You're an established 45-year-old professional with a stimulating career and a beautiful home, and you're blessed with a wonderful spouse and three healthy kids. It sounds great now, but in the years to come you'll have to finance your children's college education and pump up your 401(k)—all while covering your monthly mortgage payments and other expenses.
You're not alone.
To maintain their current standard of living in retirement, baby boomers need to save more money than they've currently been stashing away. For the financial-services industry, clients' retirement concerns have become a major driver of business strategy and development.
At Vanguard, we're looking for ways to close the retirement-savings gap, and we're finding that online capabilities provide some interesting solutions.
Vanguard is an investment-management company with more than $900 billion in mutual-fund assets. Although we're well-known as a provider of investment products and services to retail investors, we're a leading 401(k) provider, too. And in that role, we help millions of retirement-plan participants save for their golden years.
One of Vanguard's differentiating characteristics is that we have long been a virtual company, even before the term became widely used. We don't have local offices. Before the rise of the Internet, we served our clients primarily through our toll-free phone lines. Today, we serve our clients through Web sites as well as telephone contact centers. Vanguard.com, which just celebrated its 10th birthday, has had a transformational effect on our business: On average, some 300,000 clients log on to the site every day, and more than 80% of our client interactions now occur online.
Our online presence has expanded considerably over the years, taking us from basic investment education and account information to transactions and account services—and now to advice. But for all the many changes, our Web initiatives have always been well-grounded in a long-term business strategy. We've never adopted new technologies simply because they appeared on the scene. Instead, we've harnessed Web capabilities in service of long-term business goals.
To make sure that our online service is superior in every way, we've followed four tenets: design for the user, make it easy to take action, integrate the online experience with other channels, and collaborate with the user. These principles, discussed below, are guiding our migration into the 401(k) business as we work to improve the retirement readiness of Vanguard 401(k) plan participants and offer them online services.
Design for the user. When designing Web applications, you want the engines to be built by developers working in collaboration with subject-matter experts who understand personal finance. But to build the user interface, you need designers who understand how real people behave during a transaction.
Suppose you're building an application to tell a plan participant how much income to expect in retirement. A personal-finance expert might be inclined to design the app with 30 customizable variables, ranging from inflation projections to future health-care costs. But those finer points would be lost on the typical plan participant who has procrastinated about saving for retirement, sees doing so as a necessary evil, and doesn't know the difference between a yield and total return. Chances are the participant is simply looking to enter one number: current savings per paycheck.
To bridge this gulf, we try to stand in the client's shoes when we design Web tools. We spend countless hours literally watching how our clients go about investing. We visit them at work, invite them into our usability labs, and collect their feedback by E-mail and phone. We also study their success rates online to learn what's intuitive and what's intimidating.
User-centered design has also spurred us to overhaul the quarterly statements we send to our plan participants. We're adding a prominent mention of "your expected income in retirement" so it's the first thing 401(k) investors see when logging on to their accounts or reviewing Vanguard statements.
Make it easy to take action. In 2001, we launched a premier advice service on Vanguard.com. The advice application was the brainchild of a Nobel laureate—an ideal aid to our boomers looking for some help setting up their 401(k)s. Adoption was expected to take off. In fact, while usage was reasonable, far fewer clients implemented the advice service than we had expected. Why? They had to go through a series of transactions to build the recommended portfolio of funds—an effort that was all too easy to delay.
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"When an online client phones in with a question, our associate is looking at the same screen. This shared experience facilitates collaboration."
Photo by Ken Schles |
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With these lessons in mind, nine months ago we launched an automated 401(k) management service. This time, all we required was the client's signature—we would set up the portfolio ourselves and rebalance it as needed. Adoption has been tremendous. The service now boasts 15,000 enrollees and $1 billion in managed assets.
Why the difference? In 2005, we made it easy to enroll, overcoming the client's inertia. It's an example of how understanding the customer is at least as important as the technology you choose to implement.
Inertia, as it turns out, is one of the biggest hurdles to investing. People have great intentions to save, but they just don't get around to it. So we have to make it easy for them to save, and the Web has been a great help. For instance, opening an IRA may take 15 minutes online. Checking your asset allocation online takes 30 seconds.
One of our more innovative offerings is a program named One Step. Most clients want to save more, but it's easy to resolve to do it "next year." One Step lets good intentions become the trigger. Once you sign up, you can arrange for automatic annual increases in the percentage of your paycheck allocated to your 401(k). So a future retiree can enroll in a 401(k), set up a payroll deferral that will increase annually, and have Vanguard manage the account—all with a few clicks.
Integrate the online experience with other channels. It's been amazing to watch the migration of investors to the online channel. However, online is not, nor should it ever be, separate or sufficient on its own. In our business, we've found that clients prefer to call us for some things—whether it's complex questions about their portfolios or simply to look for reassurance when the markets are choppy. We encourage clients to use our channels in whatever combination they choose, and we go to great lengths to ensure that all experiences are equally satisfying.
Collaborate with the user. We also believe the online and the person-to-person experiences should be in sync, so our service associates use our Web site as their desktop. When a retail client or plan participant phones in with a question, our associate is looking at the same screen the client sees when logged on. This shared experience obviously facilitates collaboration. We can guide users as they navigate the site, review their investment choices with them, or fill out forms for them to sign electronically.
We started providing these collaborative "sharing sessions" in 2001, and we continue to emphasize collaboration. Among the many benefits, the most impressive is the conversion rate for new account openings. When we collaborate online, helping a shareholder open an account, our conversion rate more than doubles.
