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The 3 Fundamental Questions of Retirement Planning

“If you fail to plan, you’re planning to fail.” These words, from the immortal Founding Father Benjamin Franklin, have been recited countless times over centuries to inspire a thoughtful approach to our most important endeavors. Apparently, Ben Franklin, who knew a thing or two, felt that flying by the seat of your pants was unlikely to yield a successful outcome. 

Few would quibble with this notion, but in our day-to-day lives, we sometimes fall victim to the extemporal pursuit of a goal. Perhaps we’re just so excited to move forward that we hastily bypass planning and jump in headfirst. Or maybe the task seems so daunting, that planning is scary and it’s easier to simply close our eyes and put one foot in front of the other.  Unfortunately, some Americans are saving for retirement with their eyes closed and Ben Franklin would not approve.

Imagine having a goal and not knowing where you stand, where you’re going or if you’re even on track to meet the goal; sounds crazy right? As whacky as it sounds, it’s not that uncommon for Americans saving for retirement, particularly those doing it themselves without professional help. But if you don’t know the answers to these basic questions, are you doing it yourself, or just not doing it at all?”

DALBAR, Inc., a leading researcher in investor behavior recently studied 1,103 investors to gain insight into their retirement planning (or lack thereof). The study found that more than half (53%) had not developed a financial plan to fund their retirement in the last 5 years. Not surprisingly, most of those investors were do-it-yourselfers. The study found that 75% of investors with a financial advisor had developed a plan to fund their retirement in the last 5 years while less than a third (30%) of those without an advisor have developed a plan. Simply put, it’s uncommon for people to develop and maintain a retirement plan on their own.

This highlights a less talked about value of the financial professional. Advisors are looked to as a guide to the right investments and/or allocation, but an advisor’s value starts at a more basic level: helping one to answer “The 3 Fundamental Questions of Retirement Planning”: (1) where am I? (2) where do I want to go? and (3) am I on track to get there?  

Fundamental Question #1: Where am I?

When considering the 3 fundamental questions, our current position is a natural place to start. To plan for a goal, we must first identify and understand our starting point. Our current position in our journey should be the easiest of the 3 Fundamental Questions to answer, and it is. In 2021 we are just a few clicks away from seeing any of our investment account balances. However, for some investors, identifying a starting point has been a non-starter in their retirement planning.  

DALBAR’s Retirement Planning study found that 14% of investors don’t know what they currently have saved for retirement. Those working with a professional are less likely to have such a blind spot (only 7% do not know what they currently have saved) than those who do not work with an advisor (17% do not know).   While these proportions are not large, the essential nature of the question alongside the ease in which it can be accessed seem to be a foreshadowing of problems investors may run into when addressing more complicated questions like how much will I need to retire? and Am I on track to get there?

Fundamental Question #2: Where do I Want to Go?

You don’t have to be smart enough to invent electricity (that’s the last Ben Franklin reference, I promise) to know that you can’t plan for a goal if you don’t know what the goal is. Many self-help gurus will emphasize the importance of seeing and visualizing the goal at hand. It stands to reason that on the path to a dignified retirement, one must understand what a dignified retirement means to them and what proportion of their current income they want to replace at retirement to achieve it.  This is a simple thought exercise that requires some brainstorming, but no special expertise or sophisticated software. It does require one to go through the process and 39% of Americans have not gone through that process. Of the 3 Fundamental Questions, this is the one for which the most Americans had no answer.

On the surface, it would seem that nobody needs an advisor to estimate the level of retirement savings needed. After all, nobody else could understand an investor’s spending habits or vision for their future better than the investor. However, there are many uncertainties that complicate the process of coming up with an accurate estimate, such as future inflation, healthcare needs, insurance coverage, living situation, etc.  All these uncertainties may be acting as a barrier for some to come up with any estimate at all.

Working with an advisor should help to make the estimate more accurate, but the presence of an advisor increases the likelihood of having an estimate at all. More than 7 out of 10 individuals with a financial advisor have an estimate of what they’ll need for retirement while only 4.5 out of 10 DIY investors have identified a retirement savings goal. In summary, it’s uncommon for people to estimate their retirement savings goal on their own.

Fundamental Question #3: Am I on Track to Get There?

Answering this question is a little more intricate, as it requires a projection of where one will be at some future date. Such a projection may require a digital tool or some degree of financial expertise. If a projection of retirement savings at the desired retirement age has been made and it’s greater than or equal to the answer to Fundamental Question #2, the investor is on track; if not, changes should be considered.

Twenty-two percent (22%) of investors do not have an estimate of what they will have saved at retirement. For these investors, they have not projected where they will be at retirement and therefore have little basis to determine whether they are on track or what changes to make.  One can only hope that the answer to this question is favorable. If it is not, it will remain unchecked until the 3 Fundamental Questions of Retirement Planning are answered.

The third fundamental question is no different than the previous two in that the use of a financial professional makes an investor more likely to have an answer. Those without an advisor are 3 times more likely to not have an estimate of what they’ll have saved at retirement. Less than 10% of investors with a financial professional do not have an estimate of what they will have saved at retirement while 30% of do-it-yourself investors lack such an estimate.

Ignorance is not Bliss

Is it true that those who fail to plan for retirement are planning to fail? Or perhaps the more direct question is: will they fail?  DALBAR’s Retirement Planning Study did not calculate a likelihood of retirement success for each respondent. However, respondents were asked about their overall satisfaction with their retirement savings and the study found that not knowing the answer to one of the 3 Fundamental Questions of Retirement Planning led to lower satisfaction with one’s future financial outlook.

Investors generally have some degree of satisfaction with their retirement savings, but few are very satisfied. In fact, investors are most likely to be “Somewhat Satisfied” but least likely to be “Very Satisfied.” More than a quarter of investors are “Very Dissatisfied” with their retirement savings, the second most common disposition.

The table below displays the satisfaction with retirement savings for all investors in the study (General Population) versus those who had unanswered Fundamental Questions of Retirement Planning, further segmented by those without the help of a professional.

*Percentages may not add up to 100% due to rounding.

What we see from the table above is that those with unanswered Fundamental Questions of Retirement Planning tend to be less satisfied in their retirement savings. This is not to imply causation because it’s a classic “chicken and egg” scenario where it’s unclear whether unanswered questions lead to dissatisfaction or if dissatisfaction leads to not pursuing answers. Regardless of which is the chicken, and which is the egg, those who are dissatisfied will have a hard time making meaningful changes without the answers to the 3 Fundamental Questions of Retirement Planning.

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  • By Cory Clark
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  • 9/8/2021
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DALBAR Polls: Vaccine Attitudes Vol. 2

  • By Anita Lo
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  • 6/11/2021
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DALBAR Polls: Vaccine Attitudes

  • By Anita Lo
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  • 4/13/2021
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DALBAR Polls: Online Brokerage

  • By Anita Lo
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  • 3/18/2021
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  • 0
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  • Categories: Advisors

COVID-19: Tips for Digital Communications

As we compare life today to just a few weeks ago, the difference is unimaginable. Birthdays, anniversaries, baby showers, weddings, graduations have gone virtual. Families and friends are staying connected through video conferencing, social media, email and maybe even reverting to a pen and paper to write a physical letter. Folks have even taken to their vehicles to parade by loved ones’ homes with heartfelt signs and cheers from afar. One thing is clear, people need people. Interaction is essential and in this time where physical closeness is restricted, if not forbidden, quality communication has never been more vital.  

