Hugh O'Toole, a speaker at our 2016 Employee Benefits Symposium, is disrupting employee benefits with data. After years of working for MassMutual heading up retirement plan distribution and relationship management, Hugh O'Toole broke out on his own. With that, Viability Advisory Group was born where he developed a patent-pending analysis program to show companies, based on their specific demographics and benefits offering, how their employees' lack of retirement preparedness has long-standing effects not just on those individuals, but on a business as a whole.
In this interview, we explore Hugh's road to the financial services industry, how his innovative use of data is changing the industry, and how he works with CFOs to implement important changes that are good for not just a company, but for everyone.
Listen to my interview with Hugh here or read the full transcript below:
Can you tell us a little about how you started out in financial services and what drew you to working with employee benefits?
Sure. I started out in employee benefits really just as a participant in a 403(b) plan when I was right out of college. I was a psych major and I worked with juvenile delinquents in New York City. I remember sitting through a meeting and having no idea what the person in front of me was talking about and also realizing the pressure I was under at that limited salary living in the New York City area and having no idea how I'd get from being that 22-year old youth counselor to somebody that someday could retire. due to that income level, I decided to move over to employee benefits, specialized in working with non-profits, and through the years, specialized more and more on the retirement side and ended up running a large distribution client management organization and what brought me to where I am today is I noticed an extreme disconnect between HR working with employees prioritizing retirement and the CFO not really understanding the impact that the financial wellness of their employees would ultimately have on a that employer's financial statement which ultimately brought me into "sabbatical mode" where I went out interviewing CFOs to help them and help me understand their lack of interest or prioritization on their retirement plan and then I went about creating the math necessary for them to understand why the alignment between what's good for that employee's financial wellness and how that ties right into the future viability of that employer.
That's quite the career jump! I'm sure a lot of people and employees feel the same way that you felt in terms of not understanding how they're going to get to retirement from where they first started out in their careers. Can you tell us more about what you're doing with Viability Advisory Group and what your primary focus has been?
Viability Advisory Group is a little firm that I created back in July 2014, based on the fact that I wanted to create this alignment between the CFO understanding how retirement affects their financial statement and also aligning that with what's in the best interest of the employees. Very simply, I looked at our industry and realized that great advisory firms were doing a really good job identifying how to make employees financially well, a lot of centered on behavioral finance, plan design or different techniques around investments and what I wanted to do is not try to be redundant with what good advisors and retirement plan providers were already doing, but instead start with identifying the potential liability to an employer of having employees who would like to separate from their service to a company at retirement age, but were financially trapped by their lack of financial wellness and what was the financial impact from a wage, healthcare, worker's comp perspective and how that would come back to the financial statement of the employer. So really what you see is there is a liability and you take the techniques an advisor would normally recommend and prove that those techniques actually mitigate that liability for the employer. The CFO sitting in a meeting would understand not only that this technique is good for the employee, but over the long-term that action will make the cost of wages, healthcare, worker's comp, etc. go down.
Financial Wellness is something AFS really supports and we promote that to our clients as well. One of the main questions we get is, "How do you measure the return on investment?" This seems like this is the answer to that question.
This really came out of me sitting in a lot of finals meetings and seeing the CFO generally disinterested in the conversation until we got to the fee that the advisor was going to charge for the funds that would be offered in the plan. I wanted to make sure that the cost-benefit analysis or ROI of each technique was very clear and could be identified so we could take more progressive action in making Americans financially well.
I assume you're using a lot of high-level data and numbers. How do you break that down for people who aren't as well-versed in that aspect as you are? How do you approach that with Retirement Plan Committees or benefit professionals?
I work with the client's advisor. We collect their data. The most important thing that CFOs made clear to me is that they don't really buy into studies or look at somebody else's numbers for their return on investment, so the first thing we do is collect their data: Date of hire, date of birth, deferral rates, plan design, account balance. We integrate all of that with Social Security, so that any liability we're potentially identifying is very specific to that employer's wage, healthcare, worker's comp, etc. scenario. We take those techniques and if you think about it, the only two things that make a difference in a retirement plan, whether it's defined benefits or defined contribution plan, such as a 401(k), 403(b) or 457, are changing the level of funding or you change the investment scenario. Those are the only two things that actually mitigate liability. So, piece-by-piece we actually test out any proposed change in funding or investments and prove what would be the change in potential liability. The most important thing you raised in your question was we make sure we actually use that client's data so that HR and the CFO know that scenario is specific to them.
