Recent research conducted by Boston Research Associates and
The National Association of Retirement Plan Participants (NARPP) shows only one
in four plan participants trust their recordkeeper, a popular source of
employee 401k education. According to a 2012 Gallup survey, only 1 out of
9 people rate stockbroker as having a “very high/high” level of honesty and
only 1 out of 7 have a similar view of insurance salespeople. How bad is this?
It ranks among politicians, ad men and car salespeople. That’s not the kind of
company that endears one towards trust.
This presents a particularly perplexing problem for
financial service providers to want to successfully motivate 401k investors to
do the right thing. Fortunately, there are proven psychological tools available
to do precisely that. Dr. Robert Cialdini, author of Influence: The
Psychology of Persuasion, has studied these tools extensively. He has
categories them into a half dozen categories he refers to as the “Six
Principles of Influence.” We’ll summarize them here:
Liking –If
you like someone, you’re more likely to buy their argument (or anything else
they’re selling). And it goes beyond liking someone’s inside, it also apply to
liking someone’s outside. That’s why so many companies hire attractive people
to fill positions that require a great deal of customer contact.
Scarcity –Be
careful about this one, though. You can’t just be a “boy who cried wolf,”
especially if people are predisposed not to trust you. Crying wolf will only
confirm that distrust. Rather, use the economic principal behind this
phenomenon to your advantage. For example, we all know the company match in
most 401k plans can be likened to a scarcity. That “first 6% match” dictate
runs out at year end, when everything resets and we start counting from zero
again.
Reciprocity –
“If you scratch my back, I’ll scratch yours.” How many times have you heard
this? It’s so effective, however, that it’s outlawed in certain industries. For
example, do you know it’s illegal for a plan fiduciary to receive compensation
in return for making certain decisions concerning the disposition of plan
assets? Lawyers call this a “prohibited transaction.” This is a very powerful
influencer. It’s why companies give away so many free examples. They do you a
favor and, in return, you’ll do them a favor by buying their product in the
future.
Commitment and
Consistency – How do you memorize something? Many people will either
write it down or practice saying it repeatedly out loud. When you’re trying to
memorize something, this works. Even if you’re not trying to memorize
something, even if your don’t want to believe what you’re writing down or
saying out loud, the very act of doing it will persuade you. Why? Because
you’re making a commitment. No matter how small, committing to an idea or goal
either orally or in writing increases the chances of believing that idea or
achieving that goal. This is where those silly affirmations come from.
Social Proof –
In which case would you feel safer: camping in the woods by yourself or camping
in the woods with a group of people? Believe it or not, in some ways you’re
actually safer camping by yourself. In a group, if you hear a strange noise and
nobody does anything, chances are you won’t do anything either. And that’s a
problem if that strange noise is an approaching bear. People tend to mimic
other people.
Authority –In
terms the 401k education environment, this one is a bit dicey. One way to
demonstrate authority is to showcase your technical prowess in critical
retirement matters. “Expertise” is one of four forms of authority. Not all
forms of authority can successfully overcome the trust threshold we identified
way back at the beginning of this article. For example, the lowest form of
authority is “Entitlement.” It’s based on position and titles. Entitlement
isn’t a good weapon against mistrust. But even Expertise has a hard time
disabling the lack of trust issue.
The next form of authority is called “Engagement,” and involves
the use of informal contracts and commitments. It incorporates two of
Cialdini’s Principles of Influence, Liking and Reciprocity. Still, it’s a long
relationship-building effort that might not be practical for most 401k
educators.
The highest form of authority is called “Earned.” This is
where the true power resides. This is the ultimate psychological tool to use
when motivating 401k plan sponsors and participants to do what’s in their own
best interests.
Some have blamed speakers for ineffective 401k education
programs. They say the content is filled with too much jargon or the subject
matter simply too dry. Others place the blame squarely on plan sponsors and
employees. At least one study suggests it’s neither of these, but that it lies
solely with the lack of trust in the service providers. No matter which is
true, all these hurdles can be surmounted by the use of proven psychological
tools. It is possible to persuade and motivate 401k plan sponsors and
participants to save early, save more, and invest correctly.
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