In the midst of this global crisis, financial firms seek to extend a hand in support of their customers. Assuaging fears, demonstrating strength and longevity, providing useful resources, all in an effort to calm frayed nerves so customers have at least one area of their lives (quite an important one), that they need not worry about. In the initial stages of the COVID-19 pandemic, financial firms went to extensive measures to reassure clients that the firm is still standing and will continue to do so, that their life savings is not gone forever, that they can continue to safely do business with the firm. Just as a caravan of vehicles can warm someone’s heart on their birthday, so can firms who go the extra mile to show empathy, alleviate frustration, encourage and engage customers with resources that assist or enhance their new normal.

Now, reassurance has been provided and firms are shifting their messaging as we move into the next stage of our new reality. As your firm continues to offer clients support and guidance, here are ten tips to keep in mind:

#1 Update COVID-19 Web pages frequently

Updates should occur at least weekly. By now consumers are already aware that most, if not all business is being conducted remotely and firms have implemented their Business Continuity Plans. COVID-19 Resource Centers should be kept fresh, if even to offer creative resources that speak to our current at-home reality. Innovative resources might include:

  • Creative ways to thank our health care and other essential workers (i.e. banners, lawn signs, notes on mailboxes or garbage cans, chalk messages on driveways or sidewalks, etc.)
  • Boredom busters - Links to educational websites or crafting websites
  • Recommended Book lists
  • et al

#2 Place great emphasis on dates

Given the pace at which this pandemic has and continues to unfold it is crucial that website visitors are aware that what they are reading is still relevant. Materials should contain dates and the date of the last page update within COVID-19 Resource Centers should also be posted.

#3 Ensure that COVID-19 communications are highly visible

Customers expect there to be communication about the health crisis and visitors' eyes now automatically scan the page for the firm's Coronavirus message. Place this information prominently so they can:

  1. Receive immediate confirmation that your firm is in fact taking steps to protect both clients and associates
  2. Easily glean what is of most interest and relevance to them among your firm's COVID-19 materials
  3. Quickly move to their intended mission on the site

#4 Give customers a heads up about an expected decline in service 

Calling any firm during this period almost certainly results in a significant delay in having one's call answered. For those customers who have hung up out of frustration and instead visited the site, or even for those whose first stop was the website, acknowledging the expected delay and requesting customers' patience goes a long way in alleviating testy attitudes!


#5 Ward off frustration, direct clients to alternate servicing options

In addition to proactively communicating about potential contact center delays, let clients know by what other avenues they can receive assistance. The website, mobile app, FAQs, AI features can all help to funnel clients elsewhere prior to needing a call center.

#6 Ensure that messages from the firm's executives have maximum efficacy

Greater than 75% of websites offer reassuring messages from the firm's CEO or other high level executive. The quality of those messages varies greatly from simple, "Don't worry, we’re still conducting business remotely" themes, to endearing video messages from casually dressed executives expressing sentiments such as "we are all in this together and together we will get through it." At a minimum, these messages should be coupled with a photo of the executive to add a warmer, more human touch. Additionally, messages from executives should be updated to address this stage of the pandemic. What is happening now is far different from what was happening in mid-February.

#7 Tie market volatility to the current environment

Volatility resources range from links to already existing Market Volatility content, to that material being placed within COVID-19 Resource Centers, to myriad articles directly addressing the current crisis, its impact on the markets and tips about remaining calm through the roller coaster ride. Best-in-class practices noted with regard to addressing extreme volatility during this pandemic include:

  • Acknowledging that what clients have seen in the markets in recent weeks is unprecedented and scary
  • Referencing other historic events during which the markets made extreme downturns
  • Providing multiple reassuring messages and taking a "we will get through this together" approach

Linking to already existing materials or simply providing market volatility content without messaging that directly addresses the crisis at hand, falls short of adequately expressing the firm's commitment to staying side-by-side with the client through this ordeal.

#8 Consider speaking directly to our frontline warriors

We all have relatives or friends about whom we are concerned as they put themselves in harm's way daily in service to our society. Acknowledging them goes a long way in expressing your firm's concern, not only for our heroes, but also for those who love them.

#9 Utilize social media for COVID-19 messaging

Social media is the optimum avenue to reassure clients and provide updates particularly for those clients who may not have thought to visit your firm's website, but may be connected via social media.

#10 Express your community and/or global support

Your firm has likely already informed clients of the actions you have taken for them and on behalf of your associates. Let them know how your firm has rolled up its sleeves and dove in to lend a hand in support of your community, state, the country, or the world at-large.

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  • By Shelley Eramo
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  • 4/22/2020
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  • 3
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Investor Panic Relief Tool: Enabling Advisors to Save Investors from Losing Big

It seems fitting, if not ironic, that in the year 2020 hindsight is emerging as an important theme. The COVID-19 pandemic has taken the world by storm and as it continues to unfold into a full-blown global health and economic crisis, one of the perennial challenges confronting investors and advisors face is what an appropriate response should be.

At DALBAR, we have witnessed many significant events manifest as market drops in our 44-year history. By all measures, however, the recent fall of the major US and global equity markets has been unprecedented. Not since the Great Depression have stock markets fallen to the extent they have, nor have so many investors been caught off-guard by the type of shock they are now experiencing.

Building on the decades of research that the Quantitative Analysis of Investor Behavior (QAIB) has taught us about investor psychology – especially in falling markets – we know that investors typically flee at the wrong time and if they come back at all, it is usually at a point long after the critical rebound window has closed.

Of course, as any seasoned financial advisor knows, convincing investors to stay invested, especially in the face of such precipitous declines can be a challenge especially if (or when) panic sets in. To help address this phenomenon, a new online tool was launched last year at DALBAR, called the Investor Panic Relief Tool or i-PRT.

Curbing Enthusiasm

Although there are many things that everyday investors cannot control about the direction or performance of the market, there are still prudent, rational actions that can be taken to facilitate success. In fact, of the three options available to investors during this market turbulence, namely of being optimistic and investing aggressively; being pessimistic and staying out of the markets and doing nothing, the best course of action according to the data is not to panic and do nothing, which for many investors is easier said than done.

When we launched the DALBAR i-PRT, we understood that the value of this tool would be made clear when – not if – a market correction occurred. While we did not foresee a correction of this magnitude taking place in 2020, the important insight here is that neither did so many others.

History shows that sharp market declines rarely get announced prior to them showing up and the recoveries from those events – the so-called bounces which are crucial to restoring losses – also show up relatively quickly and only become clear once they are long gone.

How i-PRT Works

At its core, the DALBAR i-PRT is intended to help advisors provide investors with an alternative to “doing nothing” even though the data has shown doing nothing to be the consistently sound choice. By incorporating insurance against sharp downward moves, the i-PRT strategy takes advantage of index puts, which then enables investors to weather short term downturns while simultaneously remaining invested to take advantage of natural rebounds.

It is worth reiterating that the biggest mistake that panicked investors make is failing to reenter markets after a downturn.  In doing so, they lock in their losses, miss out on the recovery and are then prone to being haunted by the “Doom Echo” – a form of loss aversion that will hamper them from stepping back into the markets. This hurts investors and is certainly something financial advisors would prefer not to see happen to their clients or the investing public.

Learning from History

While the current crisis is still unfolding, the extraordinary measures taken by the central bankers and companies around the world has many experts positioning for a very sharp recovery when a turning point is reached.

DALBAR has analyzed every major market downturn over the past 90 years and the pattern is a familiar one: this too shall pass. We are also confident that a bounce is likely to take place at some point however confirmation of the turning point will only be knowable once we’re well past it.

With better tools like DALBAR i-PRT at the disposal of investors and advisors, it is now possible to learn from history instead of repeating it, which is something we can all look forward to. We encourage advisors and investors to learn more about the DALBAR i-PRT and see how taking the right actions can keep portfolios safe in these volatile times.

