Consumer Research


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The Enrollment Challenge

Retirement readiness decisions are a daunting task for most employees. According to a 2012 Participant Engagement Study conducted by Lincoln Financial:

  • 41 percent of employees are only somewhat engaged or fully disengaged from any retirement plan
  •  7 percent of employees only are fully engaged and interact with their retirement plan on a regular basis.

Plan communication and education can provide people with the financial knowledge needed to better understand their employee benefits and make better enrollment decisions to achieve better outcomes.

Communication Is Key

The U.S. Employee Benefits Security Administration’s ERISA Advisory Council published a key report in 2010 on how plan communication practices and design options impact participation and contribution rates. They researched strategies for tailoring communications to different subgroups of employees through direct communication, and their effectiveness in influencing participants of diverse demographic market segments, including segments categorized by income level, household status, generation, gender, and ethnicity.

The report then provided recommendations of best practices for enrollment that are statistically proven to be effective, including education to plan sponsors on specific proven techniques and communication practices. In evaluating what communication methods are most effective in encouraging participants to save for retirement, the following considerations were made:

  • Cost: an effort was made to balance the need for comprehensive plan communications against cost.
  • Delivery: A variety of methods were explored including the use of current and emerging social media.
  • Plan Design: The study reviewed how plan designs relate to increasing participant enrollment and savings. In particular, the Council studied the use of automatic features. Automatic enrollment plans automatically choose the employees’ contribution percentage and enroll the participant in an investment vehicle. This raises participation rates to close to 90 percent. However employees enrolled at low contribution rates of 3% or less tend not to deeply consider or increase their contributions.

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9 Recommendations and Best Practices

The Council found that effective plan communication and education can provide people with the financial knowledge needed to understand their employee benefits, make better financial decisions, and achieve better outcomes.

Given that the most successful plan communications make use of many channels from print to external websites, online tools, social media, and creative marketing, the Council highlighted best practices that balance personalized, targeted content to help employees evaluate benefit offerings with cost efficiency. They highlighted specific techniques and communication practices that have been statistically proven to be effective in increasing the involvement of employees in saving for retirement. The following are 9 recommendations:

  1. Communications tailored to particular segments drive results
  2. One-on-one or small group meetings increase participation
  3. Immediate “on the spot” communication is most effective
  4. Short, simple and focused communication drives participant response
  5. Multiple “touches” with various creative formats increase participation
  6. Increased technology use is effective and cost efficient
  7. Behavioral economics and “social norming” can increase participant involvement and savings
  8. Incentives given by sponsors and “gamification” help trigger participant involvement
  9. Responsive marketing principles may assist plan sponsors in improving communications

Here is a brief synopsis of these 9 practical recommendations and some best practices:

1. Communications Tailored to Particular Segments 

tailored-skill-development-imageThe Council found that communications that target participants based on their interests, background, and/or economic status were more successful than the “one size fits all” approach.

Understanding the culture and background of the workforce being targeted is key. For instance, since Hispanics will soon constitute one-third of the US population, Council member Donna MacFarland of Lincoln Financial Group stated that in her experience education materials typically are translated from English to Spanish, whereas she recommended that sponsors design the material using the reverse approach, developing  materials first in Spanish to address specific cultural needs and language differences.

Human Resource professionals also have found that allowing employees to map out an action plan rooted in realistic scenarios is an extremely effective tool. Some plan sponsors have successfully used a “three-pronged” approach to reach out to their participants by combining simple income replacement projections, behavioral finance strategies and a personalized message. For example, JP Morgan developed 36 different personas based on three age groups (younger than age 30, age 30-50 and older than 50). The firm also targeted participants based upon their regional median income (e.g., Kansas’ median income is $30,000 while in New York City it is $70,000). The basis for this approach was to enable these groups to compare themselves against their peers and take the appropriate action toward saving for retirement.

By narrowly tailoring their target audience on behalf of the plan sponsors that retained them, JP Morgan subsequently monitored whether employees opened their email communications and took action toward saving for retirement. If the individual took action, that person was considered “active,” while someone who opened the email but did not take action was considered “interested.” Based upon the action taken by the individual, the participant received specifically targeted information. This technique resulted in three to four times the response rate of participants who were not targeted.

However, some witnesses advised that there is a general concern regarding the use of targeted communications because complex data collection may provide gender or ethnic identification. Thus, there is concern over whether specific segments identified based upon race or gender could raise discrimination or deferential treatment issues. The Council heard testimony from Donna MacFarland of Lincoln Financial and Thomas Ryan of Fidelity that the use of particularly sensitive demographic information causes concern among plan sponsors. There are also practical concerns about housing information technology. Nevertheless, the overwhelming opinion received during testimony was that targeted communications work.

Branding helps targeting through the use of communications that include a unique positive image that is the group can relate to.

