My guest today is Liz Davidson, who is Founder & CEO of Financial Finesse whose mission is to deliver life-changing financial guidance to those who need it most, working with companies like the NFL Players Association, Nestle, Aetna and Viacom. Financial Finesse provides personalized financial coaching and workplace financial wellness. She’s the true OG of the financial wellness movement who founded Financial Finesse as the nation’s first unbiased workplace financial wellness company in 1999.
On today’s episode, Liz and I cover the origins of the company, her large team of personal financial coaches that are all CERTIFIED FINANCIAL PLANNER™ professionals with a minimum of 10 years experience, the benefit of provide coaching and education instead of advice to employees and how this is complementary to most advisors, their Financial Wellness Think Tank™ which provides in-depth research and resources about everything happening in the financial wellness movement, and their new tech platform called AIMEE which stands for Artificial Intelligence Motivating Employees Everywhere.
“Financial wellness is better delivered via coaching because it’s not about knowledge—it’s about behavior.” - Liz Davidson
“Human nature never changes.” - Liz Davidson
“Going in the middle is worse than not committing at all.” - Liz Davidson
“Over-marketing your program can actually hurt trust with employees.” - Liz Davidson
Josh Itzoe: Hi, everyone. Welcome to episode # 20 of the Fiduciary U™ Podcast. I've actually been away for the past few weeks in Hawaii with the family, and excited to be back re-energized and ready to get on with the show. I've got some really great episodes coming up over the next couple of weeks that you won't want to miss.
Before I introduce today's guests, though, I wanted to ask a favor. Would you be willing to go on Apple Podcasts and leave a review for the show? It's one of the best ways for other listeners to find the show, and it would be really appreciated from my perspective.
So let me tell you about who's on the show today. Her name is Liz Davidson. She's the founder and CEO of Financial Finesse, whose mission is to deliver life-changing financial guidance to those who need it most. I'm really excited about this episode. We had a great conversation. She's a really neat lady. Financial Finesse provides personalized financial coaching and workplace financial wellness. She's actually the true OG of the financial wellness movement who founded the nation's first unbiased workplace financial wellness company in 1999.
On today's episode, Liz and I cover the origins of the company, her large team of personal financial coaches that are all CFPs with a minimum of 10 years' experience and their eight-step recruiting process, the benefit of providing coaching and education instead of advice, and how this is complementary to most advisors. Their financial wellness think tank, which provides really awesome research and resources about all things happening in the financial wellness movement, and their new tech platform called AIMEE, which stands for Artificial Intelligence Motivating Employees Everywhere.
With that introduction, I hope you enjoy this episode of the Fiduciary U™ Podcast with Liz Davidson.
Liz Davidson, thank you so much for being a guest on the Fiduciary U™ Podcast.
Liz Davidson: Thank you for having me.
Josh Itzoe: When I think about you and I think about Financial Finesse, which I think you started in 1919, I feel like ... Or 1999.
Liz Davidson: No, '99.
Josh Itzoe: 1999. You got a lot of longevity, Liz.
But I think about you as being the OG in financial wellness. In fact, I think perhaps you might've even coined the term. I think when I was researching and preparing ... One, is that an urban legend or is that true? And talk to me a little bit about the origin story of Financial Finesse. You've been at this almost 22 years. You talked about financial wellness when it wasn't cool to talk about. How did she you started? How did you get the idea?
Liz Davidson: I do believe we coined the term. What I will say is it wasn't long thereafter that ... I think there's this collective thinking that goes on as a result of events in the world and what industry experts are seeing as trends. It very quickly proliferated. We maybe were using it for a year or so before it really took off. Now we're in a situation where the definition of it, what does this mean for an individual and what does this mean for a company or a retirement plan and their participants, is incredibly important, because it's become too broadly used. We can talk about that later.
But in terms of how I started, I ran an investment management company very, very young. I would not have the confidence to do so now, but it was right after business school. I figured out that I needed to be an entrepreneur. I grew up in investment banking, just having those two years of business school to really think about what did I want to do next. Started an investment management company, value-based firm in a dot-com era, which was interesting. We were a nice hedge for our investors, a counter to how they were investing, which brings me to the origin story.
We had so many investors and these are accredited investors, so high-net-worth individuals, that were really, really incredibly bright and, in some cases, even incredibly knowledgeable. One was a professor of finance at an esteemed business school. But the knowledgeable ones could not help that emotional "I have to really get on this dot-com train. Maybe I teach efficient market theory and diversification, but I can't resist." Then you have the ones that were entrepreneurs or doctors or attorneys that became very successful in their field but just didn't understand even the basics of investing. Then on top of that, you had the dynamic when they were there with their spouses, where they were making in this case, the gentleman making almost all the decisions, and I would try to draw in the wife and say, "What do you think?" It's like, "He takes care of this. He knows what he's doing."
All of these dynamics of just seeing there was a need for education and guidance for this market. And especially back then really feeling that women were ... We have more expenses in our lifetime and we live longer, yet ... Again, this was 22 years ago. We weren't nearly as I think empowered about our finances as we are today. Putting all this together, I was like, "There needs to be someone for the" ... This is top 1%. What about the 99% of people who, if they invest wrong or they over-invest in equities or they just don't manage their finances well, they can end up taking a big hit that made years to recover from and change the trajectory of their lives. My clients could sell the yacht thing. I was like, "What can be done about this?"
I researched, and I started doing workshops just organically. They were focused on women back then, and fell in love with it and realized that I could not be running an investment fund and doing these unbiased workshops for non-accredited investors, both from a "Hey, it's not really very good marketing." Even the perception of conflict of interest is an issue. I got completely out of that business in '99 and officially started Financial Finesse.