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  • By contributor
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  • 3/27/2020
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  • Categories: Advisors

Un-Panicking Investors Strategy

For more information on DALBAR's Un-Panicking Investors Kit, visit our online store.

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  • By Lou S. Harvey
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  • 9/10/2019
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  • Categories: Advisors

Core Principles for Delivering an Exceptional Customer Experience - Principle #4

This is the #4 Principle in the series, Core Principles for Delivering an Exceptional Customer Experience.

There are two opportunities inherent in every customer service interaction. The first is to deliver an exceptional experience, one that differentiates your company and builds customer loyalty. The second is the opportunity to listen, to learn what is really important to your customers. The first of these opportunities has been the primary focus of this blog series thus far, so today we want to turn our attention to the latter.


Customer expectations are constantly increasing as consumers become more demanding of the companies that are going to earn their business. Microsoft’s 2019 State of Global Customer Service Report backs this up, with 59% of customers reporting having higher service expectations today than they did one year ago.

Today’s consumers are not judging you against other players in your own industry; rather they are judging your company against the best practices to be found anywhere – setting an extremely high bar. The best companies out there are always looking to better know their customers, to understand not just what they are looking for, but also the underlying need. Listening to the customer entails not only determining their sentiment towards your company, but also what the drivers of that sentiment are. While it is clearly important to understand what is behind negative feeling so that any issues or service breakdowns can be addressed, it is also crucial to understand the drivers of positive customer sentiment, so that those behaviors can be replicated, allowing you to reap the benefits of more and more satisfied customers.


Customer feedback can tell you a lot about a lot. Below are just some of the areas where feedback can shine a light on what you are doing, and how you could be doing it better.

  • Service within your own channel
  • Service through other channels
  • Breakdowns between service channels
  • How they want to interact
  • How to optimize customer journeys
  • Processes and procedures – how they want to conduct business

While much of the focus on customer feedback is on the service and customer interactions, it is not limited to that either. Customer feedback can also be used to build forward-looking products and/or product features. Those companies that have their finger on the pulse of customer’s needs will be the first to offer the product features that will be in demand tomorrow, putting them ahead of the curve.  


Feedback can come from a variety of sources, all of which can work together to build a complete picture of customer sentiment, wants and desires.

Surveys are the most prevalent source of customer feedback and are great in that they can produce a high volume of customer insight, but they do suffer from a number of limitations. With so many companies employing surveys one each and every customer touchpoint, survey fatigue has become a very real thing, and can turn people off. Surveys are also prone to a participation bias, where only outliers (whether good or bad) are taking the time to fill them out.

Customer Service Representatives are on the front line and can be a fantastic source of customer feedback, providing that they are taking the time to listen, and that you are taking the time to listen to them. Unsolicited feedback is the gold standard. If the customer is taking the time to tell you how they feel without being asked, it is clearly something that matters. Representatives should not only be trained to capture this feedback and pass it along, but also take the time to probe the customer to get all of the details to make that feedback as actionable as possible.

Artificial intelligence and machine learning can also help us listen to our customers. Speech analytics is able to mine the words coming out of your customer’s mouths to gain valuable insight. Other forms of machine learning are able to focus not just on what your customer is saying, but is also able to listen to what your customers are doing when interacting with tools such as a website, a mobile app or an IVR system. Interactions across and between channels, such as calling the contact center after spending time on a particular part of the company website can also speak volumes and help improve the overall customer journey.

Follow up conversations can be extremely valuable in cases where a customer has had a negative experience. A trained customer experience analyst taking the time to reach out to a potentially dissatisfied customer is a great way to perform root cause analysis and really dive into what went wrong, and how to avoid similar issues in the future. As an added bonus, customers love feeling heard and proactively reaching out after an issue is a great way to recover from a bad service experience.

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  • By Brendan Yeager
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  • 7/25/2019
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Tech-Savvy Women are Leading the Way in Paperless Management of Finances

When it comes to “going paperless” by switching to electronic financial statements, women are ahead of the learning curve. DALBAR’s recently-launched Online Search Behavior Analysis has found that women in the U.S. across multiple age groups are more likely than men to actively search for paperless financial solutions (commonly known as electronic delivery or e-Delivery in the financial services industry). And this finding has the potential to change the way financial services firms talk about their e-Delivery solutions.

What’s even more intriguing about this first-ever study is that it puts women aged 65+ at the top of the list when it comes to seeking out information about e-Delivery services such as paperless statements. The analysis showed that women 65 years of age and older conducted 40% more online searches related to “going paperless” than their millennial (25 to 34 year-old) counterparts.

These findings challenge a common belief that men and/or younger people are the most likely target demographics when it comes to seeking out paperless financial statement solutions. The data gathered in the DALBAR study suggest that financial services firms will need to take a closer look at how they’re currently targeting their e-Delivery messaging and make modifications as necessary. For example, targeting younger consumers with messaging around education and awareness of e-Delivery services may be more effective than a blanket educational marketing campaign, since older consumers have already demonstrated an awareness of these types of products.

As well as detailed data on age and gender, the DALBAR study uncovered insights on how other factors such as region, household income, and device type (i.e. mobile vs. desktop) influence interest in e-Delivery solutions. The report also identified search strategies used to seek out e-Delivery services online as well as provided important tips on improving the user experience for individuals interested in “going paperless.”

In order to improve e-Delivery programs, it’s imperative for financial services firms to understand shifting consumer trends in technology, especially as it relates to providing important documents to their clients via digital media. By taking an in-depth look at who is actively searching for information about going paperless, and who isn’t, financial services firms can target their e-Delivery messaging more precisely.

The full Online Search Behavior Analysis is now available on the DALBAR website here.

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  • By Shelley-Ann Eramo
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  • 7/18/2019
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Core Principles for Delivering an Exceptional Customer Experience - Principle #3

This is the #3 Principle in the series, Core Principles for Delivering an Exceptional Customer Experience.

A Service Culture is Paramount

An organization’s culture is made up of its shared values, attitudes, standards and priorities. To put it another way, culture is the personality of a firm. Just as our individual personalities shape our personal interactions and how people respond to us; an organization’s culture has a profound impact on how that organization interacts with its customers and how those customers respond.

A positive culture is going to keep people engaged. It is going to help build relationships both internally and externally. It is going to increase efficiency and add resilience to the organization. Culture affects all of an organization’s interactions with their customers, as well as what is going on behind the scenes, which also impacts that customer’s overall experience.

A service-oriented or customer-centric culture is going to allow an organization to consistently deliver high-quality customer experiences. Always putting the customer first will build trust in the organization. It doesn’t mean that a company is going to get CX right each and every time, but if the customer experience is a core value the company is going to get it right in the long run. These organizations can make the customer experience a key differentiator and use it to build a competitive advantage. Unlike competitive advantages based on technology, marketing or positioning, an advantage rooted in an organization’s culture is going to prove durable.

In my role as a Director and head of Dalbar’s Service Quality Measurement program, I spend most of my time working with the contact center. While the contact center certainly does much of the heavy lifting when it comes to the customer experience, at least they have the luxury of a direct cause and effect. At the end of the day, every department, and every employee contributes to the customer experience. A customer-centric culture encourages this mindset across the organization and leads to consideration of how decisions away from the front line will impact customers. 

So how does one build a service culture? Culture is an amorphous thing, not simply a policy that can be set or an investment that can be made. That does not, however, mean that we are powerless to drive the culture within our organizations. Below are a few building blocks that can help create a service culture and encourage customer-centric thinking.

