey of 250 employers by the Aon Hewitt benefits consulting firm, 93 percent of the firms said they plan to focus more on financial wellness for employees in 2015 in ways extending beyond retirement decisions.
The Next Big Trend
“I would say it’s sort of The Next Big Trend,” said Rob Austin, director of retirement research at Aon Hewitt, in Charlotte, N.C. “It’s apparent to companies that they can provide these types of benefits to employees in ways that are very much appreciated by them and that help the companies out as well.”
(MORE: Firms to Pre-Retirees: Lots O' Luck)
If employees are doing better financially and feeling less stressed about money, financial-wellness proponents say, they’ll also be more productive at work and more likely to stay (or more likely to feel confident enough about their finances to retire).
Do Financial Wellness Programs Work?
But do financial wellness programs really have their intended effects? And should you take financial advice from your employer? The answer to both: Maybe.
Steve Vernon, who recently helped lead “The Future of Financial Wellness” conference at the Stanford Center on Longevity, told me that benefits experts “need to develop a better business case for financial wellness initiatives.”
But the federal Consumer Financial Protection Bureau (CFPB), among others, seems fairly confident that financial wellness programs can pay off for all concerned.
In its recent Financial Wellness at Work report, the CFPB cited findings from the HR trade group, the Society of Human Resource Management, that “the return on investment to employers from comprehensive health wellness programs, though hard to pinpoint, appears to be large, ranging from $1 to $3 or more per dollar invested.” And, the CFPB continued, “If, as some early evidence suggests, financial wellness programs are as effective as health wellness in changing employee actions, companies may see similar benefits.”
(MORE: Retirement Saving: Workers and Firms Must Step Up)
Vernon, a Consulting Research Scholar in the Financial Security Division of the Stanford Center on Longevity and an actuary, isn’t so sure.
“Health wellness programs have made a pretty big business case that making employees healthier flows to the employer’s bottom line. But the case for financial wellness isn’t quite as clear,” he said.
What Is a Financial Wellness Program, Anyway?
One reason: As the CFPB report noted, “There is no single, agreed-upon definition” of what a financial wellness program is.
Nor is there agreement on the best way to administer one. Group sessions talking about better budgeting and debt management? One-on-ones offering advice on which of the 401(k) plan accounts are most appropriate for investing? Online tools helping you estimate how much to save for retirement? Some combination?
When I asked Austin how Aon Hewitt defines financial wellness programs he said: “We tend to rely on what the employers are looking for.”
(MORE: You Can Retire Sooner Than You Think — Maybe)
Another potential problem, according to the CFPB: “Employees may be reluctant to discuss embarrassing financial information with coworkers or even with contractors hired by an employer to deliver financial education unless it becomes more of an ingrained part of the workplace culture.” And some employers worry they could incur legal liability if they endorse or partner with financial wellness firms.
What the Programs Do and Don't Do
Vernon said he has seen some compelling evidence from financial wellness consultants that people who take advantage of the programs save more in 401(k)s than those who don’t, because they’ve learned how to free up more money in their budget.
“Anything that moves the needle in getting people to save more is a good thing,” he said.
But Vernon isn’t convinced financial wellness programs can do much to help pre-retirees with some of the thorniest financial issues they face, such as when to start claiming Social Security and how to use savings to generate retirement income in retirement.
“Those things are really tricky,” he said. “So far, what I see from the wellness firms about them is that they punt.”
Employees Must Be Diligent
And employees need to understand that firms hired by their employers to offer financial advice may have vested interests.
I spoke with Michael Case Smith, Managing Director of Edge 401(k) Funds, a new Winter Park, Fla. firm employers are hiring to offer employees financial advice. “Behavioral finance studies show that the great majority of people will not act on their own, but will make progress when contacted and invited to participate by a trusted source,” he said.
I’m down with that. And I like Edge 401(k)’s program to offer free bread-and-butter advice about things such as credit scores, emergency savings and insurance.
But Edge 401(k) only gives employees guidance on investing in their 401(k) through a “money coach” if they choose to invest in Edge 401(k)’s funds in the plan. Employees don’t pay an upfront fee for this advice; the cost is embedded in the expenses of theEdge 401(k) funds. Case Smith calls that financial arrangement “our secret sauce.”
If Your Firm Starts Offering Financial Wellness
Austin had two good tips if your employer begins offering a financial wellness program:
1. Ask yourself: What’s in it for the financial wellness company? “How is that person going to be compensated?” said Austin.
2. And determine the expertise of the person or firm offering the financial advice. “Is it the floor manager’s next door neighbor who happens to be a financial planner looking to get more clients? If so, I may be a little more cynical as an employee,” Austin added.
The Stanford Center on Longevity has launched a year-long research project on how to design financial wellness programs that will be useful to employees and employers. I’ll report back when the results are in.