Financial Wellness: Friend or Foe? With Tom West & Suzanne Schmitt

By way of a little bit of a setup everybody, this concept of financial wellness has been something that the industry has sort of struggled with: is this an opportunity for more engagement? Is this anticipating where the market is expecting a differentiated experience, and I'll share with you, as an advisor, I struggle with financial wellness all the time. Part of what we wanted to do here with this podcast was continue to sensitize our advisor audience on the need to be more reactive as families are going through different chapters in their lives where circumstances and priorities shift, sometimes, at time, it's not of their choosing, and I can't quite get my arms around financial wellness, and I am really lucky, Suzanne, to have you here as an expert, as a financial wellness warrior, if you would. Having had so much experience on the institutional side, trying to figure out programmatically, how do big financial institutions tackle financial wellness? What are they- what are they trying to achieve, ground that they've covered, and what financial advisors really need to be aware of? So hi, Suzanne, why don't you as a place to start you know, maybe define for us what this amorphous, ambiguous financial wellness thing is, just as a jumping off point. And then, boy, I hope you're going to be guiding me and the audience a little bit about, okay, what are- what's our industry actually doing about this. Suzanne, hello, and maybe you can start off a little bit on- tell me a little bit about financial wellness.

 

Suzanne Schmitt  02:04

Yeah happy to and I don't know if I should smile or grimace over the financial wellness warrior attribution, but we'll figure that out.

 

Thomas West  02:12

Yeah, we'll know at the end of the podcast.

 

Suzanne Schmitt  02:14

We'll know friend or foe in more ways than one. But in essence, financial wellness is not a new topic. It has been around North of a decade now, and it really originated with not for profits, like the CFPB and the basic definition of financial wellness encompasses three main objectives for the individual. And I'm going to come back to individual, because that's a really important distinction here. Number one, though it is the ability to manage one's day to day finances. So think about things like basic budgeting, spending plans, ability to build and use credit wisely. Those are the sorts of things associated with from a traditional definition, managing your daily finances. Second notion is protecting against key risks. So that would include things like emergency savings, your insurance products. And I'm going to put another pin in insurance products, because I think one of the other things the industry hasn't gotten right is the notion of financial wellness to and through retirement, specifically things like annuities and managed accounts, and the roles that those can play in securing and protecting against key risks. The third pillar of the traditional definition is achieving major goals so that could run the gamut of sending your kid to college, buying your first home, achieving a comfortable retirement. So that has historically been the view that the CFPB has taken. And really what we see is an evolution, not surprisingly, largely by product manufacturers on the insurance side, but the first folks into this marketplace were really the retirement record keepers, because what they quickly realized is there were things that were getting in the way of people contributing to their retirement plan, ie like debt not being sufficiently liquid, not focusing on savings and so well, I think the original, you know, forays into this were good faith. Unfortunately, what we've seen is a bit of a commoditization of this concept, such that it can introduce people who are not necessarily fiduciaries, but advisors and agents on the insurance side, who get in front of individuals through the workplace, which is where this is now primarily offered, and really attempt to use education as a lever to sell product. So let me take a pause there, because I can see the wheels are turning for you.

 

Thomas West  04:23

Sure so like, I guess the definition isn't surprising to me, and I think as an advisor, I need to ask myself, why do I need to care about this? You know, how does this help or hurt my service model. Is everything that, you know, we're trying to do is organic growth and retention? Like I can see a retention angle a little bit with all right, I like, I want to plug into these, these, these grand notions of holistic planning that includes, you know financial literacy and Education and successor decision making, and, you know, is at least sensitive to when people need to take time off and caregiving and some of those attendant issues. But I, I'm, I'm struggling a little bit beyond that. Why, as a financial advisor, I really need to pay attention to this. You mentioned a little bit about commoditization. Maybe, if I could, if I could guide you with a question this way, let's talk about the commoditization. What do you mean? And does this commoditization make it more or less integral for financial advisors to pay attention to this?

