Eyes On the Prize: Using Incentives To Get Clients To Save For Retirement

Encouraging financial clients to stash more money away for retirement, and on a regular basis can be difficult for financial advisors.

Consider that 55 percent of U.S. career professionals won’t likely have the “essential assets” they need to live on in retirement, according to a recent Fidelity Investments study.

The news only gets worse.

According to a 2015 Federal Reserve study, almost one-third of American workers have nothing saved for retirement, and 38% say they can’t afford to retire -- so they won’t.

"Thirty-one percent of non-retirees have no retirement savings or pension, including nearly a quarter of those older than 45," the Federal Reserve reports. "Even among individuals who are saving, fewer than half of adults with self-directed retirement savings are mostly or very confident in their ability to make the right investment decisions when managing their retirement savings."

A “Fear” Of Talking About Money, Retirement

Part of the problem of getting people to save more is plain, old anxiety – specifically, the fear that clients have to face up to a retirement shortfall and they’re paralyzed to take productive, efficient action.

“First of all, that high-stakes decisions naturally make people anxious,” says Marina Krakovsky author of “The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit.” “That includes all kinds of decisions about big-ticket expenditures—from what house to buy, what band to hire for your wedding, and how to invest your nest egg. In theory, going with a trusted advisor can relieve that anxiety -- you don’t have to sweat these decisions if you delegate the decision-making to somebody with more knowledge, experience, emotional detachment than you.”

The problem for advisors is that too many clients just aren’t responding to traditional investment motivation concepts.

“From the large commission tickets of the 1980s, to the sell-sell-sell mentality that still exists at too many firms today, people generally don’t trust advisors,” says Randy Kurtz, president and chief investment officer at Beta Frontier. “When you combine that with the fact that most people are financially illiterate, that is a bad combination.  People often assume that they won’t be able to understand or judge the advice that a financial advisor is giving them.”

Consequently, when people are not on track for their goals, there is often significant embarrassment behind that behavior, and some people would rather put their heads in the sand and not face a difficult truth,” adds Kurtz. “It’s like people not wanting to go to a doctor, or not wanting to confront a health issue like being overweight.”

Eyes On the Prize

Now, there may be a new way of incentivizing clients to save more cash for the long haul, and it has nothing to do with guilting clients into thinking they’ll be a burden on their children in old age, or scaring them with future scenarios where a retiree’s most-used phrase is “do you want fries with that?”

No, this is all positive reinforcement, and it revolves around leveraging “prize-based savings programs” that generate rewards when clients reach a specific retirement savings milestone.

Take the financial savings initiative, SaveUp. The organization’s web site allows financial consumers to link their critical financial accounts (think retirement accounts, mortgages and credit cards) to the SaveUp website. Each time they do that, participants earn a shot to cash in on daily cash prizes,  from $5 to $50,000, along with a chance to win a $2 million jackpot every month. Lured by the chance to win financial prizes, there are now over 150,000 members on the SaveUp site,  who have paid off more than $1 billion in debt and saved more than $1 billion, according to "The Wall Street Journal."

Just like SaveUp, can financial advisors leverage cash prizes to encourage clients to save more for retirement? Some finance professionals think so.

“Anything that we as an advisor community can do to encourage saving is huge,” notes Doug Mitchell, a financial advisor with Ogletree Financial.

“As an advisor for over 20 years, I have seen the attitude towards savings change for the worse. Much of that is due to savings losses after the market crashes in 2000 and in 2008.  Many Americans have practically given up on saving for retirement and it has become a chore to re-educate the consumer on the importance of creating a nest egg.”

Advisors, for example, could reward workers with cash incentives or restaurant or travel vouchers, for beefing up their assets under management. Or, they could issue 5% “rebound checks” from a client’s account, for extra assets saved under predetermined conditions.

Don’t laugh. Numerous U.S. state governments have already rolled out new prize-based savings programs, in the form of savings accounts, and are starting to see results.

“The handful of states that have offered these prize-linked savings programs have experienced success by way of increased savings, and larger account balances,” says Mitchell. “As of 2014 there were only four states that offered prize-linked savings accounts, but over 1.3 million consumers have taken advantage of them.”

Mitchell believes that if insurance carriers could jump into this space, the financial planning sector would also see more life insurance and annuity purchases. “That would help consumers make the right decision and save, instead of stalling on purchasing retirement savings products.”

Using prizes to get clients to save more for the long-haul may seem like a far-fetched idea, but with alternative savings ideas not producing great results, it could be an idea worth investigating.

Brian O'Connell is a former Wall Street bond trader and author of the best-selling books, such as The 401k Millionaire. He's a regular contributor to major media business platforms. He resides in Doylestown, Pa. Brian may be reached at [email protected].
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