Very quickly we realized the best possible strategy was B2B. While women were really our target audience in the beginning, you can reach women through the workforce, and the studies bear this out, that we disproportionally reach women, because if you market the services is really helping them build the life they want for themselves family, it is very appealing to have ongoing coaching from that perspective. So that was '99.
Today, we are the largest independent provider of workplace financial wellness programs as a standalone employee benefit. We don't do anything else. We don't sell financial products, services, securities. We don't even offer advice. It's guidance and coaching delivered digitally, as well as phone based, group webcasts, both large and small that.
The origin was interestingly ... Large companies gravitated towards this first. We have about 46 very large clients that use us to really build custom programs for their employees just depending on their needs.
Then about five years ago, maybe a little more, we launched the enterprise division to work through intermediaries, record-keepers retirement plan consultants, benefits brokers, to take all of our best practices into a model that they can deploy in a highly scalable way. I hate the word scalable, because it implies a loss of personalization, but what we call mass personalization, so where they can have the tools. It's now possible with technology to reach participants in a really deep way and help them with their personal goals but reach a large number of participants. It's both breadth and depth.
It's been very successful. It really is.
For us, where I would say we're different from most firms is it's very much a mutual selection process. We're looking for those firms that see financial wellness as part of their mission, value prop, are looking at it years ahead, and feel that it's going to be a very big driver for acquisition of new business, as well as just making the biggest possible impact. It's going deep with fewer as opposed to "Let's build something that every advisor can can slot in." These relationships really do require a level of commitment to be successful. That is above and beyond what I think most of the industry is ready for.
Josh Itzoe: Got it. I want to get into talking a little bit about the business and the business model. As we were talking, just as as a question, a tangent, you mentioned you had this investment firm and you had a value orientation during the call it mid- to late-90s, when obviously value was out of favor and growth was very much in favor, not so different than where we are right now. Then after, which I remember very well, the tech bubble bursting from 2002 through about 2007 or so, value did very, very well. Do you think if value had done really well, if the asset class performance was reversed while you had your investment management firm ... Let's say value was killing it and growth was lagging, so you were positioned call it correctly, if you will, timing wise during the time you had that firm. Do you think you would have left? I imagine being a value manager in the mid- to late-90s was pretty challenging, much like it has been the past 10 years or so. Do you think you would have stayed in the investment side of the business had your style and strategy been more in favor than out of favor, just out of curiosity?
Liz Davidson: No, it's actually the opposite. I loved the challenge. I loved the challenge of having to get people to think beyond that bubble thinking and go, "Okay" ... Because, remember, these are very high-net-worth people, so what could be a nice investment in our fund or independently managed accounts was a relatively small fraction of their worth. The play was really "This is giving you some diversification." We had lockup periods and all those things. And these were people that we really got to know and were very high touch and communicating. We literally were telling them anytime we bought or sold anything and why. They really I think felt part of the process. We actually maintained and grew our investors, but it was hard. In the beginning, that was part of the fun of it, was "Have you cracked this nut?"
Once it felt like you're selling the same thing over and over was where I started having broader discussions and uncovering this other need. I think a lot of entrepreneurs will relate to this. We're very good at new things. Once things hit that more status quo or maintenance, we get itchy and and want to do ...
Josh Itzoe: Liz, you just described me in a nutshell. Most listeners know that I had co-founded Greenspring Advisors, which was an RIA that we we founded in 2004, and recently left to ... We had built it to scale, and I started to get the itch to go do something new. You just described me in a nutshell. 90% of the time, I'm like, "This is awesome," and 10% of the time I'm like, "Oh my gosh, what did I just do to myself?"
Liz Davidson: I remember my mom saying I was ruining my life. No one supported this decision, no one, not my business partner that I started the investment management company with. No one did. It sounded crazy, and it probably was crazy. It was certainly early. It was early to do value back then, and then it was early to do financial wellness.
Josh Itzoe: You're a good trend-spotter, Liz.
Liz Davidson: I've got to work on the timing a little bit.
There is something, at least I think for personalities like ours, where really innovation and progress and building something new is what gives you that intrinsic satisfaction. I actually think if it were really successful, I probably would have left even earlier or brought in someone who was more of that executive, that would grow and maintain but not get that itch to build new things for the sake of building them.
Josh Itzoe: Which is really interesting now, because you've had Financial Finesse. Did you start it solo? Did you have partners or co-founders in starting Financial Finesse, or did it really just start with you?
Liz Davidson: I started it solo, because no one really thought it was a good idea. I on my own with it. Obviously, ended up hiring people and so forth, but, in terms of investment, it was my own money for the seed capital, and then just running it very organically to grow based on ... I mean not spend what we didn't have, basic financial principles.
Obviously, 22 years later you look at it and you go, "How prescient," but I will tell you we could have started the firm probably a good four or five years later and not necessarily been any worse off.
You have other opportunities. In the very beginning, we were up in San Francisco doing stock option workshops for companies about to go public. The investment bank would call us and say, "Hey, these employees need to understand their stock options. Can you come in in the next couple of weeks and do this?" You do what you have to do. Then, post dot-com, There was a lot of layoff work. We just spent our first few years really looking at where the market was and how could our services fit and keep the lights on.
Then probably about 2006, 2007 was when companies, the really early adopters, started to realize, "Hey, this is an ongoing benefit. This isn't just something we bring in when we have a change in the retirement plan that we need to communicate, or a merger and we need the new employees from the acquiring company to understand our benefits. This is something that is a day-in and day-out process for people, and we need to approach it that way as an organization and make it one of our benefits."
Now, really 100% of our contracts are multi-year contracts where it really is a benefit, and it's typically connected to the wellness program, if the company has one, often incentivized as part of overall wellbeing, and very deeply connected with the record keeper, et cetera, to help make sure employees understand before they take loans, the consequences of their decisions.
