Although not really understood in the UK, personal financial management services like those from On Trees have had a dramatic impact on how consumers take control of their money elsewhere in the world. Probably the highest profile example of this in the corporate arena is Hello Wallet.
The battle for consumers of the next generation of financial advice will be fought on mobile devices. It is not insignificant that On Trees has regularly been the number one finance app in the Apple App store on a number of occasions in the last twelve months.
Experiences from these services internationally should provide useful insight into how the pension community can help members with addressing the affordability of auto enrolment. Just because there is no affordability test does not mean such contributions will not put pressure on the income and expenditure of those being enrolled. Large numbers of those joining schemes are entering into their first long term savings arrangement.
If they find the cost too great there must be a significant risk of opt outs. If we can give auto enrollers the tools to help them take more control of their money, the industry could also safeguard its own interests by improving the persistency of contributions.
Hello Wallet give away one licence for their software to someone who cannot afford it for every four they sell as part of the social contribution this organisation is making to society. This also gives them huge insight into how lower income consumers manage their money.
The UK savings community could of course decide to leave it up to services like Moneysupermarket to deliver such help and assistance to consumers, but is that not abrogating responsibility for something we should in fact embrace? From an employee benefits perspective what can be of more value to employers than services that actually help their employees stretch the value of the pay they receive? In our work internationally, F&TRC have seen many examples where the cost of an employer providing such services can be entirely self-funding in terms of both helping employees better manage their finances and improving productivity.
Americans generally refer to these services as ‘financial wellness’ and they are an increasing part of the employee benefits market. That term probably will not translate too well into the UK market, so we tend to refer to such arrangements as digital financial health services.
Just having a personal financial management (PFM) module doesn’t deliver value. Our experience monitoring this market makes it very clear that it’s not about having PFM but how you execute it. On average PFM implementations only achieve around 7 per cent adoption and use can trail off dramatically after the first three months.
Conversely best practice can result in as many as 50 per cent of a target customer base using such tools. In the best examples I have come across its not unusual for customers to use such services every other day. There are a wide range of factors that are crucial to successful implementation and long-term adoption. How valuable is it for an organisation building trust and brand loyalty to provide a service its users touch at least every other day? My own experience of On Trees has been that it is not the most user friendly of aggregation services. That said, I do not believe it is a good move for the industry to give MoneySupermarket a head start in targeting such services at consumers.
In my experience the UK corporate advice market generally and particularly the pension provider community is complacent about the impact of aggregation and the potential to provide financial guidance to employees. This simply does not make sense. Research by Hello Wallet found users of budgeting services typically hold over twice as much money in their DC pension and over all have over twice the median level of net worth.
I have not seen any UK pension provider produce services on a par with those readily available in the US. Indeed in the advice market Lorica is the only organisation I have seen come up with something remotely approaching US financial wellness capability. It would be understandable if this technology had been a major driver in their recent acquisition by Aon.
Although On Trees will need work, the timescale within which providers and advisers engaged in the corporate pensions market need to develop digital financial help solutions just became a whole lot shorter. Failure to act now could see Moneysupermarket hoover up the end consumer relationship with many of the auto enrolment customers who the community see as a key part of their long-term future.