Engaging Vision

A vision gives purpose to a firm. They can be internal or something that is broadcast to the outside world. A few examples of customer-centric visions include:

  • Nationwide is on your side
  • You’re in good hands with Allstate
  • Everyone deserves a Guardian

These taglines promote lofty goals and directly relate to how these firms view their customers. To really reinforce a service culture, however, these goals need to be more than just a marketing spin. They need to guide decision making and be a part of day-to-day life. Translating these goals into concrete objectives for individual roles will focus an organization, making sure everyone is pulling in the same direction. This will increase buy-in, drive employee engagement and become a source of pride for staff.

Common Language

One way to view Culture is the sum of the small stuff. Something as simple as the language we use day-to-day can have a profound impact in the aggregate. The Ritz-Carlton, who certainly knows how to deliver amazing customer experiences, describes their staff as “Ladies and Gentlemen serving Ladies and Gentlemen”. This simple statement has become a cornerstone of who they are, how they view themselves and how they view and treat their customers.

Something as little as referring to a department as a “Service Center” or “Client Solutions” instead of a “Call Center” can likewise have a big impact on mindsets and customer interactions.

Recruitment and Orientation

Culture starts on day one. Some of the top-performers within DALBAR's own Customer Experience Audits make a point of talking about their DALBAR Service Awards during the recruitment process and reinforce that commitment to delivering award-winning service throughout orientation and training. This shapes the next generation by introducing a key component of their culture right off the bat.

Rewards and Recognition

I always say, “If you want to know what is important to an organization, look at their associate scorecard.” At the end of the day, employees will perform to that scorecard. You can talk to me about how important the customer is until you are blue in the face, but if the quality of service I am delivering only represents 10% of my performance review, it is clearly not a priority.

The same goes for recognition. Zappos, the online shoe retailer known for their customer experience, celebrates and brags about their longest call (10 hours and 43 minutes). While that is certainly extreme, it clearly communicates how important customer interactions are and makes a stark contrast to contact centers that focus primarily on maintaining a low average handle time.

Go to Principle #4 - Listen to Your Customers

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  • By Brendan Yeager
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  • 6/13/2019
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Mitigating Conflicts of Interest - Part 4

Mitigating Conflicts Through Technology

The SEC’s proposed Regulation Best Interest seeks to impose a duty on brokers to mitigate certain conflicts of interest. This series of articles will explore the various ways firms can effectively mitigate or eliminate conflicts of interest.

Part 1 – Introduction

Part 2 – Level fee

Part 3 – This Mistake Cost Merrill $9 Million

Last week, the SEC adopted Regulation Best Interest (“Reg BI”) which established a new standard of conduct for broker-dealers in retail relationships as well as other interpretive guidance related to the standard of conduct required of investment advisers under the Advisers Act.

The proponents of Reg BI appear to outweigh its detractors because the regulation is workable for b/d’s and doesn’t necessitate the type of wholesale business changes that a regulation like this could have, or as the advisory community thinks it should have, or that the now vacated DoL fiduciary rule would have. The regulation does put mandates on firms to put in place processes and procedures to comply with Reg BI, specifically to identify and mitigate conflicts of interest.

Much of the heavy lifting around Reg BI compliance will be accomplished through technology but most of what I’ve heard regarding technology has been centered around record-keeping to support disclosure or surveillance to identify conflicts. However, the real power of this technology is not to identify conflicts of interest or mitigate them. The power of the technology is its ability to eliminate conflicts of interest, and with that comes a beautiful degree of freedom and power; let me explain.

For some time, the use of technology has been relied upon in the ERISA space to eliminate conflicts of interest in the form of a computer (don’t call me a robo) model. A computer model that uses generally accepted investment theory to make impartial recommendations, without human intervention as to the final result, has been found to eliminate conflicts of interest and protect the fiduciary advisor and plan from a prohibited transaction.

SunAmerica Advisory Opinion -  In 2001, the DoL issued its SunAmerica advisory opinion which stated a fiduciary advisor can use a computer model developed by an independent financial expert to implement model asset allocation portfolios (offered on both a discretionary and non-discretionary basis), and that increased compensation to the fiduciary that resulted from the model asset allocation portfolio would not be a prohibited transaction under ERISA §406(b)(1) or (3). The reasoning and crucial take away is that if the model is recommending the asset allocation portfolios and is developed by an independent financial expert, the fiduciary would not be using any of the authority, control, or responsibility which makes that person a fiduciary to cause the plan to pay additional fees to fiduciary. The key was the relationship between the fiduciary advisor and the developer of the model (independent financial expert). There were many parameters outlined in the opinion that led to an inference of independence as between the fiduciary and expert. Some of these factors include the control and discretion of expert, lack of any affiliation between fiduciary advisor and expert, financial arrangements between the fiduciary advisor and expert, and proportion of expert’s revenue derived from fiduciary advisor. 

The Pension Protection Act, ERISA §408(g) and IRC 4975(f)(8) – The Pension Protection Act gave rise to a new prohibited transaction exemption in the spirit of SunAmerica, which leaned on the existence of a computer model to eliminate conflicts of interest. In almost identical regulations, ERISA §408(g) and IRC §4975(f)(8) allow  the developer and fiduciary to be affiliated or even the same entity, but require the model to be certified by an independent financial expert. This exemption allows the fiduciary advisor to recommend through the computer model proprietary products and products that pay the fiduciary advisor a commission.

So why am I talking so much about ERISA prohibited transactions when Reg BI has nothing to do with ERISA? It’s because an arrangement that passes muster under ERISA’s strict fiduciary prohibitions will most certainly pass muster under Reg BI. And by the way, a new fiduciary rule from the DoL is coming down the pike and while nobody expects it to be as disruptive as its predecessor, it could give brokers a reason to want to take on the fiduciary role. Technology that eliminates conflicts of interest means brokers can take on the fiduciary role with the plan and keep their indirect compensation with no prohibited transaction.

Firms should look to leverage technology to execute their investment process in a repeatable, documented, reliable, un-conflicted manner.  Doing so will allow brokers to service clients unfettered, at the highest standard of care, and with current compensation structures intact.



Cory Clark is Chief Marketing Officer at DALBAR, Inc., the nation’s leading independent expert for evaluating, auditing and rating business practices. Cory is also a practicing attorney licensed in Massachusetts. He resides near Boston with his wife and 3 children.

These articles are provided for general information only, and do not constitute legal advice, and cannot be used or substituted for legal advice.

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Core Principles for Delivering an Exceptional Customer Experience - Principle #2

This is the #2 Principle in the series, Core Principles for Delivering an Exceptional Customer Experience.

Engaged Teams Provide Better Experiences

Take a moment to think about the best service experience that you ever had. 

Not knowing anything about the circumstances, I can tell you one thing about that experience; the individual delivering that “wow” moment was engaged. They were personally invested in the interaction and were actively trying to do a good job. Clearly it worked.

I am comfortable making the above assertion due to one simple truth; 

while non-engaged employees can provide satisfactory, or even good service, they can never provide great experiences. 

Engagement is what makes people authentic, versus just going through the motions. Engagement is also what drives people to put in that little bit extra, that discretionary effort which pushes an experience out of the norm and into the exceptional.

The best service experience that you were thinking about was likely in-person, but the same principle holds true across mediums. Engaged individuals consistently deliver better customer experiences. While it sounds cheesy, the customer really can hear that “smile through the phone” or email, or chat, or whatever.

Engaged employees are more productive and profitable, they positively influence co-workers, are more innovative (often taking the initiative to suggest improvements), and have higher retention rates.

The opposite is also true, unengaged employees are a drag on your organization. Not only do they fall short of delivering “wow” moments, but they also bring down morale and negatively impact the productivity of their colleagues. In an atmosphere like a contact center, it is easy for a few bad apples to poison the batch.

Entire books have been written about how to increase employee engagement, and going through an exhaustive list is beyond the scope of this post. That being said, we can share a few best practices.