Josh Itzoe: How big is the company now? How many people do you have working for you?
Liz Davidson: 50 plus? 50 plus. I know them all, which is good. I dread the day that someone's on a Zoom call and I'm like, "Who are you?"
Josh Itzoe: Is it a distributed workforce or is everybody in one location? How is that built out?
Liz Davidson: It's distributed. It always has been, because our clients are all over the country. A big part of what we historically have done, obviously COVID change this, but was in-person one-on-ones and workshops. when you have companies that are headquartered all over and then, in addition to that, they have sites all over, manufacturing sites or retail sites, you have to have a local presence, or it's at least much more advantageous cost wise for both you and the client, and then just that connection of "This is someone local. They get it." We were dispersed always.
Headquarters is in El Segundo, California, and we have our essentially our back-office functions, sales, marketing, product development, and tech here, but all of our planners that deliver the education and financial coaching are fully employed by us but work out of home offices around the country.
Josh Itzoe: Okay. Just out of curiosity, with COVID-19 and with the rise of interaction like you and I are on Zoom right now, how have you seen the interaction with ... Because you employ ... Call it your coaches coaches are all CFPs, correct?
Liz Davidson: All certified financial planners, 10-plus years' experience, and then we hire about 2% of those that have 10-plus years and are CFPs just through a pretty extensive eight-step recruiting process. We're always recruiting.
Josh Itzoe: Got it. The challenge for all of us in the industry is talent.
Liz Davidson: And it's a change of life. They have to give up their licenses to sell securities. To get back they would have to take their series 7, 65. It really is a decision to leave sales. Sales is maybe a strong word, but leave the traditional financial advisory industry and become a personal financial coach.
Josh Itzoe: How do you think COVID-19, with people working from home and remote, how do you think that's going to change employee engagement? Post-COVID-19, when people are back in offices, do you think you'll go back to doing the in-person workshops or do you think clients are going to have an appetite to do a lot more of this remote moving forward?
Liz Davidson: Yes. Both. We're starting to see things open up, or the very early stages. What we're starting to see is workshops being very, very customized. We always integrated employer benefits into the whole entire ecosystem, all of our channels. All our planners know every single benefit and are making that part of the discussion wherever possible, as well as answering questions employees have. But the workshops have now become ... The audience is being very targeted. For example, people that are going to retire within a year and really focused on that specific topic, integrating all the steps and all the employer benefits, as well as everything else they need to be doing and thinking about. It's in depth for life stages and major transitions, as opposed to "We're going to do a workshop on money management skills."
What we've learned is a lot of financial wellness is better delivered via coaching, because it's not about knowledge. It's about behavior. The only way to change behavior is to get people, first of all, thinking differently and having hope, if they don't have hope, and releasing their fear, but then taking steps and building upon those steps and having accountability and having those wins that become a dopamine rush and ultimately become somewhat addictive so that they become addicted to the financial wins, not the financial spins.
Josh Itzoe: I think that's one of your taglines, right? "Your wins are our why why." Is that how you describe it?
Liz Davidson: As of the production of that video, yeah.
Josh Itzoe: All right. I like that. I like it.
Just really quickly, with your coaches, and you mentioned that they're not providing advice, how do you handle if a participant or an employee wants to talk about the 401k? It was interesting. In looking at your 2020 financial wellness year in review, which we're going to talk about in a couple of minutes, you assign a financial wellness score to a lot of different areas, whether it's cashflow, whether it's budgeting, whether it's debt management, whether it's college planning. The lowest scores that I saw in one of the charts as I perused the results was actually the lowest financial wellness score across different cohorts is around investing. How do you handle if an employee or participant says, "Hey, my 401k plan, my balance, my account, how should I invest this money?" How do you guys handle that if you're not providing advice and coaching?
Liz Davidson: Very good question, and one, we get all the time. A couple of things. First and foremost, now with managed accounts, with target date funds, there's more options that simplify the process. Very much looking at just our coaching, it's really understanding is the person hands-off or hands-on. 90-plus percent of people, and I'm sure you've experienced this, when you really take them through what it takes to make actively manage their retirement. especially if they have a highly complex financial situation, that's a full-time job almost, and they don't have the interest level or the time to commit to it. Most people are hands-off.
Josh Itzoe: Trillions of dollars in the industry trying to teach people how to be better investors. Numerous studies have shown, I've seen it in my career, is just what you said, is people don't have the time, the will, or the skill to do it on their own, and they don't want to. So often we've outsourced all kinds of different things in our life. Most people, they want to live their life. They want to focus on other things, not paying attention to their 401k accounts. Being able to move to professional management ... Even the outcomes and the data is very clear that people who use a professionally managed option, whether that's a target date fund or a managed account, tend to have much better outcomes than people who do it themselves.
Liz Davidson: Yes. This whole day-trading trend, as an aside, scares me to death. It's very concerning on so many levels, but I know—
Josh Itzoe: Isn't it funny, though? I was actually a history major in college, and everybody's heard, "If you don't know history's mistakes, you're bound to repeat them," but I just think about how similar today is to '97 through 2001. You had obviously the rise of tech, this FOMO feeling that everybody needs to be investing in tech and growth, which obviously can have its place in a portfolio. you had the rise of day trading with the launch of the internet. I remember back in the day I started my career in the tech industry in the mid-90s, or late 90s, nineties and worked in that for a couple of years before I got in the financial services world. But I had like a streamer, a stock streamer, on my desktop back in 1998 or '99.
Liz Davidson: CNBC, remember that crew? They were like our friends.