 

Suzanne Schmitt  05:41

Yeah, so I want to go back to the fact that these programs are offered in the workplace, and I think a core premise of organic growth is growth within the family into g2 and g3 right? The problem that financial wellness programs pose I would I would offer, is they have the potential to get in front of your clients, kids and grandkids, before you do as an advisor. And I think it's incumbent upon advisors to at least understand there are competing threats to their attention and to the relevance of their I'll say their stickiness with parents and to kids, because these programs are inserted into the workplace, and that is not for most advisors, something that I think is really on the radar. And respectfully, I would say it should be, because each of these programs is meant to sell product inclusive of advice, and that may mean taking future clients away from you.

 

Thomas West  06:27

All right, so go back, because that obviously caught my attention, you said, and I'm repeating it back. You said that these financial wellness programs can get in front of my clients at points of inflection before I can - that bothers me. Tell me, like, how does this actually work? Could you give some examples about workplace benefits and like, this is starting to get a little bit more into, like, why I should care as an advisor, but tell me a little bit more operationally about how these things are built.

 

Suzanne Schmitt  07:00

Yeah absolutely. So I'll go back to workplace, for all of your clients who are working themselves or who have kids or grandkids that are in the workforce, most major retirement plan providers and insurance companies have in air quotes a "free financial wellness" offer that sits on the employee portal. So every time the employee goes to check their 401K balance, every time they go to make an update let's say they've gotten divorced, they've had a child, they have to update their employee benefit records so that the right beneficiaries are captured. Insurance companies and record keepers have access to that information, so they are getting fees on a daily basis about those life events. Therefore, I would argue they can get in front of those clients quickly because they know almost instantaneously when a major change in that individual's life has happened. And what they've gotten smarter about is using that data to start pushing what they perceive as event relevant offers, including human advice and guidance. So the mechanism of how they are using the data in response to, generally speaking, life events is really quick, and it's getting faster and more intelligent as they learn from having these offers out in market. So from an advisor's perspective, they may likely know about a life event in your client's life before you do, and that's why I think advisors need to be more mindful maybe of these programs than they have been.

 

Thomas West  08:20

Yeah. I mean, that's an interesting phrase you use. It sounds institutional, like of what was it event specific guidance is that what you said?

 

Suzanne Schmitt  08:27

Correct

 

Thomas West  08:28

Well, I mean, I think that that plays a little bit into some of the ground that on the podcast we've covered before, like the idea that there are inflection points that you know are unpredictable at a household level, but extremely predictable across a population or a book of business, something along those lines, as books are sort of aging. So I guess that one of the things that I would at least want to pivot some of our attention, I don't like the idea of somebody that just has the information that my clients a widower, that's the only piece of information that they might have other than what's in their 401 K to sort of inject themselves into proposed human guidance when they're an existing client like that. That kind of gets my back up a little bit. We should probably think a little bit about All right, if this is a potential inroad, or maybe not a potential inroad, an extremely predictable inroad for competition, in our clients sort of mental bandwidth about how they're getting some financial services, we should spend a little bit of time. And like, Okay, how big of a problem can we anticipate this being in our book and like, what should we end up doing? So I'm brainstorming a little bit right here. It certainly seems like one smart thing to do is make sure you have a pretty good understanding of your client's benefit program to begin with, and even if, even if you know. Know you're not the expert in your client's benefit plan, just to have that as part of a discovery. So if your client, when your client is approached through some of these financial wellness, workplace benefit things, at least you're not caught entirely flat footed. And there's a quick point of reference, of like, okay, this is the offer. This is what's going on. This is what it looks like. I'd probably say that would be one of my first instincts, and maybe build a little bit on that.

 

