To better understand how financial advisors can enhance and expand their businesses by providing a holistic approach to retirement planning, we've caught up with E. Thomas Foster Jr., assistant vice president of strategy and relationships at Massachusetts Mutual Life Insurance Co. (MassMutual).
Tom, please describe the problem.
Today, most large employers offer healthcare and retirement savings benefit options. Employers used to absorb most of the costs of these benefits, but nowadays it's often the employees—not the employers—who are taking on more of the costs and risks. And many employees aren't prepared to do that. Employees can be in a quandary about whether to allocate their expendable income to their 401(k)s or their Health Savings Accounts, for instance. In addition, when they face emergency expenses, where do they go for short-term funds? Sometimes people take loans from their retirement plan account to help cover emergency expenses. Last year there was $6 billion in default “leakage” from 401(k) plans, from loans taken by plan participants that were not repaid.1 This leakage can leave many employees without enough savings to retire comfortably at age 67. That can impact employers, too.
According to MassMutual’s research, many employees and employers are seeking financial advice.
Tell me about MassMutual's research findings.
We released a survey of employers earlier this year—the MassMutual Benefits Advice Study—which found that employers want more guidance about voluntary benefits. Nearly two out of five, or nearly 40%, of employers who aren't currently working with a financial advisor and those working with an advisor that does not offer help with benefits, would welcome an advisor's help.2 In addition, we surveyed employees last year about how they feel relative to their financial wellness. The results were rather staggering: 38% of those questioned knew little or nothing about their employer benefits, 40% said personal finances are a distraction at work, and 42% said they don't know if they're on track to retire comfortably.3
This can be a potential liability issue for employers as well. A 2015 white paper by Synergy Financial Group estimated that employees’ financial stress could potentially cost an employer with 100 employees $520,000 annually in lost productivity.4
Okay, but given that need, what opportunities does it create for advisors?
First, advisors have to become more holistic in their benefits approach. If employees don't have voluntary benefits such as life, disability, accident, and critical illness insurance to provide emergency cash for unexpected expenses, they're forced to raid their 401(k) plans. But if employers offer these other benefits, the employees can go to them first without undermining the integrity of their 401(k)s. Advisors must understand the correlation between all these different benefits options, and then be able to show employers the impact of not offering these additional benefits.
Employers are also focusing more on the retirement-readiness of their employees. A recent Marketplace article shows that more Americans are working past the traditional retirement age of 65 than ever before.5 Some are working because they want to but many simply can’t afford to retire due to the negative impact of the recession or that they simply do not have sufficient retirement savings. If employees can't afford to retire at age 65, they may keep on working even if they do not want to.6
Second, it creates opportunities for advisors to network and expand their client relationships. They don't have to directly offer all benefits products, but they should generally be clear on the connectedness of those benefits and they should consider reaching out to other advisors who do offer them, to help supplement their product offerings. Think about it. If I tell a client, "Sorry, I don't know about voluntary benefits. I'm only involved in retirement," that may generally not instill a lot of confidence.
Again, employers are confused and need help, so this can represent unlimited opportunities for experienced advisors to expand their practices. It can also be a way to retain business and potentially sell other products. Advisors who don't understand the correlation of the benefits and don't have these alliances can be putting their business at risk.
To be clear, we're specifically talking about the advantages of having employers offer voluntary benefits such as coverage for critical illness, accident and disability, to help keep employees from depleting their retirement savings. Right?
Yes. There's no question that if these types of voluntary benefits are offered, more employees may be able to take advantage of them. Statistics show specifically for the middle class, income and retirement savings still haven’t recovered from the recession6. To help Americans meet their retirement goals, we have to provide them with every resource necessary.
That's a big problem. What's the first step advisors should take?
Help employers determine with their employee, on a one-to-one basis, where they are in their current savings pattern—for example, how close they are to being able to retire at, say age 67 with 75% or 80% of their income. If employees are not on track to reach that 75% or 80% goal, it’s an opportunity for the advisor to suggest some plan changes to enable better employee outcomes. The advisor can then go back a year or two later and show the actual results of those changes. One thing we've been guilty of in this industry is focusing too much on participation rates and not enough on outcomes. It's great to have everybody participating in the plan, but if they still aren't going to have enough to retire on, something has to change. We need to shift the conversation to, "Are you able to retire on your own terms?"
