Will HelloWallet Transform Online Financial Advice?Keith Epstein
Even in good times, it can be tricky to navigate the waters of personal finance. And yet, amid the devastation wrought by the Great Recession to investment and college-savings accounts—not to mention dashed vacation dreams and retirement goals—only a fortunate minority of Americans with substantial incomes have access to a trusted financial adviser.
Despite the popularity of online financial sites and the offerings of many employers’ human resources departments, most workers have nowhere to turn for independent comprehensive advice on the best methods and places to save and invest. Online sites often have arrangements with banks and lenders who offer "bounties" when consumers sign up. Employers, too, offer services that are sometimes hard to navigate or understand, focus primarily on retirement rather than other financial needs, and are linked to particular providers who may not offer the best deals to employees.
That could change soon. Established vendors such as Bankrate, Lending Tree, and Mint, as well as the likes of Goldman Sachs (GS)-owned Ayco Company, a financial counseling provider that is popular with employee benefits departments, just might have an upstart startup to fear: For-profit HelloWallet. It’s a simple self-service site without any business affiliation or hidden arrangement with established financial institutions that helps users identify their financial goals while providing real-time comparisons of virtually all available checking, savings, and loan products from 80,000 institutions—and at a relatively low cost to HR departments.
A Low-Cost Counseling Option for HR HelloWallet will be offered starting in May at a cost of less than $6 per head—good timing, say some workers’ benefits specialists, for employers eager to soften the psychological and public relations blow that can come from cost-saving moves such as freezing wages and benefits, shutting down pension plans, or cutting 401(k) contributions. It may also be attractive for HR benefits personnel who have grown leery of implied endorsements of financial institutions that may not be offering the best deal for their workers—and whose troubles could wind up in headlines, adding to worker distrust.
"HR departments don’t have anything like this now," says Mercer Consulting principal Linda Delivorias, who evaluates 401(k) and other financial planning products for major employers. For minimal expense, it can help communicate concern for the financial well-being of employees. "Low-cost employee relations programs can be critical. In a tough economy, you want to maintain a sense of paternalism. Meanwhile, it avoids product-pushing," says Delivorias.
Some large employers already seem enthusiastic. Jeremy Wall, a management consultant at Chicago-based Stax, says HR departments mostly are drawn to the startup's independence and affordability, especially at a time when "HR departments are getting crushed and losing head count and money to do stuff. Companies who want to do something with financial literacy in these hard times are seeing there's a way to do it for at least half the cost."
So far, HelloWallet has signed business-to-employer deals with the city of Los Angeles, urban developer Community Builders, and the Rockefeller Foundation. But it is in discussions with more than a dozen major retailers and other big national brands, including some whose working-class employees' financial woes have added massive administrative costs from health-care to absenteeism.
Free Subscriptions for Working PoorAnd a former President's endorsement can't hurt. During Bill Clinton's annual philanthropic confab of executives and government officials who paid $20,000 apiece to attend his Clinton Global Initiative event in late September, HelloWallet was among the innovations highlighted by the former president, who plugged it on CNN and featured the company as an example of an organization that is "harnessing innovation" for global development. That stems from HelloWallet's determination to donate one of every five subscriptions to the nation's working poor, who may benefit from its use at inner-city financial counseling centers.
Los Angeles Mayor Antonio Villaraigosa is one of HelloWallet's early fans. The city's public workforce will soon have access. Villaraigosa calls it "a new model that not only provides a critical service to help those suffering during this economic crisis, but does so in a scalable, financially sustainable way." Patrick E. Clancy, CEO of Community Builders, which develops housing for moderate income and the working poor, calls HelloWallet—because it provides people with the opportunity to better themselves financially—"just the kind of product partnership we value."
Make no mistake: For all the do-gooder rhetoric, HelloWallet has every intention of making money, says its creator, a studious economist-turned-entrepreneur named Matt Fellowes. For years, Fellowes specialized in cataloguing the vast demographic divide between wealthier Americans with access to financial services and the nation's majority of unadvised and unbanked who are less able to convert their wages into mobility. While at the Brookings Institution, for instance, he estimated U.S. households unnecessarily lose $100 billion each year simply because of avoidable missteps using financial products.
He also found that nearly four in five Americans—and nearly all employers—lacked a meaningful solution. "It was like looking at a giant highway where few know how to drive, but everyone has their gas pedal against the floor," says Fellowes. "I saw banks trapped in an unsustainable business model, most Americans stuck with bad deals and false hope, and a government that could not responsibly respond to either problem. I saw that financial advice was one of the last frontiers of the financial services industry that had not democratized."
To be sure, Fellowes faces some challenges. He'll have to compete with established providers of 401(k) and other benefits to corporate HR departments, and those providers may demand a link from any advice site to theirs. Fellowes also will have to convince users of the inviolate privacy of their personal information, a challenge for any online provider in the hacker-threatened digital age; he says the company is establishing safeguards, for instance, against identity theft. HelloWallet's low-price subscriptions, meanwhile, means that the startup will have to scale up mightily to make any money for its investors.
And then there's the herd mentality of big corporations' HR departments, many of whom tend to let others experiment with innovation first. "It's great in concept, and I applaud Matt Fellowes heartily," says Mercer's Delivorias. "But will corporations get past some of the hurdles they have in terms of vetting products and services of any third-party vendor without a track record? I think many will sit back and wait to see who else signs up."
Early Adopters But Fellowes has assembled more than a team of mere dreamers. Those who now aim to shake up the nation's financial advice establishment, putting more literacy in the hands of lesser-paid workers, include one-time Wall Street whizzes with pedigrees from Ernst & Young, Fannie Mae (FNM), Charles Schwab (SCHW) and Bank of America (BAC). A former player on JP Morgan's (JPM) derivatives desk helped develop algorithms that instantly match data and wise investing practices with the personal goals established by users.
Another member of Fellowes' team adapted software initially developed for U.S. intelligence agencies that is being deployed now to scour the Internet and databases for virtually all available savings, checking, and loan products across the country. Fellowes predicts that system will pay off for users; by surveying more financial products, it can identify better deals.
In a recent analysis of basic, starter checking accounts requiring a minimum balance of less than $5,000, for instance, the software turned up an average yield 50% higher than the average yield advertised by online competitors, and maximum yields up to 400% higher, Fellowes says. As for the banks and other established institutions that may now feel threatened, he says that overall his innovation should drive more business, not less. In theory at least, workers armed with more financial intelligence may begin to step up saving and investing efforts—adding to business for financial institutions. That's what Fellowes is banking on.