How to Increase Employee Engagement

  • Pay attention – the crucial first step is to actively look at engagement.
  • Measure it – Metrics allow for improvements to be recognized and the effectiveness of strategies to be assessed.
  • Communicate Importance – Make sure everyone knows their importance to the organization and how their work (particularly for non-customer-facing roles) impacts the customer. Leading organizations recognize that everyone in the organization contributes to the customer experience.
  • Elicit feedback – Asking for, and acting upon, feedback from across the organization makes all players active participants and increases buy-in. This is also a great way to leverage talent and identify the leaders of tomorrow.
  • Look at Recognition and Rewards – Are they grounded in the customer experience? Are they (really) open to everyone, and not just a handful of top performers?
  • Provide regular feedback – If people don’t feel they have the skills to excel, they are going to be demotivated. Your time also lets them know how important they are.
  • Consider Group Dynamics – Engagement starts with an employee’s immediate team. Allowing for regular interaction (like daily huddles or weekly team meetings) will improve engagement across the board. In our busy work life we usually want to dive right in, but allowing some time for side conversations or idle chit chat at these meeting is actually time well spent as it helps reinforce dynamics and increase engagement.
  • Team Building – whether a group outing, activity or just a contest within the team is another great way to boost engagement at all levels.

The more you focus on engaging your staff the more you will see that engagement increase, and the quality of your customer’s experience will naturally follow.

Go to Principle #3 - A Service Culture is Paramount

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  • By Brendan Yeager
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  • 5/30/2019
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  • 2
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Advisors Bringing Maximum Value

The latest OnDemand Research from DALBAR’s Business Technology Division reveals that mutual fund investors employing the use of financial advisors are enjoying supreme value from their firms’ digital offerings compared to their counterparts that do not use advisors. Investment companies generally offer a wide range of analytical data and educational resources on their websites in an attempt at providing investors maximum insight into their accounts and expanding their investment knowledge. While the use of these resources is clearly optional, paying for them is not. All investors fund the research and technology that is needed in order to populate these websites with account breakdowns, educational articles, market commentary, and calculators in the form of administrative fees and sales charges. Completely disregarding them is tantamount to wasting the money that the investor is paying to cover those expenses, an act that is being repeated over and over again by uninformed investors that do not work with financial advisors.

Working with a financial advisor undoubtedly leads to more active website engagement from the investor. Nearly half of investors working with an advisor access their accounts online on a daily basis, whereas roughly half of investors without an advisor never go online to access their accounts. Investors without advisors are actually slightly more likely to check their account balance online, but investors with advisors are far more likely to make use of the other account analytics that are available to them such as checking their account activity, performance, asset allocation, and viewing account documents.

Nearly 90% of investors using advisors feel that it is either important or critically important to track the performance of their account online compared to half of investors without advisors who feel the same. 

Since nearly three-quarters of mutual fund companies provide one-click access to investment performance information, often available in easy-to-interpret graphs or tables, not making use of this information reveals an astounding lack of basic investment understanding and is particularly wasteful of client account fees.

The knowledge discrepancy between investors that use advisors and investors that do not is particularly evident when studying each group’s attitude toward their rate of return. 85% of investors using advisors view their rate of return as either important or critically important. Only 42% of investors without advisors feel the same and half of them do not even know what rate of return represents.

Comparing and contrasting these figures tells a simple story: 

having a financial advisor in your employ leads to increased engagement with your investment company’s website, which in turn leads to a more educated investor.

Speaking of education, the often innumerable educational resources posted on company websites are consumed by over 60% of investors with advisors, which is three times the figure of investors without advisors that take the time to peruse them. Investors without advisors make even less use of online market commentary, with barely a tenth partaking as opposed to 58% of investors using advisors that go to the trouble of reading what the experts have to say about current and future market trends.

The objective of investing in a mutual fund is to obtain the greatest value possible from your investment. The vast majority of investors that are not using financial advisors are starting out behind the 8-ball by gaining little to no value from the portion of their investment that funds the resources that are available on the company website. DALBAR’s research shows that most investors that entrust their accounts to financial advisors are not passively standing aside, but are squeezing every possible dime out of the administrative fees they pay by consuming as much investment knowledge and insight as their investment company’s website can throw at them. These thoroughly engaged investors can boast more than just the advantage of having a financial advisor on their payroll … they have another industry expert on their side staring right back at them when they look in the mirror.  

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  • By Luke Tobin
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  • 5/29/2019
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  • 2
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  • Categories: Advisors

Are you this investor?

Share Video Presentation on LinkedIn, Facebook or Twitter.

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  • By Jamie Josephs
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  • 5/16/2019
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  • 2
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  • Categories: Advisors

Core Principles for Delivering an Exceptional Customer Experience - Principle #1

This is the #1 Principle in the series, Core Principles for Delivering an Exceptional Customer Experience.

Even with the right team in place, great customer experiences don’t just happen. They are the result of deliberate effort and consistent focus. One of the reasons that some organizations are able to consistently deliver exceptional customer experiences is simply that they work harder at it.

If you want to deliver a world-class customer experience, you first need to have a clear CX vision. Think about what an ideal customer experience would look like for your organization, and then consider how your department can contribute to that. Defining the CX vision is not as easy as it might sound, but there are some ways to get to the heart of the matter.

  • Consider your own best service experiences, what made those interactions memorable? How can you replicate that in your department?
  • Look to the best service experiences you have seen within your own organization. This is a particularly powerful tool in areas like the contact center, where you have a huge pool of interactions from which to find the ones that really stand out. Wading through thousands of calls might seem a bit daunting, but there are some shortcuts you can take. Look to your quality team; they have a pool of calls they have already scored which can be a great starting point. You can even turn directly to your representatives and ask them to identify their own best calls. Getting your whole team involved in this process will also help build engagement (more on that next week) and reinforce a service culture (which will be talking about in two weeks). 
  • Look to the competition. Don’t feel like competition in your own industry is good enough? Then look to best-in-class providers in other industries.
  • Turn to the independent experts (warning, shameless plug ahead), like your friends over at Dalbar, who know what a best-in-class experience looks like across a host of customer touchpoints and service channels.

The customer experience is the sum of all of our service interactions, which is why it is so important that you provide a superior standard of care across channels and touchpoints. But it is also more than that, since the customer experience also includes the path or the journey that customers travel. A smooth, seamless transition can make the experience more than the sum of its parts whereas a disjointed journey or barriers between types of interactions can have the opposite effect. 

By actively managing customer journeys you can ensure that all service channels, all departments, indeed, your entire organization, are all pulling in the same direction.

Once you have your CX vision in mind, the next step is to break that experience down into its component parts. These are the items that you can measure and coach to align your actual performance with the lofty goals that you have set. Don’t be afraid to get into the weeds here. Remember, specific = actionable. A phone representative will struggle if you ask them to connect better with customers. But if you ask them to be sure to greet every caller in a friendly manner and to use each and every customer’s name during the conversation, that is something which they can easily understand and act upon.

Now that you have a clear CX vision and specific performance criteria in place you can begin working to make it happen. Measurement is the key here. 

If you do not know where you are, it is impossible to tell if you are getting better. 

Now coaching can focus on aligning performance with the ideal that you have identified. You need to accept that you will not meet that ideal each and every time, but striving for it will only make you better – if we don’t aspire to be great, we can never be more than mediocre.

Go to Principle #2 - Engaged Teams Provide Better Experiences

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  • By Brendan Yeager
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  • 5/16/2019
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  • 4
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Core Principles for Delivering an Exceptional Customer Experience

Welcome to the Age of the Customer!

