“High Touch” Doesn’t Always Mean Higher Education in Retirement Plans
In my last post, we talked about how retirement plan fees didn’t always have to be low – or necessarily the lowest – but simply reasonable. In other words, relative to the level of service provided. In today’s lesson (so to speak), I’d like to cover how the same levels of service could apply to participant education – and help your efforts be more effective.
In terms of service, there’s a wide range of product offerings for 401(k) and 403(b) plans, from the simple issuance of annuity products or mutual fund shares to robust plan designs tailored to the needs of both the plan sponsor and the participants. And you could think of participant education in the same way, with offers ranging from a “textbook” approach of what’s always been done to a “lesson plan” that’s tailored to different demographics, measures results and sets goals.
Unlike plan service, however, the answer for participant education has traditionally always been “high touch.” But high touch doesn’t necessarily equal highly productive results. Let’s look at the effectiveness of different models using an academic analogy:
1. Basic curriculum (low effectiveness).
This textbook, or “traditional,” approach is designed to teach the basics to large groups of students with varying education levels. This approach is often one-size-fits-all and helps some students prepare for college, but unfortunately – many leave unprepared.
The same is true with regard to retirement education. With a traditional education model, a service provider’s financial professional often sits in the cafeteria selling their product to whomever they can. This can be labor intensive and seemingly high touch. While proponents of this method can tout the individualized relationships, this model can often result in low participation rates. In other words, it can work for some, but many others can be left unprepared (i.e., low effectiveness). And, if multiple providers are present, there’s basically no way to control consistency of message to participants.
2. Honors program (moderate effectiveness).
This method takes a more hands-on and flexible approach enabling students to dive deeper into topics in a smaller group setting. It correlates well to group meetings in retirement education. The plan sponsor can help ensure the message they want to get across is what’s actually given to participants. This method is moderately effective as the program is designed for the group, but individuals can get supplemental one-on-one support as needed.
3. Advanced placement (high effectiveness).
In schools, advanced placement allows students to take additional coursework to get college credit. Think about how this could apply in retirement planning. Education is provided in the context of an overall written plan with objectives and consistency of messaging. Group and individual meetings are provided, and progress against the plan is monitored relative to participation as well as the retirement readiness of participants. In short, this highly effective model gives participants easier access to advanced retirement planning consultation, which could help them better prepare and save more. In addition, a robust plan that is monitored against results can help ensure more participants are adequately planning for retirement.
Like different levels of service, the robustness and effectiveness of participant education should be evaluated relative to the cost for that service. Think carefully about the services you want to receive for those fees, and the outcomes you’d like to see. Will the core curriculum suffice, or is it important to invest in the long term growth of the plan and the retirement readiness of participants?
In my next blog, I’ll provide some guidelines for evaluating the effectiveness and processes of an education plan.
So, how effective is your participant education model? Let’s chat in the comments section…
In addition to blogging here, I also tweet regularly about topics of interest to Tax Exempt plans. Follow me on Twitter: @1aaronfriedman1.
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