Here are some best practices of participant-centric communication methods:

  • Best Practice 1 – The Power of Example: Trustees of the Elevator Constructors 401(k) Plan used materials featuring the story of three employees who made different savings decisions during their careers. The narrative of the three employees was used throughout one-on-one sessions with printed materials to demonstrate how a 401(k) contribution would benefit participants in a variety of circumstances including temporary layoffs, hardships and early retirement. As a result, plan participation rates increased from 26.56 percent to 29.82 percent in 2011. The plan also experienced an 85 percent increase in plan activity from meeting attendees.
  • Best Practice 2 – Employer/Employee-Centric Content: M.A. Mortenson Company, an international construction firm, employed construction-related themes in its financial education to engage participants and foster pride in the company. Financial education was made mandatory and workshops were divided by career stage, age, and gender. The plan sponsor focused on participants’ preferences by surveying them after the workshop and making recommendations based on their feedback to yield desired results.
  • Best Practice 3 – Bilingual: Consolidated Citrus Limited Partners wanted to 1) increase attendance at plan educational meetings, 2) increase plan participation, 3) increase deferral rates and 4 encourage participants to maximize their match. Ninety percent of the workers spoke only Spanish, and the majority of their day was spent in the orange groves. An in-language campaign was initiated. The company’s Spanish speaking leaders met with small groups in the orange groves. Straightforward collateral in both Spanish and English Collateral were available on site, including announcement posters. By bringing the meetings to the employees, 95 percent of the targeted group attended the meetings. Plan participation increased from 40 percent to 75 percent and deferrals expanded from 4 percent to 8 percent.
  • Best Practice 4 – Branding: The Animation Guild 401(k) Plan was implemented for artists working at Southern California animation studios. The sponsors worked with the Guild’s representatives to obtain insights and develop a branded communication urging participants to remember to enroll. The response rate increased over eight percent from the previous year, with 135 new enrollees. Another employer cited in the research increased participation by 30 percent by keeping the message fun, simple and “cool” to target younger workers.
  • Best Practice 5 – Multicultural: The Four Seasons 401(k) Plan needed to convey an important plan change to an employer profit sharing employer matching contribution. The sponsor obtained feedback from bilingual meeting presenters in designing the campaign, and provided materials tailored to Hispanics and presentations also were created in Spanish designed to be culturally and linguistically accurate. As a result, the average deferral rate of the targeted group rose from 2.9 percent to 5 percent, and significantly increased beneficiary designations.

2. One-on-One or Small Group Meetings 

OneonOneAfter a study by Lincoln Financial found that 66% of participants prefer one-on-one guidance, Lincoln made it a component of its financial education model. They found that the need for individualized information is particularly acute for groups with low participation rates, including women and minorities.  Various studies have shown good enrollment and contribution results when employees request in-person group workshops facilitated by financial experts.

  • Best Practice for One-on-One Meetings:In 2012, MassMutual representatives spoke with 150,000 employees in face-to-face meetings. Forty-six percent of these individuals took action to improve their retirement readiness and, in one-on-one meetings, 75 percent of employees took action.
  • Best Practice for Small Group Meetings: Costs and timing may prevent plan sponsors from providing one-on-one meetings, but small group meetings and audience segmentation have also been successful. The FINRA funded Nurses Investor Education Project had small group meetings for well-educated nurses interested in taking action toward their retirement. They found that generally, the nurses’ lack of basic knowledge, or their perception that they did not know enough to attend these sessions, prevented them from attending their plan sponsor’s meetings. As a result of using small group meetings as a forum, the nurses perceptions changed and attendance at their employer’s retirement plan sessions improved.

3. Immediate “on the spot” Communication 

onthespotThe ability for participants to take action at the time they are thinking about retirement savings is more effective in increasing enrollment. For example, having computers in the room at the time employees are learning about the plan would allow them to sign up and take immediate action.

  • Best Practice: A US Army mandatory financial management course found that providing the enrollment forms for the Thrift Savings Plan during the financial management course resulted in a sizeable increase in participation, with soldiers signing up for the Plan before leaving the classroom.

4. Short, Simple, Focused Communication 

focusedBehavioral studies show that the most effective communications use simple, straightforward language specific to a participant’s personal situation.

  • Best Practice: Time constraints mean that any impediments to action should be identified and mitigated. For example, on a website, any extra step, such as the need to retrieve a PIN, may prevent employees from taking action. Solutions include sending the PIN directly to their email account or a mobile number, or mailing a postcard with the website’s uniform resource locator (URL).

5. Multiple Touches With Various Creative Formats 

profileConsistent, continuous and on-going meaningful communication can be achieved by repeatedly sending out simplified mailings. Social media can help alleviate the cost of additional touch points, and yet, few companies use social media channels for retirement information.

  • Best Practice: The Council’s Professor Madrian cites a company in which the third mailing of a simplified reply form requiring the checking of a box to enroll doubled enrollment from 22 percent to 45 percent of non-participating employees.

6. Cost Effective Technology 

advancement-of-technologyEvery demographic group is now using the Internet as a preferred source of information, via home computer or mobile devices. In addition, electronic media provides the ability to track responses, which is unavailable when the communication is sent through printed materials and regular mail. Another cost effective technological advance is Dynamic Page Publishing,  reviewed at the conclusion of this article.

A Deloitte study in 2012 that found:

  • 93 percent of Americans place Internet access as the most valued household subscription;
  • 54 percent of Americans own smartphones, and the rate is increasing 29 percent annually.
  • One of three Americans over age 50 has downloaded an application to a smartphone, and 28 percent access their bank accounts via smartphone.

Engaging Millennials: Electronic media is the most effective method of communication to engage younger generations in retirement planning, including Generation X (born between 1965 and 1979).  In order to combat inertia caused by competing financial priorities, such as student loan debt, it is important for this group to be engaged through “YouTube” videos, Facebook forums, Twitter, email and mobile delivery, including providing “one click” transactions and incorporating elements of “gamification.”   Millennials also demand simple, personalized, and action-oriented communications, and prefer human contact for complex tasks.

