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Behavioral Bites
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“Behavioral Bites” is a series of brief, thought-provoking behavioral economics ideas.


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Top tags: behavioral bites  behavioral economists  brand  financial wellness  QDIA 

Is There a Downside to QDIAs?

Posted By Warren Cormier, Friday, January 25, 2019

I am a big fan of default investments, such as target date funds (TDFs), because of the way they have improved the average participant's investment profile. However, recent results from an AllianceBernstein study indicate that the impressions people have regarding what a TDF does for you, and more importantly what it doesn’t do for you, are significantly distorted among 30-40% of participants who use them.

The key concern is that many people feel they are guaranteed to not lose value. Furthermore, many believe the target date year indicates the approximate time the retirement account is sufficiently funded for retirement. Defaulting people into investments they don’t really investigate before buying is certainly part of the problem. We need to significantly boost education around TDFs so that people will understand what they bought and not be set up for a potentially huge disappointment.

Tags:  behavioral bites  QDIA 

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Are We Measuring Retirement Readiness the Right Way?

Posted By Warren Cormier, Friday, January 18, 2019

Typical measures of retirement readiness include dimensions related to one’s accumulation or projected accumulation of retirement assets. However, I would argue that this measure needs to be factored by financial wellness. Our research has shown consistently that two people with the same income and financial resources can have very different results in their quality of lifestyle.

The difference between these two people is their financial wellness. The financially "well" person can stretch money far more than the financially "unwell" person, particularly in retirement. Getting an accurate and realistic assessment of retirement readiness in the United States is going to require an assessment of financial wellness.

Tags:  behavioral bites  financial wellness 

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Is Engagement Really Important?

Posted By Warren Cormier, Friday, January 11, 2019

We hear a great deal about fostering engagement among participants when it comes to retirement savings. However, with today's prevalence of automated features does engagement still matter? The answer is “yes!"

In our models we have found that people who are highly engaged in activities surrounding their retirement account have much higher deferral rates and are much more likely to trust and heed the communications messages from their recordkeeper and employer. Perhaps most importantly, engagement drives what we call "financial courage" – the strength to stick to their retirement journey regardless of what happens to the market or to their personal situation. Essentially, engagement creates a much higher probability of retirement readiness.

Tags:  behavioral bites 

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Who Should be Designing Education Materials for Participants?

Posted By Warren Cormier, Monday, January 7, 2019
Updated: Friday, February 1, 2019

Throughout the history of participant education we have seen materials that are filled with jargon, have disconnected thoughts, and generally provide much more information than is needed to make a decision. Certainly, some of this can be attributed to compliance issues. But not all of it.

Participant materials are often developed by highly financially literate people. We know that behaviorally, highly financially literate people strongly underweight the complexity of the materials they are tasked with communicating to an unsophisticated audience. This has resulted in the excessive use of financial terms that few participants understand, thoughts that are disjointed, and far too much information. My suggestion is to find a good communicator who can grasp the concepts and let her or him explain it to participants.

Tags:  behavioral bites 

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How Relevant Are You to Prospects?

Posted By Warren Cormier, Friday, January 4, 2019

One of the most common phrases I've heard from sales people is, “I can’t get the prospect to give me even five minutes!” It’s likely because you are irrelevant to their personal or business success. The reality is that most requests for an initial meeting are perceived as being asked by a stranger for a personal favor that may not have any obvious return.

A concept we have developed that has shown remarkable results is called the “free meatball.” Recall how you feel when you are served a free and unexpected delicacy (maybe a meatball) from the chef before you have even ordered dinner. Applying that concept to approaching plan sponsors is sure to increase the success of your attempts to kick down doors. You have a wealth of potential free meatballs -- things you can offer for free that have substantial value to the plan sponsor. Think about it.

Tags:  behavioral bites 

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What is Your Brand Personality?

Posted By Warren Cormier, Friday, December 14, 2018

One of my favorite behavioral economists, Meir Statman, devised a concept known as “brand personality." Essentially it says that your brand (and it may be your personal brand) is made up of three parts:

  • Utilitarian: What the brand product(s) (or you) actually does
  • Emotive: how the brand makes people feel about themselves when they associate themselves with the brand (including you)
  • Emotional: how your brand makes you feel about yourself

This model helps to explain why some people will pay $30,000 for a watch that doesn’t keep time as accurately as a $25 watch. Imagine your sales results if your brand had achieved this status -- I would get started on it right away!

