HelloWallet: Proving That Electronic Nagging Is An Important Employee Benefit

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Matt Fellowes was moving briskly along the standard Washington wonk career path. After earning a master's in public policy from Georgetown and a Ph.D. in political science from the University of North Carolina at Chapel Hill, he was hired in 2004 by the Brookings Institution. Then just 29, he threw himself into studying the finances of lower-income families. By 2008 he was testifying before Congress and conferring with Elizabeth Warren, the Harvard Law prof (and now Democratic senator) who conceived the Consumer Financial Protection Board.

Along the way Fellowes, now 40, became convinced that Washington couldn't protect ordinary folks from abusive lenders who charge 400% a year interest for a "payday loan" or help them to budget better, much less save for retirement. Consumers had to get smarter.

As a self-described math geek, Fellowes' first instinct was to create a giant paycheck-optimization spreadsheet--just the sort of thing those in need of help wouldn't use. But his idea morphed into a more promising approach: use big data, electronic communication and insights from behavioral finance to nudge folks to make smarter choices.

Fellowes quit Brookings in 2008 to work on his idea full-time and got a $1 million grant from the Rockefeller Foundation. In 2010 he launched HelloWallet as a for-profit company, with investments from billionaire AOL founder Steve Case, venture capital firm Grotech and his own wealthy relatives. (His great-great-grandfather started office-supply company Fellowes Brands.)

By the time Morningstar , an early investor, bought all of HelloWallet in 2014 at a $52.5 million price, Fellowes had decided the best way to sell his service was to employers as a low-cost "financial wellness" benefit.

Seems that after ditching traditional pension plans and making workers responsible for their own retirements, big companies have decided they want to help their employees achieve financial security after all--so long as they can do it on the cheap via education. Paternalistic? Maybe, and done wrong it can backfire. (Remember McDonald's infinitely insensitive 2013 sample budget for workers suggesting they survive on fast-food wages by holding two jobs?)

But even Warren's creation, the CFPB, is now pushing employers to provide financial education and tools, asserting in a report last year that such efforts pay off by reducing workers' financial stress and increasing their productivity. In January 93% of large employers surveyed told Aon Hewitt they're likely to offer programs promoting employee overall financial well-being (not just retirement), up from 76% in 2014.

So far 26 employers, including United Technologies , Geico, Salesforce.com and Sports Authority , have signed up to offer HelloWallet. Workers pay nothing, while employers are charged anywhere from $50 to $100 per user a year, with rates falling as the number of users rises. Some 91,000 workers--17% of those eligible--have set up HelloWallet accounts.

New users are enticed to link their bank, credit and retirement accounts with an offer to show them how their financial stats compare with their peers'--a pitch HelloWallet has found works well. (It has conducted 300 randomized controlled trials--some very simple--to see what works best to increase participation and change behavior.) Once a user's accounts are linked, the suggestions start. The program might advise someone which credit card balance to pay off first; recommend a higher 401(k) contribution to snag a full employer match; or urge a tax-saving flexible spending or health savings account if a worker has high out-of-pocket medical costs.

If HelloWallet spots a monthly fee on a credit card, it will suggest you look for a different card. If you are hit with a checking account overdraft fee, it sends a nag reminding you of the total fees you've paid this year and a suggestion that you call your bank and lobby to get the overdraft charge removed. Over time HelloWallet has learned that alerts about overdraft fees are appreciated by workers, whereas e-mails carping about their Starbucks habits are not.

"We started out pretty paternalistic, where we would judge on our side what we thought were good expenses and bad expenses," admits Fellowes. "For most people it didn't resonate, because those expenses brought them happiness in their lives. As an anonymous software company trying to build trust in a relationship with someone, it's very hard to start by telling them they are being bad."

Still, if a worker does elect to list coffee shops as a line item in his monthly budget HelloWallet will send an alert if he approaches his limit--putting a positive spin on it. Example: "The end of the month is near, and you're close to meeting your monthly spending for coffee shops. If you don't plan on spending more, you'll be on budget this month."

Participants hear from HelloWallet by e-mail, text message and mobile alerts an average of eight times a month. A user can adjust how often he wants to be bugged and under which circumstances. Notably, active users are on average younger.

Results? HelloWallet claims that workers who use its service for a full year increase their savings by 29%. But one thing it doesn't do is tell workers how to invest those added savings. That's already a big business for new corporate parent Morningstar, which manages $39.4 billion in 401(k) assets for more than 1 million workers at 100,000 companies. "We want to take spenders, convert them into savers and then convert those savers into investors,'' says Fellowes, who now holds the title of chief innovation officer at Morningstar.

While HelloWallet is the leading provider of automated-only employee financial advice, it has plenty of competition in the workplace. LearnVest, for example, provides individualized financial plans and access to human planners to 25,000 workers through 15 employers. CEO Alexa von Tobel won't say what employers are charged for this service. (LearnVest's price for those signing up on their own is $299 for a financial plan, plus $19 a month.)

Sixteen-year-old Financial Finesse, which offers financial education webcasts, workshops and help lines, has signed up 600 employers, with costs depending on the choices a company makes from an á la carte menu.

Meanwhile, outside the workplace lots of new apps--including some on the new FORBES Fintech 50 list  --nudge consumers to get their finances in order. Level Money, for example, reminds users how much they have left in their bank account to spend for the day, week and month.

Yet Fellowes himself estimates that only about a third of those needing advice want to get it solely from a computer. So why bet it all on code? "I saw in software an ability to scale what had been an unscalable business," he responds.

See our complete coverage of fintech and our first list.