So you're not just using some general study or anything like that you did for multiple employers or companies. It's nothing like that, it's very targeted.
What we did in my prior life, is what we called the "CFO story". We used a lot of studies and general numbers and what we found is the CFO story that we created really works with HR, but got no engagement from the CFO. That's when I realized when I took my sabbatical to start this new company, we actually had to build a model that could use that company's actual numbers.
You used to work with MassMutual and then you started Viability and now Viability is partnered with MassMutual, correct?
Correct.
How does having those larger resources I assume with MassMutual enhanced or changed your work?
My mission is to change the center point of the decision-making process. As a 3 or 4-person company, your reach is limited. When MassMutual reached out to me to say they think this is a huge opportunity for the industry, it actually gave me access to work with their field resources that are over 300 people that can work with great advisors, such as yourself and the other beauty is that MassMutual is a mutual insurance company, they're not public so they have invested in Viability so that we can actually work with your firm to run this analysis so there's no cost to you as the advisor and there's no cost to the employer, regardless of the plan being at MassMutual or not. That really is something very unique about a MassMutual buying Viability. As MassMutual, they're very interested in how does this affect every American? Not necessarily the direct result of their financial statement and MassMutual is very unique in the industry for being in that position.
Just to break it all down, for employers, what is their main benefit? For the employees, what is the takeaway? Why should either party care?
I've been doing this for about 30 years in employee benefits and I always say that it's really true, as somebody who never intended to be in financial services being a psych major, but I will give you an observation: When you have two constituencies, such as an employer, as a CFO, your main job is to make sure the organization exists and can employ these people. That's kind of your stewardship responsibility. As an employee, your main responsibility is to have a job that allows you to provide for and protect your family. Anytime in my 30 years that we actually create the perfect alignment between those sets of needs, really, really good things happen for both parties. That's what we're doing with Viability in working with great advisors and great employers are actually showing them that Financial Wellness and Retirement Readiness that everybody talks about, which is right on for the employee, is actually perfectly aligned with what is going to make the best companies and organizations live into the future because they're dealing with the largest expenses in their financial statements which are wage, healthcare, worker's comp, etc. The other beauty, which is less concrete, but concrete all the same, is when you add that alignment, you actually improve productivity, presenteeism, and morale of your organization, so there's really not a downfall in aligning the needs of an employer and an employee.
You come at it from a very holistic approach. I feel like a lot of people probably hear about what you do and think it's only tied to the retirement plan, but that's really not true.
As somebody that's had a lot of life experiences, a lot of good ones and some really bad ones, there is a very limited benefit dollar to be spent. So, something MassMutual is very committed to and, as part of MassMutual, I'm very committed to, is actually how do you spend that limited benefit dollar? There are certain parts of an employer's population, and I know this is heresy in the retirement industry to say this, where retirement shouldn't be their #2, #3 priority. Social Security is actually a pretty good income replacement vehicle on the lower side of the wage base, so making sure they can afford the deductible on the high-deductible plan, or making sure they have some basic life insurance or catastrophic care insurance is probably a better utilization of that limited dollar then necessarily recommending to that employee to put 10% into their 401(k) plan. That's something we're very committed to and working on every day. Our programs help the advisor, help the sponsor, but most specifically help the employee to allocate that limited benefit dollar in the most precise way possible.
I think that even though we are retirement plan advisors, we probably see eye-to-eye on this more than you would think. Obviously, we want people to save for retirement and have enough to live when they're not working anymore, but we have a strong emphasis on meeting with people one-on-one and understanding their whole financial picture as opposed to just saying, "Why aren't you maxing out your 401(k)? You should be doing that." It's obviously not that easy for most people. We definitely think that taking the whole picture into account is very important, which is basically what you're saying.
That is what I'm saying! You said it better, but that is what I'm saying.
I feel like what you're doing is very unique to the industry right now. Can you speak on where you see this going and how this works alongside other trends? Like Financial Wellness programs being implemented more or anything in the bigger scheme of things?