Today’s consumers have far greater access to information and options than at any other time in human history. This democratization of information has served to empower consumers and shift the power dynamic from the brand to the customer. Brand loyalty may still exist, but companies need to earn that loyalty at each and every touchpoint. According to Forrester:

“Today’s customers reward or punish companies based on a single experience — a single moment in time. This behavior was once a millennial trademark, but it’s now in play for older generations. It has become normal.”

At the same time leading companies have shaped consumer expectations. Companies are supposed to be easy and intuitive to work with. Consumers are no longer comparing their providers to similar companies, they are comparing you to the best customer experiences they have ever had. Customer experience is becoming the thing that matters most. As McKinsey & Company put it:

“Leading companies understand that they are in the customer-experience business, and they understand that how an organization delivers for customers is beginning to be as important as what it delivers.”

This isn’t all just theoretical either. Consumers are actively switching providers if they are not happy with the level of service that they are receiving. According to Microsoft’s Global Customer Service Survey, 59% of consumers have stopped doing business with a brand due to poor service. DALBAR’s own research backs this up, and takes it a step further by applying the same question to financial services where there are barriers to switching providers, such as sales/surrender charges and other penalties. According to DALBAR’s 2015 Investor preferences study, 51.8% of respondents had switched their financial services provider based on service quality. It is even worse when we look specifically at the 62.2% of high net worth individuals who have switched providers due to service quality.

So how is it that some companies are able to consistently deliver exceptional customer experiences while others are always struggling? This is a critical question and one which we will endeavor to answer in a series of blog posts looking at The Core Principles for Delivering an Exceptional Customer Experience. These are:

*Stay tuned over the next 4 weeks as we expand on each of these topics.

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  • By Brendan Yeager
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  • 5/9/2019
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  • 3
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Hey Google, What Is My Financial Forecast?

Imagine the Possibilities of Artificial Intelligence in Financial Services

The concept of Artificial Intelligence (AI) has been around for nearly a century with the first robot film, Metropolis in 1927. However, it wasn’t until 1950 when Alan Turing published his paper, “Computing Machinery and Intelligence” that this concept seemed more of a reality. With all the possibilities of AI, leave it to Hollywood to strike fear in the hearts of people with movies about robots or operating systems rising to power to take over the world. As if that could ever happen right? A once unrealistic theory now looks a bit more plausible in a relatively short period of time. Still, this didn’t stop 53 million people in the U.S. who own a smart speaker1. According to the NPR and Edison Research study, smart speaker ownership in U.S. households grew by 78% in just one year.

The convenience of a virtual assistant is unparalleled. Ask the multitasking mom simultaneously cooking dinner and turning on a Netflix movie, “Hey Google, play ‘Coco’ from Netflix on the Kids Room TV”. Ask the young college student juggling school, friends, and freedom for the first time, “Alexa, set a reminder to call home tonight at 6 p.m.” It would be foolish to ignore this growing trend and how it is impacting day-to-day life. Businesses should take note and explore the possibilities of what AI could mean to their customers. As with any technological advancement, there will be some that will adopt and others that will procrastinate and get left behind.

DALBAR’s research has consistently shown a lag within the financial services industry’s adoption of the newest technology. The recent Mobile InSIGHT report points to the slow growing trend of AI in financial services, highlighting how a small percentage of financial services mobile apps have integrated voice and text assistants. Although fascinating to see how firms are now using AI, Hollywood’s futuristic approach of the endless possibilities stretches the imagination far beyond financial firms’ current implementation.

Imagine for a moment that a smart speaker owner could use the following commands:

  • “What is my financial forecast?”
  • “Am I on track to meet my retirement goals?”
  • “Set an appointment with my financial advisor.”
  • “When is my life insurance payment due?”
  • “What is my personal rate of return?”
  • “What is the benefit of reallocating my investments?”

None of the above currently seem out of the realm of possibility but what about:

“Hey Google, How would a new baby effect my financial forecast?”

“Alexa, Would it be in my best interest to buy an income property?”

Now we’re talking!

Perhaps users could make trades or exchanges using a predetermined security pin or be notified of price changes or actions that need to be taken. How about requesting a financial or tax statement or asking for a rundown of the latest newsletter or top blog posts?

What if a mobile app could integrate with a virtual assistant to share pertinent information to improve users’ financial outlook? Financial advisors could potentially reach a wider audience and encourage a better connection with their clients. In this day and age, hands-free technology is key! There are never enough hours in the day, so what if the average American could hire an assistant for under $40 flat! Oh wait, they can.

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  • By Jamie Josephs
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  • 4/29/2019
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Eligible for a DALBAR Award? 8 Ways Firms are Sharing the News

Being commended for a job well done always feels good but awards can also impact a firm’s bottom line. Earning recognition by a 3rd party boosts retention rates and gives companies the opportunity to tout their achievement to potential customers, showing they are above the rest. Earning awards also increases employee motivation and fosters a sense of pride in working for your company. DALBAR awards are given to those who have achieved a high standard and undergone the proprietary measurement systems developed over decades of industry research. Award eligible companies have found great ways to promote their DALBAR accomplishment. 

Press Releases

Many of our award winners send the news out to the masses by posting a press release - a potentially huge reward through exposure to a very large audience if picked up by other news outlets.

HM Capital Management uses its press release to describe the scrupulous process DALBAR used during the 3(38) Certification and adds a quote from their President explaining why they put their company to the test.

Transamerica, Putnam Investments and Pacific Life took advantage of Call Center achievements through their preferred press release service, all of which have quick sharing options for social media.

Social Media Posts

Another medium for high capacity viewing is through social media channels. Posting a link to a press release or to the company’s website announcement not only makes current and potential customers aware of the accomplishment, it also drives traffic to your firm's website! Viewers have the option to comment on the original post, share it on their profile or re-post with a personal message.

Pacific Life and BMO used custom graphics on Twitter to display their service awards while New York Life Investments chose a photo of the office for their Facebook post, explaining that they are busy working on their next DALBAR award.

Share the News with Employees

In addition to posting on company social media profiles, sharing the news with employees is crucial. Employees will be the most appreciative of the award particularly if they had some part in achieving it, and they will be the driving force in promoting it on social media.

Many of Primerica’s employees shared the news of their award in their own way. Some used the DALBAR seal and some posted the link to the company’s press release.

Leverage 3rd Party Announcement

Another great way to brag about the accomplishment is to take advantage of the 3rd party who awarded it, we mean us! :) DALBAR often posts press releases and congratulates award winners through social media. Sharing the press release on the company’s website or social media posts increases awareness and encourages interaction.

Check out our Press Release page or visit our social media pages (Twitter, LinkedIn, Facebook).

Email Signature

DALBAR awards often come with artwork! These images can be placed in high exposure locations such as your firm’s corporate home page, or more subtle placements such as an email signature. A simple yet effective graphic of the award in one’s signature gets it noticed without being too obtrusive.

One Guardian employee has chosen to place the seal awards in their email signature with a brief blurb about the awards and a link to read more about the criteria used to qualify the firm for this achievement.


And for the masses that are hopefully visiting your website, it is a great place to display that artwork. Plus it can’t hurt to use it as a backlink from the company’s press release or any other digital marketing.

Guardian, Newport Group and ICMA-RC all chose to showcase their DALBAR award on a dedicated Awards page.

Primerica uses a blog with a custom graphic to promote their award while John Hancock Retirement Plan Services used the First Impressions seal artwork within the scrolling banner on their advisor homepage. BMO also boasted their award-winning statement in a banner on their website. The image showcases the company’s #1 rated enrollment experience.


A highly visual and effective medium is video. Strategically placing awards in a video promoting achievements is yet another means to boost your firm’s credibility in the eyes of your audience.