Josh Itzoe: Absolutely. You saw the rise of that, and then you saw people get burned incredibly through the tech bubble, and then you saw day trading seemed like it had moved on. Even over the past six or eight months with GameStop, it's just interesting how history tends to repeat itself. The players are different, but it tends to repeat itself.
Liz Davidson: Human nature never changes.
But back to the question on how we handle it, how do I invest in my 401k plan or even more broadly for people that have more complex situations, it is understanding hands on or hands off and then understanding what is their situation. Is this someone that has a really complex situation and maybe a managed account option? If they fall into the 90% that are hands off, it might make more sense. Or is it someone that their primary assets are in their 401k and a target date fund, with the understanding that I think one of the biggest misnomers that we've seen employees have, and it's gotten much better, but it's thinking literally, if they pick that fund, that's when they're going to retire. No, you need to be somewhat aware of the underlying allocation, because if you're more conservative, you may want to pick an earlier date, if you're less conservative, a later date, but giving them a little bit of that guidance.
But they end up able ultimately, from the guidance and from understanding their options and the pros and cons, to be able to make an informed decision pretty easily after that.
What I will say is, for people that really need a financial advisor, this is where we've had a lot of success in our enterprise businesses. We have a lot of advisors that have clients where they are doing 3(21) work. They're working with employees to help them overall with their wealth management. If that's an employer-sanctioned benefit, that's something that we embrace, because part of our job is to help employees get to the right benefits and use them the right way. Because you can maximize your compensation only so much, you're leaving a lot of money on the table if you're not maximizing your benefits.
Josh Itzoe: Essentially, you're doing the coaching and then, when actual advice is needed, you can then funnel them back to the plan advisor, assuming they're providing fiduciary advice as part of their contractual agreement with the employer.
Liz Davidson: Assuming they're sanctioned by the employer as the advice provider and as essentially an employee benefit, absolutely. It's compatible, because I think a challenge that a lot of advisors have when they go to the workforce is employers are expecting them to work with everyone, because there's this democratization that has really occurred where it's like, "We want a level of benefit for all employees." It depends on the employer, but often 80%, 90-plus percent of employees don't have enough investible assets to be good candidates for the advice and really are dealing with things like anything from severe debt and money management challenges to major life events, saving for a wedding, refinancing student loans. There's so much that goes into financial wellness that happens before you get to that point where you have investible assets. W see our job as getting people to that point. Then, in a perfect world, the employer has an advisor of record that can work with them on money management, estate planning, etc.
Josh Itzoe: Got it. That's actually a good segue I think. Thanks for explaining what the model looks like, because I think a lot of advisors when they think of Financial Finesse, they think of you as a competitor, and that's not what I'm hearing you say. Most advisors, just based on what you said, they don't have the size of the scale, the resources, or quite frankly the model to reach everyone. I see you, instead of a competitor, as being more of a complement potentially to advisors from that perspective.
Liz Davidson: Absolutely. We do not provide advice. Like I said, even as part of our service, it's guidance and coaching. It's not specific advice around this insurance policy, "This is the exact way you need to be investing." It's not advice. There is an absolute need for advice. We're filling a need that has only been relatively recently discovered, which is getting people to a place where they are consistently saving and building their wealth. But, at the end of the day, they very much need help managing that wealth once they build it.
Josh Itzoe: Once they have it, yeah. I think that's a good segue. YI think had mentioned earlier on, or perhaps before the call as we were just chatting, that you have this think tank. From what I know of you and the firm, you do a lot of research and analysis. I'll put this in the show notes, links to this in the show notes. You came out with two really good resources, the 2020 financial wellness year-end review, which is something it looks like that you tracked. I don't know how far back it goes, but the data showed back to 2016, so being able to show some longitudinal changes over time. You have this financial wellness score that you track. It's a really comprehensive survey. You also had a race and financial stress report that looked at financial stress, obviously between based from a race perspective, but also overlaid an income perspective on that as well, which I thought was really interesting.
Can you talk about some of the trends? What were some of the trends that you saw out of the data from doing the survey in 2020? Interestingly, it looked like financial wellness scores had in some ways really improved over the prior year. But can you talk a little bit about some of that data and some of the results? What are some of the things that were most striking to you when you looked at it?
Liz Davidson: Yeah, absolutely. One thing I want to say is the data we have comes from companies disproportionately large, but even when we're looking at medium-size and small companies that we might be working with through an intermediary relationship, it's companies that are very committed to their employees to pay for a financial wellness benefit. They typically have ... If you go to BrightScope, you're seeing really high 401ks scores. They typically have a very good culture of benefits offering, a high level of trust that their employees have.
When you have an employer that has those characteristics and then offers a financial wellness program over time, you're going to see very significant improvements from those that are engaged in the program, but even improvements from those that aren't, because it becomes more a part of the culture. Coworkers share their stories and motivate others, and they may read email blasts. It's in their world in a much more consistent way than someone that doesn't have a program.
Josh Itzoe: It sounds like, in some ways, what you're saying is that there could be ... It'd be interesting. There's some selection bias, because the survey respondents are typically ones who are highly invested and engaged in offering wellness. It'd be interesting if the survey respondents included companies who didn't offer a wellness benefit. Much likely, you would see the scores you're seeing are representative of a group of employers that actually have made wellness a priority. It'd be interesting to see probably they're orders of magnitude better I would think if you included companies who didn't offer wellness benefits or didn't make wellness a priority. Is that what you're saying?
Liz Davidson: That's exactly what I'm saying. We have close to 100% client retention rate, so it's also including long-term clients that have been spending a lot of money to tackle this issue. A majority of their employees are using our services on a regular basis. When you look at what we call return users, you see a lot of improvement, but those, again, are the people that are engaged.