This will also demonstrate to employers how these changes are improving their employees’ ability to retire when they want to.
I'd also ask employers where they're getting their other benefits advice. I'd use their referrals to establish alliances. I think we're going to see more and more of this kind of referral networking.
How can MassMutual help? What does it offer that's differentiated from the competition?
MassMutual can help in multiple ways. First, advisors can provide employers our MapMyBenefits℠ tool. MapMyBenefits asks employees simple questions about their family responsibilities, individual goals and priorities, whether they rent or own their home, and so forth. The tool shows employees their current financial situation and what their benefits options are. From this personalized profile, employees can see a roadmap for how to reach their retirement goals. Employees can then share these results with their financial advisors, who can then use the results as the foundation for financial guidance.
A second tool allows employers to quantify the potential liability that could be created when employees can't retire at age 65 or 67. It's called Viability℠, and with it we can measure how far off employees are from being able to retire on their own terms. It shows the potential economic impact of having financially unprepared employees. Advisors can then use the results to recommend plan health changes. Viability can also track changes, so an advisor can return a year later and show employers how their liability has changed. It can quantify the impact the prior years’ improvements on the plan’s health.
In addition, MassMutual has a portfolio of voluntary benefits programs, including life, disability, critical illness, and accident insurance, that may help to offset unexpected costs that healthcare insurance doesn’t. Advisors can easily get more information from our website and from our local wholesalers.
Is the message getting across?
It's starting to. The trend is to educate, to help clients enable employees to understand their current financial wellness situation and what they need, to identify how these retirement concerns correlate with other benefits. If I just say, "Everybody has to save more," that's not personalized. Sure, some employees might not be saving enough, but others might be saving too much. At MassMutual, we believe in persona-based marketing. We market to each individual employee based upon their personal communication preferences. For example, we let the employee chose whether they prefer telephone, email, snail mail, or in-person contact and our educational tools can help them to prioritize their benefit choices. We also provide on-site retirement education specialists to assist employees with questions. This type of personalized guidance, in person or online, is where we believe the trend is going.
Any predictions about where the industry might be in five years?
As long as people work with advisors and providers who understand the issues, they have a much better chance of achieving a positive outcome, of retiring on their own terms. The bottom line is: we've got to better prepare people for retirement. To do that, we must make sure we have the tools to educate them in a way that's understandable and accessible. It's almost a case of effectiveness versus efficiency—we can't overlook the preferences and needs of the customers. We have to take the time to listen to them and be able to interact in whatever way they want to be interacted with.
People are living longer these days, so they might need retirement income to last 20 or 30 years or longer. Once they see that what they thought was a panacea for retirement could actually leave them short, then the whole discussion will change.
And advisors who do that will be better off, too, yes?
It can absolutely be a value-add for advisors. The more relationships they have with employers, the stronger their entire book of business can become.
For more information about MassMutual’s holistic set of benefits, visit www.massmutualatwork.com
1 Timothy (Jun) Lu, Olivia S. Mitchell, Stephen P. Utkus, and Jean A. Young, Borrowing from the Future:401(k) Plan Loans and Loan Defaults, Pension Research Council, Wharton School, University of Pennsylvania, https://www.asppa.org/Portals/2/PDFs/White%20Papers/WP2014-01.pdf
2 2016 MassMutual Benefits Advice Study: Opportunities for financial advisors in the employee benefits marketplace, May 2016: p. 5, https://wwwrs.massmutual.com/retire/newsplus/onlinenews/rs38934.pdf
4 Synergy Financial Group, What is the real employer cost of financial stress?,2016; p. 3, http://synergyfinancialgrp.com/wp-content/uploads/2016/03/The-Real-Cost-of-Financial-Stress.pdf (accessed 8/12/2016)