Nationwide compiled a very appealing video that inconspicuously displays their achievements including of course their DALBAR awards.

Other Marketing Materials 

And finally, don’t forget about all outbound materials. Leafhouse Financial Advisors informed their clients of the 3(38) Certification they received from DALBAR in this marketing piece. Displaying award artwork in email marketing only makes good sense or linking to the Web page with the company’s listed achievements is also a great idea.

Applicability must always be considered. DALBAR gives awards for statements, why not add award artwork to those paper documents? Received an award for your mobile app? Displaying your award within your mobile app is certainly not off-limits!

DALBAR stands ready to assist you in making the most of the recognition you receive!

Is your firm an eligible award winner? Check our listing A-Z.

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  • By Jamie Josephs
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  • 2/7/2019
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Consequences of Unrestricted MEPs

With the lifting of restrictions on Multiple Employer Plans “MEP” two major shifts are likely to occur in the retirement plan market. First is that all small plans will gravitate to local MEPs that do not include their direct competitors. The second is a massive increase in demand for local MEPs.

The MEP requirement that participating employers must be in the same industry has stunted any chance of growth. Small businesses for whom MEPs would offer great benefits would have to join forces with the very companies they face every day on the competitive battlefield. This problem is made even more acute by the fact that most small businesses serve a local area so the baker would have to join forces with the baker in the same town. To provide economies of scale, the small businesses must be geographically close together.

The unrestricted MEP would permit multiple MEPs in one locality, each serving a diverse set of non-competing businesses. With the removal of the requirement to collaborate with competitors, it is reasonable to assume that small businesses would find the better, cheaper and less risky plan to be irresistible.

The second shift is anticipated to be for new MEPs. This market would be unattractive for large service providers with centralized operations. Locally situated advisors could fill the need but often lack the technical expertise to administer an MEP. The most likely sector are third party administrators (TPAs) who possess the knowledge and skill and already serve these local customers.

The TPA need only become familiar with how to mitigate the fiduciary risk and could almost immediately establish an MEP.

The MEP also opens a new market that consists of small businesses that do not currently offer plans to employees. There is the potential to double the size of the small plan market within two years.

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This Mistake Cost Merrill $9 Million: Mitigating Conflicts of Interest (Part 3)

The SEC’s proposed Regulation Best Interest seeks to impose a duty on brokers to mitigate certain conflicts of interest. This series of articles will explore the various ways firms can effectively mitigate or eliminate conflicts of interest.

Part 1 – Introduction

Part 2 – Level fee

Mitigating Conflicts of Interest – Part 3: Controlling Conflict-Inciting Information 

On August 20th the SEC imposed sanctions on Merrill Lynch related to its handling of a conflict of interest, which cost the firm nearly $9M. Apparently it could have cost much more because this was an offer submitted by Merrill, which was accepted by the SEC.  I thought this might be a good opportunity to step out of the abstract discussion of conflicts and look at a real world scenario that played out over 5 years ago.  In a somewhat overly simplistic summary, it went a little something like this.

Merrill had a Due Diligence Committee responsible for recommending to the Governance Committee what managers and products would be part of a particular set of platforms. The Committee recommended terminating a manager on the platform who was a Merrill subsidiary (“Subsidiary”) and who also had a strong business relationship with BoA.  Subsidiary learned of the upcoming termination prematurely and a “plan of action” was put in place involving members of both Subsidiary and Merrill. This led to a string of events, with the crescendo being an email by an Officer of Subsidiary to a Merrill employee responsible for writing up the Governance Committee meeting agenda which read:

“It was recently communicated to us that the proposal to terminate will not be part of tomorrow’s Governance Committee agenda and [the U.S. Subsidiary] will be afforded an extension of time to further and fully demonstrate our commitment and capabilities in the SMA space…. As it stands now, this news is so new that it may be filtering through your organization, down to the key players in Due Diligence [and other areas, including the product group] but I wanted to inform you directly.”

The Subsidiary’s termination decision was put on hold and Subsidiary ultimately remained on the platform. 

This scenario is not hard to imagine and none of the actors behaved in a way that shocks the conscious (although the email was a little shady). In conversations with Merrill, Subsidiary executives expressed their appreciation for the due diligence team’s autonomy and presented legitimate concerns about the fairness of the termination. For example the due diligence committee often conducted on-site due diligence reviews before terminating a manager, but did not do so in this instance.  The main thrust of Subsidiary’s plea to have the termination put on hold was the fact that such an on-site review was not conducted. And while hindsight is 20/20, it’s interesting to note that the Subsidiary’s new management team did in fact perform well over the relevant period, in fact better than the would-be replacement. As innocent as these actions may have seemed, if not for the outside influence that was exerted on the Due Diligence and Governance Committee, the manager would have been terminated. The Committee did not prove to have the autonomy that was described in Merrill’s ADV and on which investors relied.

The SEC sanctioned Merrill for violating the anti-fraud provision of the Advisor’s Act as well as failing to implement policies and procedures reasonably designed to prevent violations of the Act. But where did Merrill go wrong, what policies and procedures did it fail to implement and what can we learn from this?  To answer this question we need to identify the point in time within these events where policies and procedures could have made the most difference. I would suggest that the only time that a policy could prevent this conflict with reasonable certainty is at the very beginning, BEFORE Subsidiary had any reason to adopt a “plan of action.”

Our cognitive biases as humans can make ethical decision-making very difficult because we identify and analyze facts in a self-serving manner to rationalize why a particular action is allowed or justified. In a competitive corporate environment, these physiological factors make it extremely difficult for a firm’s policies and procedures to stop these human behaviors. In this case, once the horse was out of the barn, reeling her back in was next to impossible. The only way to keep the horse in the barn was by preventing the horse from knowing it should leave the barn. Subsidiary should never have known it was on the chopping block.

In this case, the horse was let out of the barn when an operational employee from Merrill contacted the soon-to-be terminated Subsidiary to get started on all the legwork that would have to be performed to actually remove Subsidiary from the platform.  Usually, a Merrill employee would notify the third party manager after the termination decision had been made by the Governance Committee. However, as the SEC keenly pointed out, no written policy or procedure governed this process.

Had the operational employee at Merrill either not possessed the information about Subsidiary’s termination or had he been trained on a policy to keep such information strictly confidential, Subsidiary would have had no reason to act in a conflicting manner until it was too late to do anything about the termination. The Committee would have acted with the autonomy that it represented to its investors in its ADV and that was required to avoid a conflict of interest. I’d be willing to bet that Merrill at this very moment has extensive policies and procedures governing the confidentiality of Due Diligence Committee recommendations, particularly with respect to the managers who have been recommended for termination.

When designing your policies and procedures, first think about the types of information that could trigger interested parties to act in a manner that conflicts with client interests. Seek to limit the number of people who have access to such information to only those who need to know. Once you have effectively limited the number of people with such information, policies and procedures must put a gag order on such information (both internally and externally) until the passing of a certain event. Had this firewall of information been in place, Merrill would be $9 million richer and I would be writing this article about something else.


                Cory Clark is a Director at DALBAR, Inc., the nation’s leading independent expert for evaluating, auditing and rating business practices, where he has worked since 2006. Cory holds his Juris Doctor from New England Law |Boston where he graduated Cum Laude and holds a Bachelor of Arts degree in Economics from the University of Massachusetts, Amherst. Cory resides near Boston, Massachusetts with his wife and 3 children.

These articles are provided for general information only, and does not constitute legal advice, and cannot be used or substituted for legal advice.

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Mitigating Conflicts of Interest - Part 2

In Part 1 of this series on mitigating conflicts of interest, I discussed the SEC’s proposed Regulation Best Interest and the potential significance of the mitigation requirements for financial incentives.  The mitigation requirement would appear to be one area where broker/dealers and their reps could be responsible for some significant changes.