  • Best Practice – Email: Thomas Ryan of Fidelity Investments testified to the Council that Fidelity makes all channels of communication accessible, and finds that email communications have generated higher response rates than direct mail.
  • Best Practices for Engaging Millennials – Fidelity: Fidelity has studied the preferences of Generation Y, or “Millennials”  for using electronic communication, and found that this group tends to rely heavily on the Internet to interact with representatives from Fidelity, although they appear to be the least engaged when it comes to the frequency of contact. Millennials serviced by Fidelity have the lowest 401(k) participation rate, at 58 percent, compared to 67 percent for all other populations. Design changes made to simplify online interaction with Millennials resulted in a 40 percent increase in web utilization by this group.
  • Best Practices for Engaging Millennials – Putnam: Lori Lucas of Callan Associates discussed Putnam’s roll out of a plan primarily for Millennials that encouraged participants to bring their tablets to an nteractive meeting to log on to the benefits website. As a result, 40 percent of attendees increased their deferrals within 90 days after attending the meeting.
  • Best Practices for Engaging Millennials – MassMutual:: Offering enrollment and savings increases using iPod Touch devices in group meetings resulted in action rates of 85 – 90 percent among those attending. The use of targeted and tested mail and email campaigns resulted in $150 million in new deposits over three years and a 3.9 percent increase in action rates.

7. Behavioral Economics and “Social Norming” 

choiceThe way certain information is presented can have a resounding impact, including the way choices are presented to the participant, a method referred to as “anchoring”

Presenting options in a different order or with a higher default percentage has increased deferral rates. While communications traditionally list contribution percentages in ascending order from one to five percent, studies have shown that reversing this order so that the first option shown is five percent markedly increases enrollment in the five percent option. This method is referred to as “placement.”

 “Social Norming” reflects the fact that people tend to benchmark themselves against their peers. Statistics from the Bureau of Labor Statistics show that participants tacitly compete against peers in similar socioeconomic conditions.

8. Incentives and “Gamification” 

carrotThe use of games (gamification) is an effective tool in reaching  individuals who may not be easily engaged in retirement decisions (“non-savers”). Gamification can be used to reward people if they engage in the correct behaviors. Plan sponsors may also use incentives to provide rewards to participants with who exceed a certain benchmark contribution amount. Other techniques include raffles.

  • Best Practice 1: The NFL’s “Play 60” campaign  incorporates the use of the NFL brand to incentivize children to play a game for at least 60 minutes a day.
  • Best Practice 2: A rug manufacturer in northern Georgia had a series of meetings for people working multiple shifts, giving away lottery tickets to encourage attendance, and experienced standing room only for the meetings.

9. Six Marketing Principles Improve Communications

Communications that are uninspiring and difficult to undmarketing-300x200erstand leave employees confused, bored and unmotivated. The communicator’s “curse of knowledge” is a bias in which the communicator’s knowledgeability makes it difficult to demonstrate it from the perspective of lesser-informed people. The Council highlighted six principles of communication that plan sponsors should consider when drafting documents or presenting to their participants that will inspire action:

1. Show Empathy

empathyTo  determine the relevance of a message to an audience, it is necessary to engage them and ask questions that the content of the presentation or the communication should then be tailored to answer. For example, an energy company developed a program to help consumers understand and lower their energy bills, using this computerized question:

Can I help you with your bill?

  1. Yes, help me understand my bill.
  2. Help me save money.
  3. Both of the Above.
  4. I’m Here for Something Else.

By showing empathy to what the consumer cared about and giving information and tips to help them feel more in control, these questions presented helped raise consumer satisfaction.

2. Use Metaphors and Analogies

analogCommunications also reference a metaphor or visual picture to help the recipient relate to the message. For example, when Ridley Scott presented the screenplay for Alien to his producers he used the popular movie Jaws as a reference, and the metaphor “it’s like Jaws in space,” to frame a concept that the producers easily understood

3. Use Storytelling

icon-storytellingPeople tend to forget facts that are presented but usually remember a story. Stories are easy to absorb when people are overwhelmed with information. They also eliminate extraneous facts to capture the recipient’s interest and relate to him on an emotional level.

4. Use a Conversational Voice

conversationalUsing overly technical information, compliance or legal jargon can loose an audience. For example, it is difficult to convey the benefit of voluntary life insurance individual and spouse buy-up options in which election of coverage for a spouse can equal up to half an individual’s buy-up,  depending on the desired level of coverage. An effective way of communicating this is as follows:

“The company is going to buy life insurance for you. If you want, you can buy extra life insurance. Whatever extra life insurance you buy for yourself, you can also buy up to half that amount for your spouse. Now, depending on how much additional insurance you’d like, one or both of you may need to answer some questions about your health to see if you qualify for it.”

5. Surprise the Recipient

boxing-glove-surpriseUnexpected methods of engaging the recipient get the individual’s attention when a subject is ordinarily challenging and abstract. The use of humor, as shown below, can be considered an example.

6. Use Humor

humorUsing a little humor in the message will keep the audience engaged and make the message easier for audiences to relate to.

 

Plan Design Considerationsicon-design

Automatic Enrollment

A study by Brigitte Madrian and Dennis Shea shows that automatic enrollment increases average participation rates from 65 percent to 85 percent. It is particularly helpful for low-income workers with annual wages under $20,000, where participation increased from 27 percent to 82 percent. Average participation for employees under age 30 doubled from 41 percent to 82 percent, and the best improvements have been among the segments that had the lowest participation rates.  This was corroborated in as presented in the testimony of Lori Lucas.

Mandatory Contributions and Automatic Escalation

Defaults that are too low can  impact workers who would otherwise have contributed more. Since studies have shown higher default contribution rates have not increased opt-out rates, employers should consider recommending higher default contribution rates.