Suzanne Schmitt  10:29

I think that that's right. And when we say become aware, it doesn't mean that advisors need to become experts in benefits. Frankly, having spent a lot of time in in the group benefit space and the workplace, most individuals who are, you know, who have access to these benefits aren't experts in them. I think the point is, for clients that are still in the workforce, at a minimum, as an advisor, know where they work, because if you know where they work, then you actually know who their retirement plan provider is, and you know who their group benefits provider is. And from there, it is not too difficult to get the basic bones of what those offers are that might be competing for attention against your involvement in your client's life. That, I think, is just the first build I would make. The second is, and you said something earlier that I think we both feel strongly about these events may happen in real time. But they are not mysteries. They are not surprises. The fact that people are going to experience losses in their lives, they're going to become caregivers. There's some strong associations with when those things happen that are relatively age based. So as an advisor, you know, we talk a lot about proactivity in the sense that you don't usually have time, ie, the client presents reactively with the scenario. But if you know you've got clients in their 50s, it is a very safe assumption that they are still working and that they have parents who are likely depending upon them for financial or physical caregiving. So it is not, I think, a stretch to start to get in front of some of those issues before workplace offers do because I will tell you, having been the architect of one and heavily involved in two others. The notion of getting in front of that middle aged client who is a sandwich caregiver is a trigger point, and has been shown to be very effective in these programs. Now you may not know to the individual client in your book, who is a sandwich caregiver, who is a caregiver at all, but you can make some assumptions purely based on age.

 

Thomas West  12:19

Right right. So, like, part of, like, my book, and this isn't everybody's book, but part of my book, you know, I've done an audit of what my age based revenue is. And like a lot of successful advisors, or advisors that have been around a little while, to the surprise of zero people, my age based revenue it skews older. It skews 70 plus. In my case, it skews probably 75 plus. And somewhere in there, you know, in my mind, what you're telling me is, you know, I'm always trying to obviously engage all my clients in forward thinking about, you know, hopefully proactively, before there's an event. What do you think of staying at home, what are the transitions? What are successor decision makers? How do we engage them? What's the plan? And then reactively, I hope I've set the stage for them to know that we've at least done a dry run thinking together about how to make decisions under these circumstances. But what you're talking about is something different. You're talking about, if I've got most of my age based revenue in the 75 plus, you're talking about these financial wellness programs going right at g2 and I'm not talking to g2 until there's a g1 trigger, unless I'm like, super, super proactive and pulling them in. So that strikes me as sort of a big threat, like before I even am engaging the kids, the successor decision makers. If they're taking time off from work and FMLA and the rest of it, they've already identified themselves as a child, caregiver, sandwich generation person, and they're already getting somebody in their ear about here ways that you can help talk a little, maybe spend just a little bit more time on that. Like, what are- you said that there be they're really successful with sandwich generations. Like, what does success look like? How are you measuring that? Is this just you're getting a kid calling you back, or is it all the way through, trackable client engagement, new product sales accounts opening. Like, when you say successful, like, What do you mean by successful? Because this at least starts painting a picture for me on how formidable these programs are to g2 attention right now, maybe some comments there could be helpful.

 

14:38

Yeah, absolutely so. First and foremost, when an individual becomes a caregiver, there is generally some signal in the data that tells these wellness providers that there's a problem. So one of the first things that will typically happen is, before somebody goes on leave, they will oftentimes step back their retirement plan contributions that data. It immediately goes to the retirement plan provider, and that's one of the first things they're going to look for. And it's very easy to find in the data that there is an issue that allows them then to start to send messaging around. Life events could be caregiving, could be job change, could be some sort of financial hardship. From there, the other primary piece of data that one of these providers, these wellness providers who want to use is leaves with absence. So all that is submitted to the disability insurance companies when somebody goes out on leave, that triggers a couple of things to happen. One the very first thing those programs are going to do is point the individual about to go out on leave to resources that are generally free or very low cost that their employer offers to them that they're probably not aware of, and Tom that could run the gamut from caregiving assistance to emergency caregiving support for a parent or for a child to reimbursement programs that they may not know they even have at their disposal that wins the hearts and The minds and the wallets, frankly, of those individuals, and then that relief, coupled with the injection of, I'm going to put it in air quotes, advisors or agents who have some familiarity with their benefit designed can be the first human form of advice and guidance they've gotten in their lives, let alone that is specific To the event that is also conversant in their benefits. So to put a bow on that, in essence, what these programs are doing is they're picking up signal and benefits, beneficiary changes, reductions in retirement plan contributions and leave data. They're making an assumption, a logical assumption, that something's going on. They're injecting content playing back benefits. So they're saving the employee money in that moment, and they're giving them advice that could run the gamut from product sales to aggregation of assets to the establishment of things like wills and trusts. So that the success of these programs is really measured in a couple of ways. First, it is usage. So are people consuming the content? Are advisors and agents getting appointments? They are. Are they selling products? That gets to be a little bit kludgier because the tail on a sale can be long, and certainly there can be more than one purchasing trigger. But I would argue, of all the life events that these programs are relying on, caregiving can be a really important one, because it taps multiple generations, and they the smart ones are positioning, hey, it's not just that we're going to care for you middle aged child. In this moment, we can do stuff for your parents and your kids too.