The number one thing that MassMutual purchasing what I built has allowed me to do is speak around the country. The reception from both the sponsor, advisor, and consultant community has been amazing. That really puts the program into a position where I would say it's more like a "Wikipedia" program. Every time we implement it, we learn, the industry learns and we share that learning with everybody who is engaged in the program. So, we have seen employers really build this into their risk management programs. People that are financially not well are actually distracted. We have a trucking company that we now use loans and hardships as the leading indicator of distracted drivers. Each truck accident costs half a million dollars, so they brought in financial professionals to work with that driver on whatever they needed to take the loan or hardship to solve. That's really my favorite part of it is that we learn every single day. We've had yet to have a bad conversation around this if you would, this "human capital management" idea. It really just expands the breadth and depth of what a retirement plan is there for, which is to help the employer control the demographic trend or aging of their population in a way that's very humanistic and saying to older employees, "If you still want to be here, we want you to be here. You're well worth the marginal difference in cost, but if you really would like to leave the workplace, we're going to work really hard with you through our advisor to change your fund status and the way you're approaching investments so that you don't become a financially trapped employee." It's just taken off. It's really exciting.
It obviously sounds like you're doing a lot of great work, but I'm sure you face pushback or challenges communicating with people because I feel like what you're doing requires looking at the long-term ramifications, which is sometimes difficult for people in general, but especially for CFOs or people who have to be focused on the bottom line or what is going to happen next quarter. If that's all they're focused on, how do you get past that?
It's a great question. What I would say to you is, and I forgot to say this so I'm glad you asked, everything we propose initially does not cost the employer any additional money. If you think about it if we had a scenario where an employer matches 50 cents on every dollar up to 4% of pay, we would tell the advisor if you're going to do auto-enrollment, you're going to want to say, "But we can do this on 25 cents for every dollar, up to 6% of pay." Now whether that ends up being the result or not, there is a way to drastically increase employee funding, which is in the employee's best interest, but also you can do it in a way that does not increase employer cost, but drastically reduces employer liability. If any of your initial discussions or scenarios run up through the Reveal Viability Program Reporting, we make sure that the advisor is not suggesting an increase in employer cost. Once the CFO understands the return on investment solely through employee funding they'll be able to discuss whether they actually want to increase in a nominal way the employer cost. Hopefully, that makes sense, but that's very important what you just raised. We can absolutely show a reduction in employer liability solely through increased employee funding.
I feel like the whole liability thing you keep talking about is not really something people think about in terms of financial wellness or helping their employees save for retirement. I don't think they see it as a liability.
I don't think the industry up to now has done a really good job of helping the employer look at their own data, which is key, and showing them the results of the demographic trends and how that affects their financial statements due to the increase in wage, healthcare, worker's comp, and other expenses. So, we kind of rushed into a solution without diagnosing the problem. If you went to a doctor and started prescribing you medicine and they never did a blood test, you would think the doctor was a bit of a quack too.
That's true!
I really don't blame the CFO. I think they're very logical people. We just kind of had a blind spot thinking that our passion around all the answers, without really showing what we were solving for was a good idea and I think we just need to slow down a little bit and make sure the CFO can come on the journey with us.
Sorry to backtrack a little bit, but when you're starting this process with a client, where do you begin? How do you start? do they come to you with a problem area? What's the process in the beginning stages?
The process is really for the advisory group, in this case, you all, to just sit down. I have a one-page example that's non-specific to the employer that really conceptually shows how the lack of readiness ties in with the marginal difference in cost between an older worker and somebody that could replace them if they were ready to retire and how those create the liability and how there are techniques to mitigate it. We ask the employer if that's something they would like to take a look at. Remember, it's free to look at their data, so we have yet to have a CFO or HR person say they would hate to see the metrics from their own data. So, we find they're very receptive to look at their data and once they have it and you start to work with them, it opens up all sorts of consulting opportunities around the dilemma they're facing and what are the potential solutions to that dilemma.
To close out, I wanted to get your thoughts on what do you think employers should be focusing on in terms of their benefits. What do you see as the most important trend? What should be their priority?
Once again, there are great advisors to tell each client individually, but the three things we've decided to focus on are one, why should the CFO care? Right? They care about human capital management. These are huge expense items to their financial statement, but how does retirement actually fit into the rest of their investments? How does having a financially well staff tie in? So, why should they care would be number one? Number two, we're looking very hard at when that employee gets the three enrollment kits, health & welfare, life, dental & vision, voluntary risk-based benefits, and then their retirement kits, how does a normal American make heads or tails on how to spend that limited benefit dollar? MassMutual has actually worked on a very, very progressive program to help the advisor or employer help their employees to make that critical decision. The last piece is how you actually administer that decision to those employees. We see those as three questions every employer asks. How do I prove the return on investment on the benefits? How do our employers actually execute all of these benefits we're offering, number three, as an employer, due to the choice we're offering in benefits, how do we execute administratively? Those are the three big areas we're focusing on.
(Note: Viability Advisory Group does not work directly with employers. They work exclusively with independent benefit consultants.)