In-person interactions are much more impactful for clients than online education in achieving financial wellness, according to Liz Davidson, CEO of Financial Finesse.
Financial wellness, as defined by Financial Finesse, is ultimately little or no financial stress, a strong financial foundation with about three to six months of emergency savings and adequate insurance coverage, and established financial goals with a plan to achieve them.
Assessments of workers in wellness programs show that those who have five or more interactions are more likely to follow through on good financial behaviors like setting up an emergency cash fund, contributing to a 401(k) and paying off their credit card balance in full every month, Davidson said in a webinar on Thursday.
Those whose interactions were limited to online only were much less likely to follow through on behaviors that lead to financial wellness.
How might increasing usage of robo-advisors among investors affect financial wellness? As of December 2014, Corporate Insight found robo-advisors managed $19 billion in assets.
“I think there’s absolutely a utility for them,” Davidson said of robo-advisors in an interview with ThinkAdvisor. “They help with the investment part, but so much of financial success is behavioral, and that’s the challenge.”
What makes workplace financial education or wellness programs so valuable is “access to a financial coach who can hold [workers] accountable, motivate them, understand the psychology of the person — everyone’s different in terms of what’s going to get them to stick to their plan,” Davidson said. A financial advisor with “extensive training on the financial side but [also] that behavioral side — can be a big driver” in financial wellness.
“The reality is financial wellness is being in that state where you’re taking the right steps,” Davidson said on the webinar. “It doesn’t mean you’re financially independent. That might take time, but if you manage your finances the right way you will reach financial independence.”
Ideally, workers trying to improve their financial wellness would interact with a professional financial advisor, but peer-to-peer groups can be effective as well.
“What you can do with your friends, co-workers or family members far exceeds what most of us can do alone,” Davidson said. She said when peers hold each other accountable, success rates are up to three times as high as when workers receive financial education and have to follow up on their own.
Who is in that peer group depends on the dynamics of the relationships, Davidson said. “In some cases, it may be people you don’t know super well but you have a respectful relationship” with them.
Whoever is in the group, the point is “ongoing support as well as the perspective of total financial wellness,” she noted. “it’s getting to that point of financial independence where money is not an object; to do what you want to do on your own terms and in your own way.”
She noted about 84% of employees have at least some financial stress, given some fluctuation for good and bad markets.
— Read What Clients Need and What Advisors Aren’t Doing: Liz Davidson on ThinkAdvisor.