When executives at financial institutions talk about launching a worksite marketing program, their strategy seldom amounts to much more than selling products the way they have always sold them, except at work. Insurance companies want their agents to meet employees at lunch to sell them auto or life insurance. Banks want to put an ATM at an employer’s site.

To be sure, such efforts will generate some additional revenue and give PFS companies the chance to learn about the challenges of selling to employers and employees. One p&c insurance company found that its worksite sales are 50 percent more profitable than those generated by its traditional channels, and a regional bank discovered that its worksite branches were the most profitable in its network.

But this piecemeal approach misses a much bigger opportunity: to create a whole new channel delivering a broad range of financial products and services so that employees can meet most or all of their financial needs at work. This more comprehensive approach would allow innovative financial service companies to satisfy the desire of many employers to introduce new benefits for their employees at low cost, while providing those employees with convenient access to financial products through highly efficient distribution channels. It would also meet the preferences for education, trust, and face-to-face interaction expressed by consumers.

Worksite marketing is virgin territory for most financial service providers

No single type of financial institution is best positioned to succeed in this market, which could generate between $1 and $2 billion in annual revenues. Worksite marketing is virgin territory for most financial service providers, and our research shows that neither employers nor employees have substantial preconceptions about who is the natural provider of this service. As in many new channels, the first-mover advantage will be enormous. Financial institutions that aggressively pursue this opportunity are likely to establish strong relationships with employers and employees that will lock other players out.

A vision for worksite marketing

Every month, US employees invest billions of dollars in 401(k) plans. These investment decisions are essential to ensuring their long-term financial security, and for most employees, their 401(k) plan represents a large portion of their net worth. Does it not seem odd, then, that all of an employee’s other financial decisions should be made outside work? Might an opportunity not exist to provide a more comprehensive and integrated set of financial products and services to employees at work so that they could manage their finances more efficiently and effectively?

Suppose that a large 401(k) provider—perhaps Vanguard—decided to change this situation. Vanguard has already established a strong relationship with many employers, and enjoys brand recognition among employees who invest in Vanguard funds as part of their 401(k). Vanguard forms an alliance with Norwest Bank and GEICO to provide banking and insurance products to employees alongside its 401(k) plan, and purchases a financial planning and education business such as AYCO.

Vanguard markets this broad range of products to employers as a comprehensive financial service package that helps employees secure a stable financial future. Financial education is the cornerstone of the offering; employees can attend AYCO’s seminars to help them learn how to budget and save. They can also choose to access Norwest’s banking services through a video kiosk at their company’s headquarters, and use a toll-free telephone number to obtain unique services and a small discount on their auto and home insurance from GEICO. Norwest and GEICO work with the human resources departments at the companies concerned to help market these services in a low-key manner, and pay a fee to Vanguard for granting them access to employers.

Vanguard might then decide to expand its offering. By forming alliances with a payroll processor like ADP and a software developer like PeopleSoft, it could offer employees simple processing of all their financial transactions and easy access to financial planning software, perhaps on a company intranet. To integrate all of these services for employees, ADP and Vanguard might set up a joint venture that incorporates all an employee’s financial information into a consolidated statement and compares it month by month to the goals the employee established as part of his or her financial plan.

Naturally, there are other ways in which worksite marketing might develop. A large player such as Merrill Lynch might choose not to form alliances with other providers, instead offering a wide range of its own products through the worksite. Or the channel could evolve in a less integrated, more incremental fashion, with individual product providers offering their products independently to employees at work. Whatever the scenario, however, the worksite has the potential to become an important distribution channel.

Latent demand

Demand already exists among employers and employees for these services. However, our research indicates that most human resources managers do not want multiple providers competing for their employees’ attention. They are inclined to favor a single strong provider with a well-known brand that is willing to sell products and services at a modest discount to the open-market price. Yet most employers are only beginning to imagine the benefits of offering this type of program to their employees. In all likelihood, the latent demand for worksite marketing substantially exceeds the known demand. What are the factors fueling this demand?

Employers want to offer more benefits, but can’t pay for them. Not surprisingly, most human resources executives we spoke with have little or no money for new benefits, and no staff to administer extra offerings. However, they recognize that benefits can help in some small way to attract, excite, and retain employees, so they are eager to find new ones that incur little cost. Offering convenient access to financial services fits the bill.

Employers have shifted the responsibility for making decisions to their employees, and feel an obligation to provide them with the training to make wise choices. The growth of 401(k) plans has made employees more responsible for their own retirement. However, employers have discovered that many of their employees lack the skills to plan effectively for their future, and so are looking for ways to offer them financial education and information. American Express has already signed up 2,000 companies for its seminars, and some surveys have suggested that financial education will be a standard employee benefit within five years.

Employers are looking for ways to strengthen their implicit contract with employees. In the aftermath of corporate downsizing and deteriorating employee morale, the HR executives we interviewed wanted to make life easier for their employees. They recognize that the demands of work leave little time for taking care of life’s other chores. Providing access to vital and frequently used services like financial products, dry cleaning, and child care at work is one way that employers can demonstrate a genuine concern for improving the quality of their employees’ lives. By offering financial products and services to employees at work, financial service providers can help them achieve this end.

Because this concept is new and requires active support from employers to make it successful, not all employers are enthusiastic about it. Our research suggests that employers fall into three categories of roughly equal size. One group is actively seeking inexpensive ways to improve employee benefits, and is highly receptive to worksite marketing. A second might be interested if a financial service provider made them a compelling offer. The third group would not be interested because of union issues or a desire to simplify the benefits menu.

In general, employers with well-educated employees and progressive HR managers are the most likely to be interested in worksite marketing. Employers in large suburban locations tend to be more interested in the idea of providing convenient on-site services than are their counterparts in large towns and cities. Evidence of the latent potential of worksite marketing can be seen in the fact that even employers that were resistant to the full-blown concept still tended to offer a credit union, supplemental life and disability insurance cover, extensive financial planning services for senior executives, and some form of financial education for other employees.

In attempting to build this business, financial service companies would be wise to bear in mind a few factors that employers suggest are essential to success.

Convenience and education

While various changes in the environment have made employers increasingly excited about worksite marketing, employees have long valued the convenience of having access to some financial services at work. Credit unions, the prototypical example of worksite marketing, currently account for about 19 percent of all checking accounts, and frequently provide banking services to as many as 60 to 80 percent of the employees that could become members. Supplemental life insurance has traditionally been sold through the worksite. And as we described above, the emergence of 401(k) plans means that employees frequently make important financial decisions at work.

Employees become much more enthusiastic about worksite marketing when providers bundle products with financial education

But employees—particularly managers and other professionals—become much more enthusiastic about worksite marketing when providers bundle products with financial education. The importance of education cannot be overstated: employees in a focus group expressed a strong willingness to switch from their current providers if another institution offered them banking and insurance products combined with financial education in the workplace at a competitive price.

Employees understand that purchasing these services at work is their own choice. They realize that their employer is simply allowing services to be offered, not compelling employees to buy them. But the mere fact that the employer allows access acts as an implicit endorsement. Employees have faith that their employer has checked out the provider and that the products offered are of high quality.

The worksite opportunity is already being actively pursued by numerous players. As we noted, American Express has been signing up companies for financial education seminars, while Merrill Lynch recently announced its Employee Access Account, designed to give employees the opportunity to purchase many financial products at work. In addition, several insurance companies are planning to sell auto insurance to employees at work. Given the strength of the advantage for first movers in the worksite, these companies may be well positioned to capture a dominant share of this new channel.