In a world of buzzwords, where did Financial Wellness Programs come from and how did this industry grow? As with many aspects of life, it is hard to answer a question without understanding the context around the issues that this emerging industry is trying to solve.
Let’s jump back to the early 1980s when the 401(k) plan was added to the IRS tax code as a way to provide additional retirement benefits for high-income earners through their employer. This was supposed to be a product that was used to save for retirement above and beyond the defined benefit pension plan that a large percentage of employers offered. With this being added to the tax code, employers quickly saw the value of transitioning the risk to employees to run their own investing and retirement planning versus taking on the responsibility themselves. Due to the high cost of operating a defined benefit pension plan, individuals living longer, and poor investment management returns these factors led to many employers being unable to deliver on their retirement promises.
In response, the United States workforce started shifting between employers every couple of years. Often you see top talent being pulled away by one’s direct competitor. This shift in retirement benefits led to a less loyal workforce as a whole. In return, employers have looked to find ways to create strong internal cultures that help with retention. Most employers start with a message or mission that helps get individuals passionate about their job. However, this approach can have a backlash. This tool is used so often that it often requires more and more personal sacrifice by the employees until they have a breaking moment and give up on the mission and employer. Top talent is often the first to spot this trend as they are often required to sacrifice the most. To help offset this, employers have responded by providing a more complete benefits package over the decades resulting in slow employee’s income growth. Health benefits and retirement plans have been a staple of a benefits plan. Now many employers have looked to add options like a Health Savings Account (HSA), Deferred Compensation Plans, or making Roth contributions to your 401(k) to reinvest back into their employees.
Employers also started inviting or working with financial experts to come to visit and explain these benefits to their employees. The first two main types of financial experts to engage in this practice was the investment and insurance advisors. These advisors set up a seminar to teach a subject as a loss leader to then either capture Assets Under Management or make a commission on selling a product. While, adding value by teaching, this practice has led to some strong conflicts of interest. Primarily, what makes money for these advisors is that they need to sell a product or service. It often requires purchasing something outside of the employee’s benefits package which may or may not be the right course of action for the employee. This can potentially lead to liability issues for the employer. Financial Gurus are another example of those looking to enter this market space. They too can add value to employees but have a conflict of interest as they are looking to sell books and seminars.
Over the last 10 years, the United States economy has seen a historic bull market and competition for employees has only increased. Data shows there is a strong correlation between keeping employees engaged and productive that results in growth for a company. Many employers have been adding more benefits that impact one’s daily life to attract and keep their key employees. Gym membership, subway passes, and snacks at work! However, does this really solve the heart of the issues? I would propose that we are all looking for some form of financial independence or security. This is an important aspect of a company’s culture that is often overlooked. How are we helping our employees build wealth? Research shows that employees who are financially secure are more loyal, productive, and engaged in helping their employer succeed.
This is where Financial Wellness Programs have made their entrance. The financial wellness industry looks to get paid directly by the employer or an individual to help teach personal finances and financial planning. By going to employers these programs look to address a large percentage of individuals that are unprofitable to traditional business models that provide financial planning. It also strives to remove as many conflicts as possible as most Financial Wellness Program sell no products to employees but instead focuses on education and an individuals relationship with money. Financial Wellness Programs may offer just a technology platform or a mix of technology with a Financial Planner. From there, different Financial Wellness Programs can focus on lower or higher level employees. The common aspects of these programs are that they tend to focus on helping individuals understand their financial behaviors, budgeting tools, their employer’s benefits, and gap analyst on goals or protections that they need.
Here at My Financial Coach, we have focused on helping key employees to take advantage of their complex benefits to build wealth. From Stock Options, Deferred Compensation Plans, Cash Balance Pension Plan, Mega Backdoor Roth Conversions, and other benefits we help tie all these options together with your personal life goals. My Financial Coach gives you a platform to track your progress with a Financial Coach to advise you along the way. Allowing you to build financial security in order to reach your personal goals. Contact us if this would add value to you or your organization.
James Hargrave, MBA, CFPⓇ, CLUⓇ
Director of Financial Planning