When tackling conflicts of interest, it’s helpful to look to a place where disclosure has never been a sufficient remedy; employer-sponsored retirement plans. ERISA is perhaps the strictest regulatory regime related to financial services and under ERISA, an advisor’s conflict of interest is always a prohibited transaction (subject numerous potential exemptions).  Even those not familiar with ERISA parlance can surmise that a prohibited transaction is bad news. However, there are two well established methods of avoiding prohibited transactions in ERISA that serve as a good starting point to neutralizing conflicts of interest in the broker community. Those two methods are (1) fee leveling and (2) the use of a computer model. Fee leveling is the subject of this Part 2 article. Subsequent parts to this series will discuss the use of computer models and other financial technology as a means for elimination and mitigation of conflicts.  

Fee leveling is not the same as fee-only and does not require a shift to a wholly new business model; it simply implies an offsetting arrangement to avoid variable compensation. The distinction between fee leveling and fee-only is an important one.  First, shifting to a model where fees are deducted directly from the client’s account could be disruptive to some client relationships.  Second, shifting to a truly fee based compensation structure and no longer relying on commissions, markups, and markdowns would constitute “special compensation,” in which case the broker may magically morph into an investment adviser with respect to that client.

Regulators have been consistent that when compensation cannot be increased by the advisor, there is no conflict of interest. The Department of Labor stated in a landmark advisory opinion known as the Frost Letter that when fees are passed through to the investor, the advisor is not being benefited. Congress would later codify the concept of level fee in the Pension Protection Act when it created a new level fee exemption for advisors under ERISA §408(g). The SEC specifically mentioned the option of an offsetting arrangement in its Regulation Best Interest proposal.

Fee leveling does more than mitigate conflicts of interest, it eliminates them. Firms should explore the possibility of eliminating some conflicts altogether because in some cases it may be the only appropriate action. The SEC noted that the nature of the conflict, its inherent lack of transparency involved, and the level of sophistication of a particular investor are all factors which may lead to a determination that disclosure and mitigation are insufficient. In these cases, elimination will be the firm’s only viable option. Nonetheless, fee leveling will often be over and above what is required to mitigate a financial incentive, but serves as a preemptive strike against the continuous cost of procedures designed to police lingering incentives. It may pay long term to simply cut the head off the snake and eliminate financial incentive completely through fee leveling or other methods.


     Cory Clark is a Director at DALBAR, Inc., the nation’s leading independent expert for evaluating, auditing and rating business practices, where he has worked since 2006. Cory holds a law degree from New England Law |Boston where he graduated Cum Laude and earned his Bachelor of Arts degree in Economics from the University of Massachusetts, Amherst. Cory resides near Boston, Massachusetts with his wife and 3 children.

These articles are provided for general information only, and does not constitute legal advice, and cannot be used or substituted for legal advice.

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Mitigating Conflicts of Interest – Part 1

In the wake of the Fiduciary Rule’s slow and painful extinction, a new regulatory initiative has emerged front and center, albeit with much less angst and trepidation attached. The SEC's proposed Regulation Best Interest; what one might consider the Commission’s bite at the “fiduciary rule” apple, was released for public comment last spring. The initial reaction to Regulation Best Interest for many was “nothing to see here.” It was difficult to discern how this regulation materially differed from existing regulations and it certainly had far less bite than its Department of Labor predecessor. What Regulation Best Interest does do is mark an apparent shift on the part of the SEC from a scheme of disclosure to a scheme of mitigation and this philosophical change should not be taken lightly.

Regulation Best Interest carves out a distinction between conflicts of interest generally and those arising from financial incentives (it’s safe to say that we care most about the financial incentives). It then imposes a duty on the broker/dealer to identify, disclose, and mitigate the financial incentives. This represents a significant change for brokers who previously relied on disclosure to properly receive compensation that amounts to financial incentives. Adopting policies and procedures to mitigate financial incentives will certainly prove to be more vexing, involve many more moving parts, and cost much more money than putting words on a page. The good news is that at the very same time, changes in the industry are giving B/D firms and their reps more viable options for mitigating conflicts.

 These series of articles will explore various questions emanating from the proposed Regulation Best Interest with a focus on the policies and procedures that are available to properly mitigate financial incentives. The next two articles will look at two prominent methods for conflict mitigation used today: fee levelizing and computer models.

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The Case for Plan Sponsors to Support Participants' Financial Health

Is an employer’s decision to provide assistance with an employee’s 401k a sound investment?  The answer is almost certainly yes, with this kind of benefit having significant impacts to productivity and quality of work.

Historically, 401k providers have long been offering tools and resources to help plan sponsors drive saving for retirement to the top of participants' priority list. For many years however, providers and employers were failing to see the much, much bigger picture.

How can one expect employees to focus on their financial future when they do not have control over their current financial situation?

Fortunately, employers and plan providers have come to understand the impact employees' current financial health has on those employees’ overall well-being.

Employers now realize that financial stress affects employees' health, therefore their use of health benefits, as well as their rate of absenteeism.

The key question for employers to consider is this: If employees spend an average of thirteen hours/month preoccupied about their financial situation, what are they not doing during that period? (Mercer: 2017 Inside Employee's Minds Survey)

Employers have acknowledged how financial woes affect productivity and quality of work.

If employees cannot afford to pay for reliable and quality child care, their utility bill, their rent, their student loan debt, transportation, health care; are these really the employer's concern? Without question they are and employers realize the direct impact that these employee stressors have on their bottom line, so focusing solely on increasing plan participation and contribution rates is simply not an option. The employee's entire financial picture must be addressed as it impacts just about everything.

DALBAR analysts recently reviewed how plan sponsor websites address financial wellness and saw that a substantial number do, in fact, address financial wellness; and among those that address financial wellness online, the majority present full and comprehensive programs. Others offer support for more specific stressors such as student loan or credit card debt.

Below are examples of innovative approaches to financial wellness implemented by several plan provider firms.

T. Rowe Price offers a highly customized three-part wellness program focusing on:

1. Assessing employees' current financial health - The firm utilizes its Confidence Number, a personal retirement readiness score, and resources such as planning calculators, videos and account aggregation capabilities to complete the first phase of the wellness program.

2. Setting meaningful financial goals - Two programs are offered to assist with this phase of the wellness program, one being its Retire with Confidence educational program and the firm's SmartDollar program that attempts to drive behaviors such as accumulating an emergency cushion, paying down mortgages or funding college.

3. Make reaching goals automatic - The third phase utilizes T. Rowe Price's DoubleNet Pay cash flow management tool to establish automatic payments to reduce debt, build an emergency fund, pay bills and meet long term goals.

SunTrust's mobile optimized onUp portal seeks to change participants' mindset from stress to confidence and encourages them to become a part of the onUp "movement".

This highly engaging portal is packed with self-paced training modules, coaching, a MyMoney Desktop - a one-stop financial management shop, financial tools, games and so much more.

Participants are encouraged to accept the onUp Challenge and travel through the 7 Lands of Confidence.

Bank of America Merrill Lynch utilizes it 2017 Workplace Benefits Report findings to drive home to employers the need to implement their 6 Step Financial Wellness program.

The vulnerability of Millenials is focused on with respect to their lack of financial education.

BoA Merrill Lynch points out the hit that productivity takes due to employees' preoccupation with their finances.

Fidelity reveals to sponsors how the findings from its research drove the firm to:

  • Define financial wellness
  • Develop its Financial Wellness Score
  • Establish a method for gauging the financial wellness of a workforce.
  • The firm goes on to provide a sample "Workforce Analysis" result.