One solution is a stretch match (increasing the maximum amount of pay that can be matched and decreasing the percent matched, to keep the employer’s costs flat.

Another way to increase savings is automatic escalation in which sponsors automatically increase a worker’s contribution rate by one to two percent  of salary at each pay anniversary until a cap, such as 12 percent of pay.

Best Practice – TIAA-CREF: David Richardson of TIAA-CREF found that 403(b) plans typically have much higher contribution rates, ranging from 10 percent to 15 percent of pay compared to 5 percent to 7percent for all 401(k) plans, due to mandatory contributions from both employers and employees as a requirement of employment.  The 403(b) plans TIAA-CREF administers experience much higher annuitization rates — 40 percent compared to 4 percent for all 401(k) plans.

 Conclusions and Implications

red pencilThe Council found that continuous, simplified, personalized communication using multiple channels, connected with humor and empathy, are effective ways to communicate with plan participants to encourage participant engagement.

Benefit Program Marketers seeking to increase employee plan participation need to be more flexible, customizable and responsive than ever to introduce, present, promote and clarify the particular offerings and choices the employer has agreed to sponsor. Dynamic Publishing platforms are becoming a key tool in executing this strategy DPP is a way of designing publications in which layout templates are created which can contain different content in different publications. In cases where the same content is being used in multiple layouts, the same layout is being used for several different sets of content, or both, dynamic page publishing can offer significant advantages of efficiency over a traditional system of page-by-page design. Future articles will explore Dynamic Publishing in greater depth.

Related Blog Article:

By guest blogger, Mark Weishaar
 
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Today’s smart, marketing-focused organizations realize the value of communicating with their customers using the channel of their customers’ preference. More and more, that preference is mobile.

It’s commonly reported that over 87% of Americans (90% of Canadians) own a cell phone, and most of them won’t leave home without it. For many, checking their mobile device is the last thing they do at night and the first thing they do in the morning. Almost 80% of smartphone owners use their device more frequently today for mobile email and texting than to actually make phone calls. Mobile marketing is dominating the media landscape, and mobile users are lapping it up.

  • 82% agree it’s a good way to learn about new products and brands;
  • 80% believe it can influence them to investigate a product or service;
  • 71% accept that it can change the way they think about a product or service; and
  • 65% report that it has the power to influence them to BUY a product or service.

Given this proliferation and mainstream acceptance of technology solutions, one would think that insurance companies and financial services organizations would be among the first to provide their customers and prospects with cutting-edge, lightning-fast applications. But one would be quite wrong. The fact is, only about one-third of marketers report having a defined strategy for mobile marketing! And the insurance industry, in particular, is lagging at the back of the pack when it comes to offering engaging mobile experiences. This sector must explore mobile websites, mobile applications and SMS text messaging campaigns to effectively respond to emerging consumer behavior.

Maximize the efficiency of your Customer Service efforts

One of the easiest and highest-ROI considerations should be your company’s website. Google reports that a good 50% of mobile users become frustrated when they encounter a site that is not mobile-friendly. It seems unnecessary to say that annoying your clients, especially those who may be experiencing an emergency, is not very smart. A mobile application is essentially a tool to make it easy for your customers to connect with you. It can be fun and useful, informative and interactive; it can be a short-cut to service. A Customer Service-specific mobile app might feature

  • Talking to a live agent
  • Dealing with an accident on the spot
  • Requesting a live call-back
  • Filing and managing a claim

Implementing these mobile options can help reduce support costs and call center overhead, reduce customer churn and even increase customer lifetime value. An app can enhance brand advocacy and promote upsells and cross-sells. What’s best, all of these benefits are entirely measurable in terms of ROI.

Building a Useful Database

The success of a mobile marketing strategy is going to depend on the power of your database. No program is complete without an Acquisition Model to cost-effectively harvest and manipulate prospect information. An advertising plan combining online, SMS and traditional channels is vital to drive traffic and promote downloads of a mobile app, with a clearly defined conversion funnel from prospect to customer.

Growing Pains specific to Mobile Payments for Insurance and Banking

Although Juniper Research reports that mobile payments are expected to reach $630 BILLION by 2014, remittances such as insurance premiums are not included. The issue does not lie with the technology of the Mobile Application, but rather with the capabilities and guidelines of mobile carriers, such as AT&T, Verizon and Sprint, among others.

Bill-to-Carrier US Obstacles

  1. Each carrier must approve each program based on their own guidelines. They demand a 2-3 week beta test, during which they review an online-hosted version of each app for flow, usability, bugs, and terms of use acceptance.Your customers choose from among many Carriers, so you need to be compliant with all of them. The degree of speed, complexity and cooperation varies from one Operator to the next; they are however consistent in requiring 20-30% of each purchase amount.
  2. Operators are strict and favor big brands; legitimacy is important given the number of bill-to-carrier scams. As a alternative, they look for a guaranteed minimum of $50,000 in monthly bill-to-carrier revenue, proof that is often first generated in Canada or Europe.
  3. US Carriers prefer micropayments to the tune of $2. They are reluctant to approve monthly fees of $15 or $20 due to the higher risk of complaints or accidental enrollment by children.

Their preference for lower price points, non-recurring fees and virtual goods over outside services can all be hurdles for monthly insurance premium billing.

In addition to carrier complexities, success can depend on the various device operating systems. Currently, only Android supports bill-to-carrier within a native application. iOS will only use its IAP API (In-app purchase) using iTunes to make a purchase.