 

Thomas West  17:27

All right, so that's interesting. So when I'm getting into the sort of the prescription, like, I'm making an assumption that most of us, as advisors, on on the podcast, as an audience member, like, I don't have access to this feed of new leads, for lack of a better way to put it, that I've got data on a particular shift in a life event when what you're sort of painting is by the time they get to maybe an advisor outreach, a competing advisor outreach, as I'm understanding what you're saying, They've already been fed a lot of valuable free stuff. So there's been a value proposition that's already been presented to them that doesn't cost the plan provider much, but could, like you said, win hearts and minds. In my mind, sort of the first thing is, I think that advisors really need to start relying a whole lot more on the free, valuable content that exists in the financial industry. You know, ether, there's tons of stuff on caregiving and resources and, you know, cpfb stuff and, you know, and I think that that it's incumbent upon advisors to make sure that there is at least, you know, some loosely regular projection of that content, so that if g1 or g2 gets it from a triggering event through some of these financial wellness programs, they've already seen it like my advisors already provided this to me, so it dampens a little bit of the competing value if they've already been sort of exposed to it. Maybe this is going to be something where there's programming, like, you know, webinars, or you do an event, or something along those lines. That's just basically playing defense. You know, this isn't anything new. Mr, I don't know you who's calling me from my 401 K that I think is sort of the first piece. I think the second piece is, you know, certainly in my practice, I've gotten a lot of recognition about how I've modeled a lot of what I do based on being very agile at times of change for my clients or my prospective clients. And I think that a lot of what the family financial conversation podcast is about is a collection of best practices to be able to help us advisors be more appropriately and usefully reactive when stuff. Happens. But it also occurs to me that, you know, we're also talking to folks that might be coming at this, you know, maybe without the depth of experience. So, you know, I've been around and doing this for 25 years, and it occurs to me, you know, you can't be experts in everything. You can't be experts in dementia and special needs trusts and mobility issues and life plan communities and like, that's that's sort of challenging. So maybe you can talk a little bit about what do you think advisors should do. You can't be experts in everything, and other than, you know, being able to project some of these freebie resources, so that competing value proposition is a little muted. What are some of your things that you would think of you're talking to a handful of advisors here on the podcast. What do you think we should do in the face of this?

 

20:54

Yeah, I think you know, first of all, start with the simple stuff. Know who the client or the kid works for so that you have that in your back pocket. First thing, second thing, I think it is useful to get a little bit of that free in air quotes and reliable content in your arsenal. You know you mentioned, CFPB, Financial Health Network is an amazing resource. They are not for profit, and they are really the experts in all things wellness, they have some really good material that you can use in your own practice. There's one particular piece called, it's called the employer Toolkit, which I think is a little bit of a misnomer, but there's some great content in there, and there's no reason why advisors can't use that with their own clients to sort of preempt a lot of this, you know, I'll say questionably intended at times outreach. So I think starting with the basics is really important. The second thing I would also encourage advisors to do is just get a little bit more familiar with some of the, I'll say, drags on financial health that may happen in your book, something like a third of people making $200,000 a year or more are living paycheck to paycheck, and a significant portion of those folks are advised. So I think the advisory community can have some misnomers, if you would, about the actual liquidity and health of their clients, that can derail conversations, or it encourages assumptions that are not ultimately helpful. And the last piece of advice I would offer is, and this is a major defect of most financial wellness programs, they declare health at an individual level. And I think we all believe that you're only as well financially, physically, emotionally, spiritually, as the weakest link, if you would, in the chain that comprises your family. So the notion of offering these resources through not just the client lens, but the lens the family, is really important, and that is something that no program is going to do. And I lied there's one more point, none of these programs are going to offer consistently emphasis on consistently a fiduciary standard of care. The folks that are engaging in the spirit of there's no free lunch, are engaging in the service of educating to a sale. So I think laying out some of the information that is available to you right now in the form of these free resources and understanding, at the end of the day, these programs make money because they sell product. That is not what advisors are here to do. They're here to advise, yes, if a product sale or solution sale occurs in the course of that normal exchange to be expected, but I think there are some things that proactively can be done and leverage that content in a way that you don't have to create it yourself.