We've proven financial wellness works. It works especially well in company after company, study after study. We have tens of millions of data points on knowing that, if you are more financially stressed and in a position where you don't have emergency funds, a budget, you're really losing control of your debt, those are actually the employees that improve the most. They have the most urgency. When you get them in touch with digital and human based ... I hate the word human. That sounds so sterile ... but real, certified financial planners that are able to help them through ongoing financial coaching, it's life changing, and they respond incredibly well, because you're getting them out of that feeling of pain and into a feeling of progress. They never want to go back.
That was probably the biggest surprise. We've known this for a while, but when I first saw this years ago, I would've said intuitively that you would have more people making progress in investing and in areas where it's more about applying the right principles, making informed decisions, as opposed to changing behavior around saving and borrowing and spending. That sounds a lot harder, but it's actually the opposite. You get a lift in both areas with ongoing users, but the groups that have benefited most, and you see this in our research, are those that started from the lowest point, the under $60,000 demographic, women. We know there's a gender gap. We we know there's a racial gap with black and brown employees typically, not always, but having more financial challenges because they're paid less. You look at all of this. You go, "My God, in those areas we're seeing the biggest improvements," which is great.
The challenge, outside of women who seem to gravitate more towards the services I mentioned earlier, is, as an employer, how do you get more employees that are struggling into the funnel in the first place, because they may not have email. They work shifts. The world is not necessarily designed to engage with them, so it requires a lot more creativity and a lot more of a commitment and a really powerful strategy to target those that need it most.
Josh Itzoe: It's a very custom ... It sounds like a very custom engagement by employer based on their demographics as well.
Liz Davidson: Yep. We're seeing a rise in employee resource groups, which is cool because they tend to be organized by the employees, not the employers.
Josh Itzoe: Community-based, if you will, like community engagement, community meeting within the .. For lack of a better description, like it's like a book club for your finances, if you will, within these employers.
Liz Davidson: Yeah. What they have is ... It's really been developed over the last decade but accelerating over the last few years. There might be a single-moms employee resource group where everyone in that group is a single mom and they bring forth resources and experts to help single moms. You have that. Now, at most large companies, they have employee resource groups based on different demographics, from race to life situations. It's really cool to be able to work with these, because they're very engaged. It is very much a community. Word of mouth spreads very, very quickly. You can really tailor the content and make them part of the process of "What are your challenges? How can we help you the most?"
This is why I'm still doing this. It feels new every time.
Josh Itzoe: That probably speaks ... You said earlier, it was interesting, just it's the entrepreneur that you are and wanting to call it break and rebuild. Is that part of the reason why you've been at this for 21, 22 years, is that you're able to get this variety of engagement experience? You're able to not do the same thing every single time over and over and over again. That would just bore you out of your mind.
Liz Davidson: Absolutely. It is such a rapidly evolving industry. It's funny to say this 22 years later, but, on some levels, we're just at the beginning. When I started in 1999, even financial education was not really a term. It was two words put together that then had to take three minutes to explain. The evolution in employers' understanding, and employees in particular, are driving a lot of this, because we are in a DC world now, where they don't have the level of benefits they used to have generations ago and have to take care of themselves. There's a lot of pressures on employees, even in a good economy, and student loan debt, obviously major topic, but looking at having to juggle all these different things, make all these decisions, even selecting benefits. The average large company has 53 benefits that are all independently marketed to employees. "How do I know?" It's stressful. Open enrollment is a stressful process. It should be a "Good news: you get to protect your healthcare."
There's a lot to unpack. We're getting, as an industry, and certainly I think as a company, better and better at it and making bigger and bigger strides.
Technology also has a big role to play in terms of reaching a large number of people, and now, with AI, being able to reach them personally.
But, my gosh, to get to the vast majority of a workforce being financially well is quite a challenge and requires continual innovation and learning from your successes and your failures and their successes and failures.
Josh Itzoe: It's really an iterative process over time. It's interesting. While I was still at Greenspring, I ran a survey of about 1,900 participants the first year and about 1,500 or 1,600 the second year, but from that first one 45% of employees admitted to feeling financial stress on a regular basis. What was interesting is people who were stressed were 17 times more likely to feel like the stress had impacted the quality of their work. But the case for the employer to invest in wellness was this, was that people who were financially stressed, again almost half the workforce that was surveyed, were a third less likely to feel like their employer cared about them. They were 56% more likely to believe their employer's benefits were less competitive than similar organizations, which, when you're trying to attract talent, that's obviously an issue. And they were 45% less likely to feel confident they were taking full advantage of all the benefits the company offered.
That's one of the things that ... What you had said earlier, which is very intriguing and interesting, is you're not just focused on the 401k that, that your coaches understand the entire benefits package for the company, and there's obviously a learning curve, because not every company has all the exact same benefits. But you're actually able to help. There's a real ROI for wellness to employers, just in terms of human capital and engaging human capital. Everybody says that people are their most important asset, but a lot of companies say that, and it's nice words on a wall, but they haven't actually aligned, for instance, their benefits or their resources to really take advantage of that. Wellness is a way to do that, but also to tie together all of these different benefits. If you have an employee that feels like their employer doesn't care about them, or they don't think their benefits are as competitive as other similar organizations, or they're less likely to feel confident they've actually taken full advantage, they're going to be at risk.
One of the most unique things I think about what you do is you're not just focused on the 401k plan and the retirement plan. Your coaches understand the benefits package more holistically and can actually help employees that engage in the coaching services to take full advantage of not just the 401k but the other benefits their employer has to offer ,ultimately strengthening the bond between the employee and the employer.