Retention and Loyalty – in a Mobile Environment

It is possible to truly integrate mobile into your existing strategy and better measure increased retention and loyalty from your customers. It’s all about convenience and real-time communication. Give them instant fingertip access to source and share critical data:

  • Review the latest product and service offerings
  • Manage personal “MyAccount” files on the go
  • Provide 24/7 emergency access to processes and forms on a handheld device
  • Enable immediate accident claims reporting and supporting photo uploads

These are just a few of the exciting, dynamic Mobile solutions that will propel your further differentiation from the competition – with measurable results.

Yet there are many complexities surrounding the development of mobile apps and mobile websites for insurance premium payment processing and lead generation. Any such strategy requires an in-depth understanding of the various Carriers, government regulations, operating systems, user demographics and data availability. This calls for the experienced insights of seasoned experts.

Today’s technology does not allow “catch-up” time. But it’s never too late to adjust your marketing focus onto those channels that are proven to build connections with your customers. They will reward you with interest, participation and brand loyalty.

Mark Weishaar is VP, Business Development with Direct Access Marketing, based in Burlington, Ontario, Canada and Philadelphia, PA.

 

financial literacy chart

A Huge Disconnect

Paula Vasan in Financial Planning magazine highlights a striking FINRA Investor Education Foundation report about consumer attitudes toward, and need for financial literacy. The findings show a huge disconnect between consumers’ perceptions vs. reality when it comes to financial planning:
  • 75% of Americans have “positive perceptions” of their own financial knowledge and math skills.
  • Yet just 14% were able to correctly answer five financial literacy questions compiled by FINRA’s investor education foundation.
These startling findings are based on surveys of more than 25,000 adults conducted across the US between 2012 and 2009, in which an online test was used to evaluate the financial knowledge of participants. You can view the full results of FINRA’s quiz here.

Who’s Most At Risk?

FINRA’s survey found that financial capability varies by geography and demographic groups:

Geographical Disparities: The Coastal States Do Better

  • Citizens of California, Massachusetts and New Jersey were the most financially capable, ranking in the top five in at least three of five measures of financial capability.
  • Mississippi was the least financially capable state, placing in the bottom five in four out of five measures, while Arkansas ranked in the bottom five in three out of five measures, and Kentucky ranked in the bottom five in two out of five measures.

Generational Disparities: Younger Americans at Risk

  • Younger Americans, especially those 34 and under, are more likely to show signs of financial stress, including taking a loan or hardship withdrawal from their retirement account or making late mortgage payments.
  • Younger Americans are more likely to have unpaid medical bills. The breakdown is as follows:
    • 31% of those aged 18-34.
    • 17% of those aged 55 or older.

Gender Disparities: Women at Risk

Other studies have shown women to be at risk.  A report by workplace financial education provider Financial Finesse, 2012 Gender Gap in Financial Literacy Researchshows women still lagging in in key areas of financial planning, and, further, the report identified that the gap between the genders is widening in nearly every area of financial planning.

A Widespread Societal Problem

Despite these disparities, the national averages show a serious across-the-board need for financial planning help.  Of the five basic financial literacy questions tested, the national average was just 2.88 correct answers.

  • Only 41% spend less than their income.
  • 26% report having unpaid medical bills.
  • 56% do not have sufficient savings to cover three months of unanticipated financial emergencies.
  • 34% paid only the minimum credit card payment during the past year.

Unfortunately, these are not isolated findings, but have been corroborated by numerous studies over the years. For instance:

  • A 2012, the SEC report on financial literacy concluded that “American investors lack essential knowledge of the most rudimentary financial concepts: inflation, bond prices, interest rates, mortgages, and risk.”
  • 69% of 1,664 participants in a 2010 Northwestern Mutual Life Insurance study to determine Americans’ general financial knowledge  failed the quiz.
  • In a 2008 study of high school seniors, only 36.2% knew that “retirement income provided by a company” is called a “pension.”
  • An Ariel study of 401(k) savings disparities found that African-American and Hispanic workers in the U.S. have lower 401(k) balances and participation rates than their white and Asian counterparts.

Serious Economic Implications

This paints a grim picture of the state of American financial literacy. The implications of the financial literacy disconnect are twofold:

  1. Consumers who are unable to understand their financial planning needs are unlikely to realize their full financial potential.
  2. An uneducated public lowers the bar for financial planners, leaving consumers at risk.

Ms. Vasan interviewed fiduciary advocate Ron Rhoades, program chair of the Alfred State Financial Planning Program. He emphasized the need for a strong fiduciary standard of conduct requiring planners to act in the best interests of the client. According to Mr. Rhoades:

Sadly, 80% or more of ‘financial advice’ and ‘investment advice’ provided today is not provided in the best interests of consumers, but rather is — often unknown to the consumer — designed to sell expensive investment products to unsuspecting consumers.

A 2009 National Financial Capability Study found that only 15% of respondents indicated that they had “checked an advisor’s background or credentials with a state or federal regulator, ” and an alarming 43% of investors in a 2007 MoneyTrack/IPT Investing Secrets Survey demonstrated a susceptibility to fraud.

An April 9, 2012 Op Ed by Time Business and Money titled Improving Financial Literacy is Essential to Our Nation’s Economic Health written by Roger W. Ferguson Jr., president and CEO of TIAA-CREF, and a former vice chairman of the U.S. Federal Reserve, sums it up well:

Why It Matters: People with low levels of financial literacy suffer from that lack of knowledge at every stage of their lives: Another study from the TIAA-CREF Institute shows that people with a high degree of financial literacy are more likely to plan for retirement, and that people who plan for retirement have more than double the wealth of people who don’t.

