The Economics of Financial Wellness
By Lynn Brackpool Giles
It doesn’t take much to stress consumers out these days. Thanks to that fact and a volatile economy, more and more companies are increasing their commitment to financial wellness employee programs.
This isn’t just a feel-good benefit; financial wellness has become a workplace necessity with real bottom-line impact.
Bill Chetney, CEO of GRP Advisor Alliance, could be described as a financial wellness fanatic. He likens the current movement to the decades-ago popularity of employee health programs that offered incentives for going to the gym or walking.
“People got more fit,” he said. “Habits like smoking were ostracized, and it helped create happier and healthier employees. This is a kind of story that works for everyone.”
Chetney estimates that more than 80 percent of companies offer or plan to offer some form of financial wellness plan – “It’s coming down-market at 21st century speed,” he says -- and the “why” behind this trend is simple to explain.
According to a Bank of America Merrill Lynch Workplace Benefits Report, “Employees’ lack of certainty about their finances seems to manifest itself in high levels of financial stress. Sixty percent of employees report being ‘somewhat’ or ‘very’ stressed about their financial situation,” a number that the report states was up 10 points from 2013.
Additionally, it shows that “83 percent of employees today cite workplace financial benefits as critical to their financial security.”
Chetney concurs: “The need for financial wellness is profound -- but there are speed bumps.”
Aon Hewitt’s 2016 Hot Topics in Retirement and Financial Well-being found that 89 percent of corporate respondents are very or moderately likely to add tools, services and communications in the next year to expand their focus on financial well-being.
That’s good news for U.S. workers and the plan advisors who will help service them.
Chetney says financial assessments are one of the most important offerings on the financial wellness spectrum.
“It doesn’t have to be a full financial plan, but even a quick overview can identify what’s lacking,” he says, such as estate planning or increased deferrals.
He’s also a particular fan of auto-enroll because, like many things in life, “inertia takes over,” and people generally don’t take the time to opt out.
“It’s painless,” he laughs -- but stresses that it’s an important step. Auto-enrollment often turns into auto-escalation, which can give employees more control– and put them on a better path to retirement.
When it comes to the ROI, Chetney cites recent research from Financial Finesse, a financial wellness solution provider for the workplace. The company’s study found that employees who suffer from overwhelming financial stress tend have more absenteeism, garnishments, payroll taxes and delayed retirement. Then, with a scale of five levels of financial health based on employee financial wellness scores, the report quantified the effect of an employee’s stress levels on a company’s costs – or gains.
A score of zero to two (“suffering”) means the company spends an average of $198 per employee per year. The numbers go down from there, with a top score of nine to 10 indicating a financially “secure” employee who earned the employer $143.
These programs quickly pay for themselves -- Financial Finesse estimates that incremental improvements in workforce financial wellness scores can save companies thousands of dollars over time. In one projection, a business with 10,000 employees that moved its average wellness score from four to five could save nearly $550,000. If it goes up to six, it could save more than $1.1 million.
To companies, financial wellness is important for many reasons. But one of those speed bumps Chetney mentioned earlier comes when persuading an individual to engage.
“It’s not just employee engagement – it’s human engagement,” he says. And it’s difficult. “Nobody does anything unless it’s a crisis.”
He says companies can “give away gift cards all day long” to entice consumers to complete a website form, but engagement will remain low without the right approach.
“What they really should do is turn off email for 15 minutes and have employees fill out their financial assessments,” he says.
In other words, explains Chetney, companies need to go “back to the future [and] bring economics back into the program so we can afford to have face-to-face conversations with people.”
In terms of plan fee reductions, he says, there is “a ‘race to zero’ trying to lower costs.” But companies and advisors don’t need to take fees down to the bare minimum.
“Leave 15 basis points in a target-date fund’s revenue share and invest it in a financial wellness program,” Chetney suggests.
He also feels that it’s more than worth it to fund options like increased access to advisors.
And Chetney says that the government – and the private sector, for that matter – can effectively drive behavior with incentives.
“When they wanted people to stop smoking, they increased taxes on cigarettes,” he says. “Both public and private sectors could use appropriate techniques to promote investments and savings.”
So what does the future of financial wellness look like?
“It will come with every box of cereal.”
 http://newsroom.bankofamerica.com/press-releases/global-wealth-and-investment-management/bank-america-merrill-lynch-study-finds-americ and http://www.bofaml.com/content/dam/boamlimages/documents/articles/B2_078/2016_wbr_brochure.pdf