Magazine article Workforce

Three Ways to Deliver Investment Education

Magazine article Workforce

Three Ways to Deliver Investment Education

Article excerpt

Lucrative retirement benefits are supposed to help you attract and retain the best people. But if employees don't understand how to invest them, how valuable are they? "Large segments of employee populations don't understand how to take advantage of financial benefits, such as 401(k)s, and they don't realize how important it is," says Lori Lucas, a defined contribution consultant at Hewitt Associates, a benefits consulting firm in Lincolnshire, Illinois. It's not uncommon to find 401 (k) utilization rates at a low 15 percent, she says. She attributes this largely to lack of financial-planning education.

When employees do take advantage of company-sponsored investment programs without proper guidance, they often make costly mistakes. William Arnone, a partner in the financial education and consulting group at Ernst & Young LLP in New York, says the most common problems are that employees don't diversify effectively, don't understand the impact of borrowing from their retirement savings, and mix investments among lifestyle funds that are designed to act as a single place to put investment income. This frequently happens because rank-and-file employees, whom Arnone defines as those making $20,000 to $80,000 annually, don't understand what they are doing. And as people come to rely on 401(k)s as their primary resource for retirement income, these kinds of investment mistakes can have a disastrous impact on their future plans.

Recognizing employees' lack of financial education, many companies offer investment guidance and advice services to complement their retirement packages. According to a survey done by Xylo, Inc., a work/life solutions company in Bellevue, Washington, 76 percent of employers provide financial services to their employees. The most popular are retirement planning (66 percent), insurance advice (50 percent), and investment advice (42 percent).

Some companies offer programs out of the goodness of their heart, or as part of their commitment to work/life programs, Arnone says. Others do it to avoid litigation by employees who find that they don't have enough money to retire because of bad investment decisions. Still others view investment programs as a way to get the most bang for their benefits buck. "Employers invest a lot of money in benefits programs," Arnone says. "Financial-education services help employees understand and appreciate the value of those programs, while helping them make better investment decisions."

Financial-education offerings can range from presenter-led sessions on specific investment topics to Web-based self-help tools. The most common are on-site workshops, hosted by HR staff or financial-services vendors, at which employees can learn the basics about investment planning and other money-management concerns. Vendors might also host information booths on-site where employees can pick up brochures and ask questions about their personal needs.

For those employees who don't have the time or inclination to attend seminars, online tools are a popular way to get do-it-yourself guidance, Lucas says. They help users do budget-forecasting based on contribution rates, build sample portfolios, and do risk assessments. The tools are easy to access and don't take as much time as the workshops, she says. They also offer privacy to people who may not want to talk directly with someone about their financial situation but still need help planning for their future.

The one thing that most of the tools and workshops don't do is offer specific investment advice. "Giving advice creates a completely different set of fiduciary responsibilities for the plan sponsor," Lucas says. Even if the advice is delivered through a third-party vendor, a lot of due diligence is required to assess and monitor the guidance being offered, which is a hassle that few companies are eager to take on.

"Delivering advice to each employee based on their specific needs would be daunting and costly," says Martin Sallee, manager of HR benefits at State Farm Insurance in Bloomington, Illinois. He feels it's more beneficial to educate employees so that when they pursue investment advice on their own, they know what questions to ask and what their critical issues are.

Employers that opt not to offer advice can give employees a great deal of assistance before they cross that line, Lucas adds. They can make employees aware of what their plan offers and how to use it, help them decide what level of contribution is appropriate, and show them how to put a portfolio together. They can also guide them over other financial hurdles, like tax planning and money management.

"For many people, you can't start thinking about investing until you've figured out how to pay your bills," says Vonda Rodgers, senior analyst at State Farm. "Financial-education workshops can teach people better spending habits as an approach to planning for the future." State Farm delivers a series of 12 ongoing financial-education workshops to its 80,000 employees, covering everything from retirement planning to debt reduction. "We want our employees to understand what they don't know," Sallee says. State Farm's commitment to providing investment education but not advice is common. Hewitt's 2001 401(k) trends survey shows that only 18 percent of large plan sponsors offer any outside investment advisory services, with another 18 percent considering the services in the next 12 months.