Conversely, people who have a lower degree of financial literacy tend to borrow more, accumulate less wealth, and pay more in fees related to financial products. They are less likely to invest, more likely to experience difficulty with debt, and less likely to know the terms of their mortgages and other loans. 

The cost of this financial ignorance is high, leading many people to incur avoidable charges and fees from things like making late credit card payments or paying only the minimum amount due, overspending their credit limit, and using cash advances.

Calling All Planners

Consumers Need Help: The problem is likely to become worse as Generations X and Y head into middle age. And the educational response has been negligible. 26 states have no financial literacy requirements at all in their K-12 education systems, and only four states require students to take a personal finance class in high school.

The Disconnect Makes Financial Planning a Hard Sell: A more complex financial environment coupled with an enormous disconnect between consumer needs and attitudes creates a huge challenge for financial planners. The services of Financial Planners are more needed than ever, but getting people to face these sensitive matters remains a hard sell.

What Planners Can Do: Given this disconnect, astute financial planners can help to bridge the gap between need and perception by offering to conduct financial planning classes at local schools, civic groups (like Lion’s and Rotary), local businesses and other public forums.

A Business Development Opportunity For Planners Too

Not only does this meet a vital need, but it provides invaluable opportunities for financial professionals to increase their business in the community. Financial literacy classes can help financial planners to :

  • Introduce and advertise their practice.
  • Differentiate themselves as credible, trusted professionals in a crowded field.
  • Network within community-based associations and organizations where they can increase their visibility, gain referrals, and become trusted, influential resources.

Financial literacy classes provide an entry point for planners to get involved with community organizations and expand their influence, and can open up opportunities that can lead to networking, referrals and sales, by:

  • Serving on organization committees.
  • Buying tickets or a table for their functions.
  • Buying adds in their programs.
  • Submitting an informational article to their newsletters.
  • Assisting in or sponsoring events.
A financial literacy program provides opportunities for planners to be seen as thought leaders and trusted resources, making organization members receptive to a request for a networking meeting or an appointment to explain the services they provide. At the same time, planners will gain great confidence that they are helping consumers to make better financial choices, starting with the choice to engage a trusted advisor for the support they need.

The Life Insurance Choice Dilemma

Too many choicesToday’s tumultuous economy and changing consumer attitudes make the life insurance purchase decision challenging. Both term (temporary) coverage and permanent coverage have their relative advantages and disadvantages. Here, in brief are the choices:

Term Life? This provides an affordable entry point, but  coverage is temporary. The cost of insurance increases over time as the insured’s life expectancy decreases, eventually making coverage less affordable.

Permanent Life?  Permanent policy options can be complex and confusing:

  • Whole Life provides protection to at least age 100, but tends to be more expensive, difficult to understand, and inflexible.
  • Variable Life allows for improved cash value potential, but exposes the buyer to market risk.
  • Universal Life is interest sensitive, and policies purchased during high interest rate periods  suffered adverse performance as rates declined.

What Consumers Want: Control, Clarity and Value

Life_chart

Given all these choices, how can consumers decide which product is best suited to their own needs, circumstances and priorities?

A recent study by LIMRA and LIFE Foundation  can help shed some light on consumer priorities. While individual circumstances will vary, the study shows that general consumer insurance buying patterns and  priorities have changed over the past 15 years.

The study’s  findings strongly suggest that life insurance shoppers, influenced largely by the internet, tend to seek these 3 things:

1. Control/Flexibility

  • 26% say they prefer to purchase life insurance by internet, mail or phone.
  • 64% still prefer to buy from an insurance or financial professional face to face (although this is down from 80% in 1996.)

2. Clarity/Simplicity

When asked what factors matter most to them in buying insurance, consumers cited:

  • #1: Understanding what they’re buying (36%.)
  • #2: Obtaining the proper coverage amount (22%.)

3. Affordability/Value

Although the cost of basic term life has fallen by about 50% over the past 10 years, consumers are still concerned about the price of coverage:

  • Cost is the top reason people give for not owning enough life insurance.
  • Men place value getting the best price more than women: 17% vs 11%.

And in the wake of the 2008 recession and the weak recovery, there is also increased sensitivity to risk and volatility, making the stability of guarantees more important.

How Guaranteed Universal Life Fits In

Responsive life insurance companies are addressing consumer demand for control, simplicity and value with a new generation of guaranteed Universal Life policies.  These new products are designed to meet consumers’ needs while overcoming the challenges that the older generation of Universal Life policies encountered. Here’s how:

1. Clarity/Simplicity: Universal Life (UL) is based on a comparatively simple and transparent design (as illustrated below). It provides a clever way to combining term life insurance with a saving plan:

  • a portion of your premium pays for the cost of insurance.
  • a portion is reserved as cash value that can be used in the future to reduce the cost of insurance and provide cash when you need it.

unilife

2. Control/Flexibility:

When times are hard, the cash accumulation fund provides a cushion that can allow you to skip premium payments, and when times are good, there is flexibility to increase your premium payments to enhance that savings element. You can decide how much of your premium dollars go to savings to generate more significant cash values that accrue tax deferred and can be used for contingencies such as:

  • Unpaid medical bills – Few people anticipate the need for additional money during a prolonged illness. Cash value in the policy can be withdrawn, or borrowed, to pay medical bills.
  • Higher education – College funds are built over a sustained period of disciplined saving. While funds are not accessible in the early years of the policy, cash values are available when children are ready for college.
  • Retirement supplement – Additional income during the retirement years can be helpful when other sources are not available.

