Morningstar Acquires HelloWallet

Looking AheadLast week Morningstar acquired HelloWallet, a provider of employee financial wellness software, in a deal that for the most part passed under the radar with the exception of a few industry articles that I saw. While not generating a great deal of buzz, I wonder if the acquisition is an early signal in a monumental shift that will soon come to employer-sponsored retirement plans. The shift I am describing is one where employee education becomes recordkeeper agnostic, personalized to the individual, and comprehensive in scope.

For those of you that don’t know, HelloWallet uses account aggregation software to consolidate employees’ financial data and then provides advice to improve the financial wellness of employees. While touching on retirement plan accounts, the software also provides guidance on bank fees, health care savings, and debt levels. To date it has found a narrow niche in larger, progressive employers that are focused on the financial health of their employees.

To better understand the shift that I think is approaching, it is important to understand the current state of retirement plan employee engagement. Since the advent of daily valuation and participant websites, the focus for most recordkeepers has been in the development of online tools and calculators that enabled participants to input their personal data to model financial scenarios such as retirement forecasting, income planning, and ideal savings rates, etc. While these are nifty features, you would be hard-pressed to find someone who thinks these tools have achieved widespread adoption or had a meaningful impact on employees achieving a successful retirement outcome.

During this same period we have seen most recordkeeping providers develop their own proprietary managed account solution or partner with independent third-party managed account providers such as Morningstar or Financial Engines. Managed account products are software driven investment advice platforms that use personal employee data to create customized portfolios for the employee using the funds available within the retirement plan investment menu. While there are some notable successes with managed account platforms, in many cases they have been hampered by high fees and limited employee engagement.

For the most part current employee engagement programs fail because they rely almost exclusively on a pull-model of service where the employee has to initiate the process (completing a retirement calculator or opting into a managed account) and because they focus on the highest order impacts of a successful retirement, such as portfolio management, without addressing the basic challenges that many employees have managing personal expenses, debt levels, and savings levels.

Proof of the failure of this approach is the increased focus on “auto” policies such as auto-enrollment, auto-escalation, and qualified default investment alternatives (QDIAs). The shift to auto policies is encouraging but it is also somewhat limited because it relies on a one-size-fits-all approach. Given the capabilities of the current technology landscape there should be a way to implement policies that take advantage of participants’ behavioral biases while also personalizing the approach in a way that will improve adoption and engagement from employees.

The combination of Morningstar and HelloWallet is interesting because it combines the services of a leading managed account provider (Morningstar) with HelloWallet’s unique software focused on employees’ total financial health. It is a potentially disruptive combination that impacts the services provided by recordkeeping vendors and the way that employer plan sponsors view employee engagement.

In our consulting practice we are seeing a meaningful shift in how employers view their retirement plan. Historically, the focus has been on minimizing fiduciary liability while delegating as much responsibility to participants as is feasible. There continues to be a desire to minimize fiduciary liability but there is a greater interest in helping participants be financially secure and achieve successful retirement outcomes.

Solutions that address employee financial wellness in a broader context fit well within the emerging pattern of employer-paternalism. The launch of viable solutions that are able to demonstrate success in helping employees provides better options for employers that want to have a positive impact on their employees.

For recordkeeping vendors, the threat is real. A shift by employers to third-party solutions for employee engagement will only serve to further commoditize an industry that has faced considerable pricing pressure over the past few years. Recordkeepers are going to face increased demands from employees to offer better solutions and to demonstrate that those solutions generate measurable results. To do so they are going to have to re-orient their service model and build trust with their clients where it is frequently lacking because of historically opaque pricing models and heavy reliance on proprietary investment options that are viewed as self-serving.

Comment On This Article