Liz Davidson: If you weren't pursuing so many other things, I'd want to hire you in sales. Yes, that's exactly it. Study after study shows the greater the satisfaction and benefits and the greater the usage of the benefits ... When your 401k balance is higher and your HSA balance is higher, there's a psychological connection that your employer's your partner in your financial security in those cases. Who wants to leave someone that's been a great partner in their financial security? If they're a partnering or financial security, they probably are doing a lot of other things right with respect to being your partner and your growth and development. It is something that is a tremendous way to retain talent, and even increasingly becoming something to help recruit employees.
We have professional services firms, primarily in consulting and the legal profession, that are going to graduate schools. When they talk about their value proposition as employer, they start with financial wellness and the coaching and this unlimited access to help you make the best decisions and then talk about couple of their key benefits, but it's really establishing from the front end what you're going to get from us that you're potentially not going to get from hopefully what becomes your second choice, is this ongoing concierge level coaching support to help you make the right decisions. That, over time, is going to be the biggest differentiator in your wealth, not the individual benefits themselves.
Josh Itzoe: Got it. What would you say are maybe the top two or three things that employers can do? Obviously, there is a flow. You guys call it king. When you've got positive cashflow, you've got money that you can allocate to things that are going to be more growth oriented over time. If you're living paycheck to paycheck or you're drowning in debt, the reality is that the money you have is going to have to go to pay off those types of things, or when the washing machine breaks, you're not going to be able to pay for it out of your emergency fund and you're going to have to finance it, and then it's just this vicious cycle. What would you say are maybe the top two or three things that employers can do based on your research to help more employees who are disadvantaged, whether that means from an income standpoint, whether that means ... You talked about the gender gap or from a race perspective. What would you say is the top two or three things employers can do to help try to address those issues?
Liz Davidson: I think one of the most important things, and you're starting to see more employers do this, is figuring out how to set an emergency savings sidecar vehicle connected with a 401k. It's interesting, because you're seeing a lot of products out there that are about payday advances and lending, and some of them are better than others in terms of interest rates, but the problem is you're getting employees addicted to a behavior that ultimately isn't sustainable. It's NyQuil. It addresses the symptoms, but it's not curing the underlying illness. Illness is a strong word, but the underlying challenge.
What I love about that concept is what it does in terms of the message it sends employees. All the studies show, and our own included, that, when an employee has an emergency fund, they're much more financially resilient, much less likely to spiral into debt obviously if something happens. It really is more important than it may seem in terms of the major first step to financial wellness.
I think the other thing is deciding are you really going to commit to this as a benefit or not. Interestingly enough, I think going in the middle is almost worse than not committing at all. In other words, putting something out there that checks the box and you can call it financial wellness, because we're doing a lunch and learn, or we're offering this one Fintech product that helps with account aggregation ... The adoption rates are typically low. I think employees can tell the difference when you're really, really invested in this, and it's really about them and personalized to any of their issues in an ongoing way, versus, "We're putting this out there, and we're putting this out there."
Over-marketing your program can actually hurt trust with employees if you're trying to take a little and make it into a lot. If you don't have the money to do this, if you don't have the employee base that you think really, really needs it, and there are certain employers that are dealing with such high-net-worth employees in general in certain industries that maybe they don't eat financial analysts, don't do it then, but to halfway do it ... It's like being halfway pregnant. It's not a thing.
Josh Itzoe: That's fascinating. That is interesting.
As I said, I'll put in the show notes a link, but I'd encourage anybody listening to go check out some of the research you've done. I thought one of the really cool things that you did was to characterize people either dealing with financial stress or not, but this idea of those who were vulnerable, those who were susceptible, those who were determined, and ultimately those who were resilient. It seems like that's really what you're trying to drive to, is making people financially resilient, which I assume is the ability to withstand something like a COVID-19 financially.
Liz Davidson: Yes. Absolutely. Life happens, but you can't budget for the car breaking down or the roof leaking or, God, a once-in-a-century pandemic. But we know that life happens. Making sure your employees ... And it's not just an emergency fund. It's that they're appropriately insured, that they're not putting themselves at financial risk through their spending and borrowing habits. If you can do that, you're going to ... You'll still see employees have some degree of financial stress, and their financial wellness will oscillate a bit based on life circumstances, but it'll be much more bearable than those employees that really aren't resilient to begin with.
Josh Itzoe: One of the coolest things you recently rolled out ... I just read a press release that Ascensus has adopted ... is something you call AIMEE, which is artificial intelligence motivating employees everywhere. Could you talk a little bit about what that what that tool, what that resource, what that technology is and how it's being deployed to help employees?
Liz Davidson: Yeah, absolutely. One thing I will say is I myself have mixed feelings on AI, because it is an incredibly powerful tool, but it can be used for good or evil. You can use it to really, really target people and maybe get them to do things or spend money on things they might otherwise not do, because you have that machine-learning aspect and the system understands what's going to motivate them.
What we're doing is applying it very differently from a lot of organizations. They're using it to sell and saying, "Okay, how do we use AI to much better understand what someone needs before they may not even know they need it?" What do they need to become more financially well? What they need is not just this black-and-white analysis of they're missing this and this should be the next step. It's textured and nuanced, because sometimes having a small win that may not be the most ... A financial planner could look at it and say, for example, "The highest interest rate first should always be how you pay down your debt." Numbers wise, absolutely. However, if someone does not feel they have a lot of financial autonomy and efficacy or a sense of self-efficacy, paying down their lowest balance and just getting rid of a card can really get them in the right frame of mind to continue the progress.
You can apply that as well to everything from understanding life events they're going through and serving up content when they need it to understanding how they learn. Is this someone where working with a coach on a regular basis is going to really make the biggest difference, or are they more independent, like us entrepreneurial, "Hey, I'll call you when I need you," but "I want to do myself and feel like I'm driving"?
