All of the time, effort, and investment that go into managing 401(k) plans comes down to one thing: sponsor and participant outcomes. So many elements go into driving participant outcomes that you could be forgiven for thinking everything that can be done is being done. That’s not the way they think at Vanguard, however, and that matters because the firm is one of the few players in the space that can drive truly revolutionary change for the benefit of defined contribution (DC) plan participants.
The latest endeavor by Vanguard, a trusted partner to nearly 1,500 plan sponsors, is to deliver a technology-driven approach to plan administration and fundamentally reshape the corporate retirement plan experience for DC sponsors and participants. To that end, they’re working with Infosys, a global leader in next-generation digital services and consulting, with deep expertise in helping companies deploy transformative technologies to enhance their businesses.
“At the crux of improving outcomes is personalization at a very deep level,” says Amber Czonstka, Principal and Head of Advice and Client Experience at Vanguard. “Many in the industry have relied on surface level personalization and plan design to drive action. Part of the limitation in the industry is that there’s often a one size fits all approach to plan design. At Vanguard, we’ve worked toward deeper personalization for years.”
Vanguard is continuing to redefine personalization via an Infosys solution called Genome. “They call it Genome because it’s like the DNA of a person,” says Czonstka. “It creates a data picture of who a participant is and how they behave when they interact with us, and as a result we will be able to tailor experiences and actions that are completely individualized to each person. And we believe that will drive outcomes. By just changing to a more personalized approach over the past few years at Vanguard, we’ve already seen participants take action whenever they receive an automated nudge or are served up a message around financial well-being. If we take this to the next level and start to personalize imagery, tone, and behavioral characteristics about the participant, we think we’re going to see more participants taking action towards financial well-being than ever before.”
Two types of outcomes
Investment-related discussions about outcomes typically focus on returns, but when it comes to DC participants, that’s just one possible type of outcome. The other is increased engagement, which can lead to financial well-being.
“Our baseline for measuring outcomes is has the participant taken the next best action toward their financial health?” says Czonstka. “And we have a hierarchy that determines what the next best action is for each individual. It could be getting into the right asset allocation or the right asset mix, whether through automatically being on a glide path via a target date fund or taking advantage of advice. If they have hit all of the financial markers, an improved outcome could be naming a beneficiary – if they haven’t already – or increasing their contribution. We measure outcomes at the individual level. Something we’re seeing more and more is plan sponsors being concerned about participants’ financial well-being outside of the plan as well as in the plan. Have they thought about contributing to an emergency fund, for example? We believe we’ll be able to have a holistic view of a participant’s financial picture that we haven’t had historically, and start to measure outcomes and our view of success on overall financial health.”
Plan design was once the beginning and end of DC discussions, and then an early version of personalization emerged – participants were put into groups based on age and how long they had to save. At Vanguard, the goal is to consider each individual.
“We’re not just offering a next best action for you to take through an email or when you log onto the web,” says Czonstka. “We’re now focused on an omni-channel way of tailoring the individual experience in real time. We call it hyper-relevance and believe it’s the key to driving outcomes. And, frankly, it’s an expectation now. Our participants expect the same experience from us as they get from Amazon and Uber – they want us to know them at a deeper level. As record-keepers, if we don’t evolve our technology to meet or exceed the expectations that our consumers have around digital service providers, we’re going to get disrupted.”
Using tools such as dynamic profiling, modular content, and AI, Vanguard is set to change each participant’s experience across channels and adapt to their needs in real-time. For example, imagine a participant who routinely looks at their account performance over time. The new technology being leveraged by Vanguard will adapt so that the features they typically use are moved to the forefront. That’s also when a participant might get an automated nudge to encourage them to continue to take the right actions toward financial well-being.
Now let’s say the participant breaks from their norm and starts researching active equity products. In real-time, the system will serve up a video on portfolio allocation, for example, because it will recognize the participant is looking at a different topic. Extending that even further, if the system learns the participant really likes to receive communications in video format, it could use modular content and create custom video tailored to that participant – and serve it up at the exact moment the participant is most engaged. If the participant then logs off and dials the call-in center, the associate will be immediately alerted to what the participant was just looking at online. The result is a tailored conversation picking up where the participant left off.
“We think it’s critical to be able to adapt participants’ needs in the moment when they show they care about their retirement account and their financial well-being. And we really think that that’s going to be a game changer for us,” says Czonstka. “That allows us to reverse engineer the participant experience from the starting point of the outcome. That’s the whole point – it’s not about the experience itself, it’s about helping participants reach the outcome they are seeking.”
Sponsors can learn more about Vanguard’s plans to drive improved outcomes at a new website.
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Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.
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