It is possible to arrange to pay a premium for a certain number of years only – such as 10 or 15 years while still guaranteeing lifetime coverage. UL policies also allow for a choice among death benefit options: a Level Death Benefit, in which premiums and interest primarily increase the cash value, or Increasing Death Benefit, in which they are also used to increase the death benefit over time.

3. Affordability/Value: UL provides cost control and value in the following ways:

  • Affordability: While more expensive than term life insurance, UL is less expensive than whole life insurance.
  • Value: Guaranteed Universal Life (GUL) provides the value of guarantees, so that both the coverage and premium level will last to a certain age regardless of current interest or economic conditions. In response to increased life expectancy, some policies provide coverage up to age 121. Policies also provide a guaranteed minimum cash value.

Buying Life Insurance is About More than Price

Under the right circumstances, Universal Life Insurance can provide permanent coverage that stays in force as long as the premiums are paid or beyond. Proper management of the savings component enables the funds to grow tax deferred at a steady rate until the money is needed. Additional standard or optional benefit features provide additional value and flexibility, including:

  • Self Completion: an optional Waiver of Premium benefit will waive the premium payments in the event of disability, allowing the policy to stay in force.
  • Accelerated Death Benefit: This standard benefit enables the policy holder to receive cash advances against the death benefit if diagnosed with a terminal illness.
  • Partial Surrender Benefit: This standard feature lets you take a portion of your cash value out of the policy instead of surrendering the entire policy for the full value, lowering the death benefit by the amount you withdraw.

In today’s volatile economic environment, changing consumer attitudes and priorities have created a need for simple, transparent, affordable, flexible products that provide solid guarantees. Unlike the older Universal Life products that were sold when interest rates were high and lost value as rates declined, today’s Guaranteed Universal Life products have been designed to provide sound guarantees during a time of low interest crediting rates. And with interest rates at their current historic lows, there’s room for future growth over time.

For consumers who are seeking affordable, customizable permanent coverage, it may be time to take a fresh look at Universal Life.

Content Marketing vs. Traditional Advertising

custom-content-council-stat

According to the Custom Content Council, in 2012, 68% of CMO’s will be increasing their budget for content marketing. While big and small companies alike are seeing the shift, smaller companies are devoting a higher percentage of allocated budgets toward content marketing:

  • 34% of a company’s advertising budget with ten or less employees goes toward content marketing.
  • 26% of the advertising budgets of companies with 1,000 or more employees is going to content marketing.

blurbThere are numerous reasons for this shift, and one of them is that technology has changed consumer behavior. Consumers today aggressively search out information about your industry online. According to Ryan Northover of Hatchd.com, before making a purchase decision, consumers now search out 10.4 sources of information vs. 5.3 back in 2010, when just 30% of consumers had Smartphones. This is rapidly changing the face of marketing and creating the necessity for content systems that engage, inspire, educate and inform information seeking consumers.

Here are 5 compelling reasons why you need a clear and robust content marketing strategy today, in comparison to traditional media advertising :

1. More Trusted 

A Nielsen survey of OECD consumers found:

  •  Only 10% said they trusted messages from display advertising.
  • However, 90%  said they trusted brand recommendations from friends or users they trusted online.

2. More Lead Conversions

Traditional advertising methods are generally directed to a broader audience, while content marketing’s  ‘narrowcasting’ strategy focuses on a smaller, core group of potential, high quality consumers. As a result:

  • Content marketing can convert 30% more organic traffic into high quality sales leads, according to MarketingSherpa (See case studies here)
  • Content marketing is aimed at high value customers who will return for more content.
  • Content marketing produces 3 times more leads per dollar than SEM and costs 30% less, according to Kapost & ELOQUA (ebook here)

3. Greater Influence Over Consumer Decision Making

A study by McKinsey Consulting shows that consumers are already well along in the sales process when they engage directly with a brand. Traditional advertising aiming for brand recognition may occur far too early in the sales process to make a difference at a critical juncture in the decision process. Additionally, heir search is more focused, targeted and active. According to a Roper Public Affairs study cited in Forbes:

  • 80% of business decision makers prefer to access company information via a series of articles over advertisements.
  • 70% of decision makers said content marketing made them feel closer to the brand.
  • 60% said content marketing helped them make better purchasing decisions.

4Enhanced SEO and Social Media Effectiveness

Search engines are steadily improving in delivering the right information to seekers of content. And as today’s search engines heavily weight relevance, social sharing and link buzz, the more engaging, shareable and targeted your content is, the better your SEO rankings will be.

Content is also the basis of social media strategy, because compelling content is what drives consumers to engage with your brand on social networks.

5. Greater ROI

Expensive paid advertising campaigns typically only run a few weeks. Content can last for a much longer time, which enhances your return on investment. Revisions in content marketing can keep it relevant even longer. Content marketing can also generate earned media because users and media outlets may share your content to many more users, potentially producing millions of dollars in free brand exposure.

“Content Is Queen”

Because good content marketing aims to help, inform, inspire and entertain a more skeptical, engaged and demanding audience, it is not experienced as a pressure pitch or disruptive. This is why major brands are heavily investing in content marketing. This helps brands capture mind share and position themselves as leaders in their category.

But if content is queen, it also demands to be treated as one. Content strategy requires many months of planning and strategic development to build the most effective content platforms, inventory and engagement streams.

Overcoming the Challenges

According to a Marketing Profs & Content Marketing Institute study in 2012, the top 5 reported challenges are:

  • Producing enough content: 29%
  • Producing the kind of content that engages: 18%
  • Lack of budget: 14%
  • Lack of buy-in / vison: 7%
  • Lack of knowledge, training, and resources: 6%

Overcoming these challenges requires ownership, consistency and measurement.