What AIMEE does is really, at a very deep level, has a conversation, and then I would say it's a continuing conversation, with an employee digitally that really gets to a point of understanding who they are and what they need and what is going to be the best user experience for them based on all of that, because we're all individual. Behavioral finance—
Josh Itzoe: In a lot of ways ... It's a personalization engine in some ways that's using machine-learning to drive personalization on an individual-by-individual basis in terms of what they need but also how they're most likely to act on whatever is being presented to them.
Liz Davidson: Exactly. As you can imagine, having these certified financial planners as financial coaches, and this is their livelihood, when I first announced AIMEE, it was a little bit like "I need to worry about job security." The answer is absolutely not. The very best thing, the combination of tech and this high touch, is what works the best. Some people are going to gravitate ... And some of it's situational. If I'm in serious financial problems, I don't want to deal with a computer or an app. I want someone that's more of a mentor, coach, therapist that I can really unload on and work through things and feel like I'm getting the exact right attention and hand-holding for my situation. If I want to make an election around a specific benefit that's relatively straightforward, I might not want a coach. No one calls ... Very few people call the airline reservation number.
Josh Itzoe: I did that yesterday. It took me 35 minutes to change a reservation. I was going crazy.
Liz Davidson: But if we're planning a trip, we tend to sit down with our spouse. You review things. It's an intensive process.
What we see is that it really is the combination that's very individualized and circumstantial. Our fastest growing user base for phone-based coaching is millennials and gen Z, because they're new to all this and they're looking for that mentorship. As much as the stereotype is "They'll only use an app," absolutely, to make quick decisions, they want to use an app. They do not want to use the phone. However, when it comes to really life decisions, they do want that mentorship and someone they can trust who's on their side and going to celebrate their victories with them and hold them accountable.
Josh Itzoe: In that survey I referenced earlier, what was interesting, and this was shocking to me, was that what I call early career employees that were between 18 and 34. They, based on their responses, were most likely to want to reach out to someone in person to get one-on-one coaching and advice, which was interesting, because we always hear about these digital natives and they've grown up and all they want to do is interact through apps and technology. The data I think, based on what you're talking about and what I've seen in my own research, is it's actually different than that.
Is AIMEE something that can only ... Ascensus recently announcing the availability of it to I don't know if all of their clients or just a subset of their clients ... How are you guys deploying that? Are you doing that through this enterprise, intermediary group of partners you have as well?
Liz Davidson: Ascensus is providing it for every single participant in the Ascensus-branded plans, and then it's available to their partners and has some good adoption with several of the firms they do the recordkeeping for, but they're making that investment, which is a trend that we're seeing. I hate the term table stakes, but I don't know a better way to say it, that financial wellness, the expectation is more and more that, at the record keeper level, at the benefits broker level, even at the wealth management level, that financial wellness is baked in to the offering. It's a differentiator if you have really good financial wellness, but something needs to be available across the board to everyone. Ideally, that's very personalized and very oriented towards changing behavior.
In terms of the enterprises, what we're seeing ... There's that whole growth paradigm between the early adopters and the late adopters and the curve in the middle where you have a few firms that I expect are going to be making very large investments in financial wellness and will lead the rest of the industry forward. I think these investments will be one of the most, and obviously I have a bias here, but one of the most important things they do now for their future five, ten-plus years from now, and those firms I think will be the firms that grow the fastest and win the trust of the participant in a way that really differentiates them and enables them not to compete as much on fees or plan design exclusively but outcomes and what they are able to do to support the financial security of as many participants as possible, because, at the end of the day, that's why all these programs exist. That's why you have a retirement plan. That's why you have benefits, is to drive financial security for employees.
Josh Itzoe: What kind of engagement ... Then I want to I want to wrap up just talking, building upon what you just mentioned as we wrap. What type of engagement rates do you typically see for companies? Because I think historically one of the challenges wellness the way it's often delivered is utilization rates are pretty low. What do you see within your client base in terms of engagement by employees?
Liz Davidson: It's so variable. What I will say is a couple of things. When you have a firm that's deeply committed, even when they're really large, and it is harder at the larger company percentage wise, just because it's so dispersed, at about the five-year mark, you typically have the majority of employees engaging on an ongoing basis, but it's starts considerably lower and it builds. It's very much a marathon, not a sprint. A lot of services that you roll out to employees have a big launch, and then they deteriorate. You can have a nice lunch with wellness, but it takes time for employees to be really comfortable. There's still a little bit of taboo associated with it. It takes that word of mouth. It takes really making it part of your culture. It takes time to fully integrate it into your benefits ecosystem, into your wellness program, into new employee orientation, into exits in terms of retirement exits so that employers get smarter over time and start to see more and more opportunities to embed it.
The employees, the word of mouth ... I can't tell you the number of employers that have the ability on their intranet sites for employees to comment on different programs. In many cases, these are moderated, but there's this internal social media aspect, which, if you have some really, really happy participants engaged in financial wellness that have made changes and are sharing stories, it propels things forward. It's almost like going viral within a company.
Josh Itzoe: I tell my kids ... I've got four kids 15 and under, and I tell them all the time, "It's not how you start. It's how you finish." You want start well, but it's more important to finish well.
Liz Davidson: Absolutely. It's not how many times you fall. It's getting up more times than you thought. It's not a linear thing. Actually, I will say over time it's relatively linear that the programs are much more widely utilized, but, in terms of individuals, we all have setbacks, whether it's something happens to us or just us falling into old habits, but that's part of the process. That's part of being human, is just going, "Okay, what can I learn from this? Over time, how can I become financially stronger?" Similar to your health or your relationships, you want to do better over time, and, like you said, it's how you finish.