But for many employees, education and guidance aren't enough, Arnone says. "Some people are unwilling or unable to make prudent investment decisions unless they have advice on exactly what to do."


Family-Style Planning

Name: Penny Flame Industries

Location: Zelienople, Pennsylvania

Type of organization: Steel-roll manufacturer and commercial heat treater

Number of employees: 24

This 34-year-old company considers itself a family organization. The leaders feel a sense of responsibility to the employees, which is why they've offered profit-sharing from the beginning, says David Carnahan, vice president and general manager of operations. But in 1995, the executive team decided that profit-sharing wasn't enough. "The employees needed to be more involved in investing in their own future," he says.

Until that time, the company made all the decisions about where profits were invested. Employees couldn't contribute their own money, and the funds weren't growing fast enough, Carnahan says. The situation could have placed the company at risk of legal action if retirement funds didn't increase properly.

To give employees more control and reduce their liability, Penna Flame added a 401 (k) package to its retirement program in 1995 with a partial match of funds. "It was an opportunity to shift the burden and let employees customize investment choices based on their personal needs," Carnahan says.

To support the new program, and to give employees the confidence and knowledge to make shrewd investment decisions, Penna Flame developed a partnership with a local bank to host on-site seminars and investment workshops. Together, they explained equity, risk assessment, and fixed-income management, and handed out literature. It still wasn't enough.

Carnahan wasn't permitted to provide investment advice, which is what many of the employees wanted. "Our people are blue collar. Investing is not something they are necmanly good at, but they know it's important"

To help solve the problem, Carnahan invited Brad Thomas, a local investment representative from Edward Jones, a securities firm headquartered in St. Louis, to meet with employees. Because of shift schedules, it didn't make sense to hold one large employee meeting, Thomas says. Carnahan introduced Thomas to employees during several short meetings held directly on the shop floors. At the end of each meeting, employees were given a sign-up sheet for individual counseling sessions.

Over two days, nearly all of the employees met with Thomas, free of charge, to discuss their investment portfolios. "We took a snapshot of where each employee was financially and what their goals were," Thomas says. Then he made investment recommendations based on their situations. "People want specific advice for their particular circumstances," he says. "Education alone doesn't tell people whether a fund is right for them."

The employees were thrilled, Carnahan says. "It's a win, win, win situation." Employees get sound advice, Thomas makes business contacts, and the company shows its concern for the welfare of its people, which affects retention. "Heat treating is a selective skill set. We don't want to lose valuable employees because we are not dealing with their retirement needs. That's a big issue for our people."


Seminars and Wills on Wheels

Name: Eddie Bauer

Location: Redmond, Washington

Type of organization: Clothing company

Number ofemployees: 1,000 at corporate headquarters

At Eddie Bauer, investment education is part of a larger initiative to remove the hurdles from employees' lives so they can focus completely on their work, says Karl Weiss, manager of work/life recognition programs. "It's part of our culture," he says. "We realize that when people come to work, they don't check their lives at the door. Addressing their personal needs gives us a competitive edge."

Weiss keeps tabs on the needs of employees through informal surveys and conversations, then crafts programs around the issues that they deem important. For example, the company converted empty offices to mothers' rooms for nursing moms, and added wellness rooms where busy or stressed employees can take naps.

When employees expressed interest in and concern about their financial well-being, Weiss adopted a series of education seminars and online tools to accommodate their needs. "Anything that will help employees save time and money makes them more focused and more valuable at work."

Weiss invites financial vendors-who donate their time-to conduct seminars and lunchtime workshops on targeted topics based on the needs expressed by employees. "We have seminars going all the time," he says. Hot topics include retirement planning, wealth-building, beginning investing, and planning for college. Weiss keeps an eye on which topics draw the most participants and makes sure that every topic is covered on a regular basis.

To be sure that employees are aware of the seminars and take advantage of them, Weiss constantly markets the services. He finds that the most successful tactic is a daily pop-up message that alerts employees to the day's events when they sign on to their computers.

