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How Adults Learn and Why the Financial Services Industry Mostly Gets It Wrong

Live, in person and interactive training works best.

Adults learn differently than children or even college students, something most university executive education programs know and practice. Yet financial services, especially the 401(k) industry, have yet to learn those lessons.

Defined contribution plan sponsors and participants are uniquely challenged. The plan administrators are thrown into their roles with little to no training having to navigate ERISA, which some liken to Old Testament Gods—lots of rules and very unforgiving. Plan participants are even more challenged having to manage their own personal pension plan, which involves determining how much to save, where to invest  and regularly rebalancing and adjusting.

No wonder the DC industry has so many critics, which now includes a New York Times columnist who recently asked, “Was the 401(k) a Mistake?” It’s not because the DC system has not achieved its initial goals—in fact, it has significantly overachieved. It’s because society is now expecting much more than just accumulating assets for retirement with critics asking whether there are better ways to allocate 1% of GDP.

To move forward, plan sponsors and participants need a lot of training to understand and properly utilize:

  • Managed accounts or more personalized investments
  • In-plan retirement income
  • Convergence of wealth, retirement and benefits, which include:
    • Financial planning
    • Debt management
    • Optimal utilization of benefits offered
    • Student loan debt repayment
    • Emergency savings
    • Health savings accounts
    • Non-qualified plans

Few are asking for these things because they really do not understand or even know about them. Much progress has been made by auto features, but there is a limit. At some point, sponsors and participants must be engaged and advised properly otherwise the government will just use the allocation to increase Social Security and put everyone into the Thrift Savings Plans.

Watching the executive education group at UCLA Anderson School of Management, which collaborates on the C(k)P program, taught me a few things about how to best teach adults which includes:

  • Environment – Though not always an option, adults pay more attention in the right environment like a classroom at a college rather than a hotel or office building. When they feel like they are being sold something, they shut down.
  • Interaction – Adults do not learn by listening; they learn by interacting. Because of compliance and a lack of training, most industry speakers lecture, not inviting interaction.
  • Peer-to-Peer – Adults trust peers much more than experts. Even training programs that include great speakers covering pertinent topics miss the mark because in the back of their minds, the audience is thinking, “That may be true, but you don’t know what it’s like to be me.”

When we enter school and through most of elementary school, we accept what the teacher says. By high school, we start questioning, which grows as we transition to college. But we still do not have much life or professional experience, which is why the peer-to-peer learning is so much more powerful for adults.

The financial services industry also tries to teach people a new language with different rules—why not speak their language and use analogies they understand?

If we want to ignite a fire through education and training, we need the right fuel (content and speakers) in the right environment (away from the wind), arranged properly (agenda). But to light the fire, we need interaction and peer-to-peer learning. It pains me to see the amount of money the DC industry wastes on education with little to no behavior change as well as the proliferation of online certification of professionals.

So when training plan sponsor clients, live and, if possible, in person, why not invite all of them as well as prospects or their colleagues and allocate a significant portion to interaction or even have them present? When training participants, why not leverage those that are doing well and let them speak? Ultimately, can we build communities online augmented by live meetings and personalized advice leveraging technology to scale it?

Because if the DC system is to be judged on results, not just intent or activity, we need to incorporate the many new and exciting services and features now available to plans and employees through the convergence of wealth, retirement and benefits, which will only happen through proper and effective education and training. But not in the ways we have done in the past if we expect different results.


Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.

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