Tags:  behavioral economists  brand 

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Behavioral Bites: What Is Your "Wow" Factor?

Posted By Warren Cormier, Monday, December 10, 2018

It takes a great deal of (sometimes painful) introspection to determine if you truly have a “wow” factor. Many providers feel they have one, or maybe even feel they have several. A method called “Kano Analysis” can certainly help you figure it out. Among other things it will tell you if your prized products and services are simply what is necessary to compete at a basic level, are irrelevant to your success, or are a “wow” factor.

After years of conducting this form of analysis in the retirement industry, very few users have ever concluded they have a true “wow” factor (also called “surprise and delight"). If you don’t have one, you can continue to slug it out in the sales trenches. If you find a true one that can’t be replicated, doors will open. But beware -- today’s “wow” may be tomorrow’s table stakes.

Tags:  behavioral bites 

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Behavioral Bites

Posted By Warren Cormier, Monday, December 10, 2018

Warren Cormier


by Warren Cormier
Executive Director
DCIIA Retirement Research Center

“Behavioral Bites” is a series of brief, thought-provoking behavioral economics ideas.

The Decision Path to Your Sales Success

In my years of observing the decision-making process among plan sponsors as they purchase retirement plan products and services, I have seen a startlingly consistent decision path:

  1. A strong brand will get you invited to a sales battle.
  2. Competitive product bells and whistles and marketplace experience will get you a ticket to the finals.
  3. How the prospect feels about you -- how much they trust you to do a great job, be honest with them, and put their needs first -- will get you into the winners' circle.

If you don't meet all three of these conditions, you will find selling very difficult. Keep in mind, the prospect often does not have the technical tools to assess the things you’re telling them and has to fall back on their sense of confidence in you -- much the same as when you are speaking with a surgeon or an auto mechanic. At some point, you decide whether you're going to trust them or not.

What Is Thought Leadership?

We hear the term “thought leadership” used frequently -- and most of the time it is used improperly. Simply providing new data is not necessarily true thought leadership. Behavioral economists such as Stanford's Chip Heath offer up a definition that I believe captures its essence: Thought leadership makes people think differently about a familiar topic; secondly, and more importantly, it causes people to change behavior.

Thought leaders from history include Nikola Tesla, Nicolaus Copernicus, and Charles Darwin. How many thought leaders or examples of thought leadership can you name that have come from the retirement industry in the past 10 years?

Do We Overestimate How Good We Are?

If you’re selling products and services in the highly commoditized retirement industry (yes, I said it), it is likely you’re going to have to take over another provider’s turf in order to grow. You should know that “relational inertia” can be extremely strong. That is, even if a client knows that they could get a better deal elsewhere, they may well stay with an existing provider much longer than makes sense on paper.

Consequently, you need a great value proposition to upset this equilibrium -- but be realistic about what you’re offering. Buyers tend to underweight your differentiation while sellers are notorious for overweighting it. Something really dramatic may be required in order to shake the business loose.

Are You Playing to Win -- or Not to Lose?

In general, people hate to lose. In fact, they hate to lose more than they love to win. Why is this important?

When plan sponsors pick a new provider such as a recordkeeper or an advisor/consultant, they often are playing not to lose (i.e., have a disappointing outcome – people hate to feel regret), rather than to hit a home run (i.e., find a new provider with new ideas that produce results).

Essentially, many people may not be trying to find the provider that is the optimal solution, but rather they're trying to find a safe solution that they can count on to do a good job. Perhaps unfortunately, working to engender confidence and a sense of safety may be more important than innovation.

Have You Commoditized Yourself?

When thinking about how unique you are as a provider, ask yourself this one simple behavioral question: What would the market you compete in be missing if you didn’t exist tomorrow?

If you are painfully honest, the answer is hard to find. In fact, very few people I have asked that question can come up with an answer. Arriving at a solid response would seem to be marketing's number-one job.

Hint: the best answers very often have nothing to do with product features but rather the human element.

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