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Financial Planning > Behavioral Finance

Edge 401(k) Funds Offers Personal Money Coach to Participants

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A new 401(k) offering combines managed funds with a financial wellness component to encourage investors to address issues that lead to high financial stress.

Founded by Tom Ruggie and Michael Case Smith, Edge 401k Funds offer plan sponsors a way to proactively engage participants in financial wellness.

The funds are currently available on over 20 platforms, including TD Ameritrade, Fidelity and Charles Schwab. They mimic Morningstar’s indexes, Smith said. When a plan sponsor adds the Edge funds to the 401(k) roster and an employee selects or is automatically enrolled in them, “two things happen,” Smith, managing director of Edge 401k Funds, said in an interview with ThinkAdvisor. “They get that global balanced asset allocation — aggressive, moderate, conservative — and the other thing they get is a phone call.”

Participants in the fund get a phone call from a “money coach” assigned to answer questions about asset allocation and to offer guidance on day-to-day financial issues. Even if an employee declines that guidance, they get a call every quarter.

“The outbound call is really the secret sauce,” Smith said. “If somebody engages in the program and wants some tough love, we’ll build out an action plan, set some goals and hold them accountable; ‘I’m going to call you in three weeks.’ It’s that human behavior, that person nagging them, that really moves the needle on the effectiveness of the program.”

Smith said he’s seeing a lot of engagement from plan participants. “If I’m standing in front of 115 employees, I lay out the program, ‘Hey guys, I can talk your ear off about correlation coefficients and style-box funds, or if you want the kind of money concierge the C-suite gets and someone to do asset allocation for you, check the box.’ Out of 115, 100 are going to say, ‘Absolutely!’”

Of those, maybe only 20% ask for help with a financial action plan, but the rest are still getting a quarterly call to stay in touch and keep up with life changes.

Smith acknowledged that there are other firms that provide financial wellness programs and employee assistance programs, but “they’re $50 to $100 a head whether people use it or not. Nobody’s looking to spend another $100 per participant.”

The fee for the financial wellness counseling is included in the fund fees, which are 80 basis points, Smith said.

Smith compared financial wellness to a ladder. Most financial wellness programs address the “top rung” of asset allocation and savings rates, he said. The Edge funds look more at the bottom two rungs. “People don’t care about their 401(k) because they have financial priorities that are outside investing,” he said. “They are not controlling their wallet. They are not ready for life’s little surprises.” Another problem with some financial wellness programs is that they require the employee to initiate contact. “There are people who do wellness, but it’s that boxed-in program where there’s a poster in the lunch room [with a number to call] if you have any questions, and no one does. They’re uninvolved,” Smith said.

Smith said the Edge Wellness Funds can also help firms address productivity issues associated with health problems brought on by stress.

“It’s no surprise to us that financial stress is a key driver in people grabbing a cheeseburger or a beer or a brownie,” he said.” We really feel companies should offer a financial wellness program in the same manner they’re offering a health wellness program because financial wellness really enhances and improves the effectiveness of what they’re trying to do.”

He added, “If you have an employee population that’s in control of their wallet, in control of their outcomes, the financial stress goes down,” and problems with “medical claims, absenteeism, presenteeism and all those kinds of -isms” go down as well.  

“People on those wellness committees, the CFOs, the HR people, are so focused on the medical wellness, they’re expanding that into financial wellness,” he said. “There’s a void in the market, and this is what we’re trying to fill, but the medical wellness providers don’t address what 200 academic studies have shown is a major upstream cause of medical claims and that’s financial stress. The 401(k) industry really isn’t doing anything beyond intra-401(k) planning; get your asset allocation right, get your saving right.”

—Check out Workers’ Retirement Preparedness Slipping Over Economic Worries on ThinkAdvisor.


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