 

Thomas West  23:34

Right, right. Well, I think my closing thought on this is, is that fiduciary idea. You know, I still think that the strictest definition of a fiduciary standard in the industry probably doesn't quite go far enough in the sense that, like it doesn't, it doesn't, it doesn't, well, let me say, let me say it this way. I think the the way that I try to operationalize a fiduciary standard is not just operating absent a conflict of interest, but it's how do you engage the client in a functional decision making process that's informed and is sympathetic and empathetic sort of at the same time, and in my mind, you know, if you go back to the fiduciary standard of making good decisions, maybe that's what we need to remind advisors like listen, maybe you already have all of the defenses you need before you react to something that might Be a narrowly defined from a single data point, offer or a sale. Let's remember what the big optimal decision making steps are before you do anything. Organize all your information client. I can help you do that, then identify the whole series of choices that you've got just because there's one particular recommendation that comes. From the single data point of you know, you're a sandwich caregiver, and you're taking care of your parents, therefore Long Term Care Insurance for you, or whatever the whatever the recommendation might be like, is that really the only option that you have? Are there other things that meet considered, like figure out as an advisor, what the full opportunity set is that the client's got and be able to articulate like, what's the hierarchy of priorities right now? Are these recommendations really based on your hierarchy of priorities? I think the other piece too is knowing, committing to a decision, racing to make a revocable decision, sometimes, is a great piece of advice that I think a fiduciary inclined advisor could do. And then I close with this part of what many of us do in the industry is we offer sort of a monitor function. Is the thing that we did doing the thing that we wanted it to do? Or do we have to course correct or whatnot? And by laying out with your client, organize yourself first, get all your information, identify your choices, make a good choice as soon as you can, hopefully one that you can change your mind about, and then monitor to see if there needs to be a course correction. I think that if we as advisors just keep going back to that as a way that we inject some wisdom in the decision making process. It sort of invites two things. First, I think tactically, it helps or your clients get to better outcomes, more predictably. But second, it's a very competing set of concepts for that second generation that these financial wellness programs are targeting. The idea is like, listen, I'm not just reacting to one thing. This advisor is making me take a step back. Look more broadly. Try to, you know, measure twice, cut once. Those sorts of pieces, I think, are where good advisors can sort of set themselves apart and differentiate through optimized decision making processes. And I'd encourage all of us, when we're looking at financial wellness programs as sort of friends or foes, to remember you probably have a lot of the skills, the tools that you need to serve your clients already. It's just a matter of being ready for when it happens.

 

27:16

Well said. If I could add one more resource, we talked about financial health network. There is phenomenal book by Shane Parrish called clear thinking. One of the things that I think you touched on Tom and you do in every podcast, is the notion of helping clients to define the problem, because once that problem is rigorously defined, there's probably more than one solution. And what I think is really interesting about that book, and Shane also does a podcast, is it really gets to the heart of cutting out some of the noise and helping clients think strategically. And you know, with with the case of financial wellness programs, there really is no such thing as a free lunch, and I think that that is an important message for clients and their kids to get if something sounds too good to be true, absent a benefit that you're getting through your workplace in this context, probably is so giving them the pause before they make the commitment, I think can be really helpful.

 

Thomas West  28:07

Great. Well, great. Last thought, everybody, this has been Financial Wellness: Friend or Foe, thanks for joining us on The Family Financial Conversation. That's a lot of F's right there.

 

Thomas West  28:16

It is.

 

Thomas West  28:17

I hope I stuck the landing all right. Everybody, thanks for joining us. Click on the link below, send this to other folks that you think are also wrestling with this particular topic. I'm sure we're going to be revisiting it in the future. And appreciate you joining us. Thank you.