1. Ownership: Some committed organizations have appointed a Content Marketing Officer to drive these efforts and to be accountable for their success. As companies are slowly but surely becoming their own media, they will have to appoint an Editor in Chief responsible for overseeing this part of Marketing, and managing internal as well as outsourced resources.

2. Consistency: It takes consistent efforts to build a captive audience through the creation of  a body of content worthy of the attention of search engines and of your target audience. Understanding what content types and what channels create the most engagement and generate leads takes consistent effort and experimentation. Generating interest and engagement for your brand, products and services requires a commitment to sustained and continuous investment in producing various types of content on a regular basis. By way of illustration:

3. Measurement: Naturally, the defined success metrics (KPIs) will vary according to the market, media and product. However, the ROI of content marketing is generally defined not by generic Web activity metrics, but  by a sales conversion funnel.

A typical conversion funnel could look like:

Step 1: user lands on homepage
Step 2: user reads a blog post
Step 3: user reads a product or service page
Step 4: user fills in a contact form

Defining performance in terms of web activity such as overall visitors and pages views of a website won’t reflect performance as much as much as measuring how many users start at step 1 (arrive on a landing page)  and progress to step 4 (conversion).

Takeaways: As shown above, the realities of today’s markets demand that a very focused and robust content marketing effort is put in place for an organization to position themselves as a thought leader, differentiate themselves in a crowded market space, and  reach the buyer at the critical stage in the purchase decision process to make a difference and drive conversions. Since companies are struggling beneath the weight of the sustained effort needed to become thought leaders through content marketing, investment in dedicated resources is increasingly recognized as indispensable.

Related Post:

animal-valentine

Not Feeling the Love?

Time Business and Money, the same folks who brought you “Wine  Drinkers Will Pay More for Bottles with Hard-to-Pronounce Names,” proclaims Valentine’s Day “a  pale, pink shadow of its former self.”  Instead of passion, it’s more likely these days to bring on a sense of obligation, dread or just plain apathy.

How can this be, when the National Retail Federation‘s annual survey paints a rosey picture:

  • 60% of  Americans plan to celebrate the holiday
  • 91% of those in relationships will celebrate
  • They will spend on average $131  on gifts for spouses, significant others, friends, children, parents,  classmates, teachers, pets and co-wothers.
  • Average spending is expected to increase $4 from last year.

Underground Survey says…

But  has done his own survey. And according to Kit, most of the dozens of consumers he interviewed weren’t really enthusiastic, and few said that they thought of Valentine’s Day as a romantic event.  The three most common responses he heard:

  •  “I don’t care.”
  • “I feel obligated.”
  • “I  feel left out.”

It’s a Man’s Job

According to the NRF survey, men spend more than twice as much as  women – an average $108 compared to $53 for women.

And while many men gripe that that they do it to say out of trouble, many women also say it doesn’t really mean that much to them either:

Caroline, 36, is one of many who refer to Valentine’s Day “a Hallmark  holiday.” “It’s a made-up marketing thing,” she says. She expects her husband  will give her “some gummy hearts and a bouquet of flowers like last year,” which  she says is nice, but not necessary. “I tell him he doesn’t have to get me  anything but he wants to. It’s sweet. He’s great. But is it romantic? I don’t  really look at it that way.”

Many singles aren’t feeling the love either, and many say they feel even worse to see their co-workers and friends receiving flowers, while they don’t.

What’s Marketing to Do?

Considering this ambivilence,  there’s been such a push to expand  Valentine’s Day beyond romance. Spending on sweethearts  is projected to decrease while overall spending goes up as more is spent on dogs, cats, friends, co-workers, parents, teachers  and kids. TRF report predicts:

  • We’ll spend $815 million this year just on our  pets.
  • This includes dog cookies decorated like a box of chocolates for pets
  • Heart-shaped pencil cups for office friends.

Either marketers are getting desperate  or consumers simply aren’t feeling the love.

Satisfaction

Please Hold For Prompt Service…

 shared this on Time Business & Money.

A new poll commissioned by text-message service TalkTo shows that 53% of American consumers say that they spend 10 to 20 minutes on hold each and every week. How much does that add up to each year?

“This adds up to…13 hours annually spent waiting for a company that swears via automated message “we care about your business” to answer the darn phone.

Other findings of the survey:

  • 86% of consumers report being put on hold every time they call a business.
  • 48% believe the customer service representatives who answer phone calls are not helpful.

Lessons Learned? None

The data corroborates and amplifies the findings of previous polls cited by Tuttle. For  instance:

So, you’d think American customer service would work to clean up it’s act, and call for improved customer help lines, shortening wait times and providing more meaningful assistance, right?

Well, you’d be wrong.

The survey indicates instead that the solutions companies are considering are even worse than the original problem. Instead of listening to what customers really want, many companies are just buying into the more convenient notion that texting makes more sense than communicating with a real human being.  Stuart Levinson, CEO of TalkTo, an app for service request texting, is a case in point. He writes:

“This research shows how poorly the phone performs as a customer-service channel. Everyone’s calling less and texting more. It’s time for businesses to catch up with how customers want to interact with them.”

Really?  Tuttle cites data that demonstrates just the opposite:

Amazing. So customer service is not about the customer at all; it’s about lowering their expectations and insulating yourself from the voice of the customer.  As long as we all collude in lowering the bar for customer service, we can all cost cut our way to prosperity – on the backs of the customer.

In the land of the blind, the one-eyed man is king. I’d say this provides a tremendous opportunity for a real thought leader to differentiate itself in the market.

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