Josh Itzoe: There's the resilience aspect that you talked about. That is really what I think it boils down to, is setbacks are part of the human condition, but the ability to rebound or to be resilient, to withstand those things and not get knocked out of the game, is what's so crucial.
Liz Davidson: Absolutely.
Josh Itzoe: Last quick little topic, ad then we'll, we'll we'll wrap. Obviously, you're working with I think larger plans, at least in the customer, the direct model, not the enterprise. But what's just your general take? You're seeing a lot of the record keepers now that are getting into wellness, and they've got huge technology budgets. Then you you saw Empower buy Personal Capital a year and a half ago or so for a billion dollars. I just read an article where Fidelity is hiring like a thousand CFPs. They've made a huge investment in tech. You've got some of these providers that are like an Ascensus, saying, "Hey, we're going to partner with Financial Finesse to be able to deliver this experience".
Then you've got other record keepers who are trying to own ... They've been locked out I'd say over the past 10 or 15 years. They've been locked out from the asset management game that was so lucrative for so long, but this move towards passive investing and the elimination of revenue sharing ... They've gotten locked out. You're seeing a lot of larger record-keepers now that are trying to get back in the game through wellness and to own really the participant experience, which can create some challenges if they're using it really as a beachhead to cross-sell other products, other services.
What's your take on just how the industry's evolving from that perspective? What would you tell advisors to be on the lookout for and employers as well when it comes to larger record keepers that are trying to build these in-house solutions?
Liz Davidson: I think this is where it comes back to defining what financial wellness is, both from an individual perspective as well as something that employers, whether through record keepers, benefits, consultants, firms like ours, can offer. We're seeing really across board, and it's happening quite quickly, the industry, in terms of HR and benefits professionals, really galvanizing around this concept of financial wellness is a separate industry. It is an industry that's best delivered without conflicts of interest, focused on the needs of the participant backwards as opposed to having employees be a sales channels.
What I love about Ascensus is, as you know, they're completely independent. They don't have proprietary funds. Their value is in their independence. I think, through the partnership with Financial Finesse, they're very aligned with where HR and benefits is going, which is "We don't want these conflicts of interests. We don't want the liability associated with cross-selling or recommending or channeling employees into products and services with affiliates where you're getting commissions, but maybe that isn't the best product or service for the employee and the legal implications that could happen."
Obviously, again, I'm not unbiased about unbiased financial wellness. I obviously have a very strong perspective, which is why I started this company. But I really think it does need to be delivered in a way that is conflict free.
Now, you are seeing a lot of firms starting to realize this and figuring out how do we combine maybe what we're doing with advice with financial wellness in a way that works. We completely understand why advisors are record keepers, but especially advisors would want to own the participant experience. In many cases, what we're doing is an intel inside strategy where they're leveraging our platform. They're leveraging AIMEE and our coaching line but folding that into their overall model. It's still their program powered by Financial Finesse, which I think is a win for everyone.
Josh Itzoe: I think that's I think that's a great description. I love the intel inside model, which you become more of a platform at that point, which is probably why you're the growth on the enterprise channel that you guys have developed over the past few years.
Last two questions. Number one, I ask this generally of everybody: the whole purpose of this podcast is to make ERISA fiduciary smarter. What would be your single best piece of advice for a ERISA plan fiduciaries that are thinking about wellness?
Liz Davidson: It is seeing it as part of the service offering, part of the considerations. When you're a fiduciary, at the end of the day the spirit is to operate obviously in the best interest of the participants. This is a big missing piece of the puzzle. Providing financial wellness the right way is absolutely in the best interest of the participants. I think there's a shift going on that we'll only see accelerating where you should have a financial wellness strategy. Whether that is a partnership you have or several partnerships with different firms or you're operating as the consultant bringing on the right financial wellness firm for the employer or it's your offering powered by a Financial Finesse or another firm with similar capabilities, it has to be much more part of the process as opposed to "This employer's inquiring about it, so I'm going to add it, because they seem to be very invested in it." They should be bringing financial wellness to the attention of employers, rather than waiting for employers to say, "What are you doing in this area?"
Josh Itzoe: Great advice. And where can people go to connect with you or follow you or see what you're up to or what Financial Finesse is up to?
Liz Davidson: Any of our social media, LinkedIn. I don't know all of our different handles, but we're on LinkedIn and Twitter. You can reach out to firstname.lastname@example.org. I actually, to this day, get all of those emails. And you can certainly go to financialfinesse.com. Then, of course, I know there's going to be show notes as well.
Josh Itzoe: I'll make sure to put all those different kinds of resources for people to connect with you that want to learn more.
We extended our time a little bit, but it's an awesome discussion. I would just say that I love the story of Financial Finesse. I love what you guys are doing. I wish you continued success and just really appreciate you spending time with me today. I know the audience will take a lot away from it.
Liz Davidson: Absolutely. It was fun. Thank you.
Josh Itzoe: Thanks.
Josh Itzoe: Thanks for listening to today's episode with Liz Davidson from Financial Finesse. If you'd like more information or to learn more, go to fiduciaryu.com, I've got some great resources there for you, including each episode, along with show notes, articles, and free tools. Make sure to sign up on the site so we can stay connected. I'd love to help you stay in the know about what's happening in the world of corporate retirement plans. If you've got questions you'd like me to answer, topics you'd like me to discuss, guests you think would be a good for the show, or any other feedback, I'd love to hear from you. Also, head over to Amazon and check out my two books, the Fiduciary Formula and Fixing the 401k. If you want an easy way to support the show, I really appreciate you leaving a review on Apple Podcasts. It's the best way to help other people find the show, and I read each one. Until next time. Thanks again for listening to the Fiduciary U™ Podcast.
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