For employees who don't want to take the time to attend a whole seminar, or just want answers to a few specific questions, Weiss organizes "information fairs." Vendors set up tables and kiosks at Eddie Bauer headquarters where employees pick up investment workbooks and brochures, ask questions, and arrange for personal counseling. "When employees are working harder, attendance at seminars drops, so we do more information fairs to meet their needs," he says.

Wills on Wheels is another financial-planning service that Weiss adopted to meet the needs of busy employees. Once a month, lawyers set up shop in the cafeteria, and for 30 minutes they help any employee write a simple will. The fee for a basic will is $90. For employees who prefer to learn on their own, the company Web site also offers links to, which has a host of online financial-planning tools, including calculators and workbooks. Employees from the corporate office and the retail stores can take advantage of these tools, Weiss says.

Like many other companies, however, Eddie Bauer does not offer financial advice. "We can provide general information, and we can tell employees how to arrange to talk with a financial adviser," he says, "but if they decide to do it, it's their choice."


When Guidance Isn't Enough 7

Name: Teco Energy

Location: Tampa, Florida

Type of organization: Energy company

Number of employees: 6,315

Then Teco Energy decided to migrate from an annuity-based plan to a pension-equity plan, which is oriented to lump-- sum benefits, it became clear that employees would need considerable help understanding their options, says David Bush, manager of retirement savings plans. As representatives from all the operating companies within Teco were reviewing the plan, they realized how complex it was. "Management began to see the challenges that employees would be facing as a result of the changes," Bush says.

Previously, Teco had never offered financial education or advice to employees in any of its 60 locations. "We didn't have the time or resources to do due diligence on the providers," Bush says. "Without that, we were reluctant to put our stamp of approval on any vendor."

But in the wake of the plan changes, finding an investment adviser was deemed a high priority. After reviewing several vendors, Bush chose Edward Jones to offer one-onone counseling on-site during the immediate plan transition in 2001, and financial-education workshops later on. They chose Edward Jones for several reasons. It is national and has offices in all 60 of Teco's locations, which allowed the company to work with a single vendor to provide investment advice to all of its offices. Each location has a single contact who manages services for that office, and there is one point of contact within Edward Jones who oversees the entire relationship. That helps to maintain consistency and makes monitoring easier, Bush says. Teco was also impressed that Jones delivers all workshops and on-site counseling at no charge. "They see it as an opportunity to build long-term relationships with employees."

While most companies launch their financial-services program by starting with workshops and easing into counseling, Teco took the opposite approach. They began by immediately offering one-on-one meetings with investment advisers as soon as the relationship with Edward Jones was established. "Our incentives were different. We didn't enter into this because we wanted to offer financial services," Bush says. "We needed to provide all the tools available to make the plan transition as successful as possible." In the fall of 2000, as the plan was being rolled out, financial advisers were brought in to meet with employees aged 55 and over, because they had the most urgent need for retirement planning and had been given the choice to stay with the old plan. "The only way they could make informed decisions was if they had someone there to help them," Bush says. "They didn't need generalized lunch-and-learns. They needed to meet with a financial planner right away."

The following quarter, employees aged 40 to 55 had the chance to meet with advisers to discuss their retirement planning and get investment advice. They were encouraged to bring their spouses, who were also able to get advice on their retirement incomes, so that as a family they would be able to see their whole investment picture, Bush says. In the third quarter, employees under 40 were invited to meet with the Jones representatives.

In July 2001, once all the employees had had the chance to receive counseling and the new plan was rolled out, Jones representatives began offering financial-education workshops. The first three sessions cover investment basics, retirement planning, and company plan distribution options. After those are complete, each location will choose which topics it wants delivered according to the needs of the employee population.

"It's ironic," Bush says, reflecting on the activity surrounding the plan transformation and the decision to offer financial advice. "These plans have been in place for a long time, but they've never had so much visibility."


Financial-education offerings can range from presenter-led sessions on specific Investment topics to Web-based self-help tools.



Investment Advice

A benefits consultant can help you navigate the tricky investment-- advice waters.

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