Participant disclosure: How to say 'know' when you can’t say 'no' – Carosa
What plan sponsors can learn from David Copperfield – the magician, not the novel by Dickens.
In 2013, while performing his famous “Lucky Number 13,” magician David Copperfield invited 13 randomly selected audience members to the stage where he asked them to sit inside a large box. After they all got comfortable, the box was raised in the air and covered with a curtain.
After spouting a few magic words, Copperfield raised the curtain to reveal those 13 men and women had vanished! The audience gasped audibly (probably more so if one of those missing audience members happened to be a spouse). Copperfield smiled that kind of smile only a supremely confident magician could smile and said, “Everyone look behind you.”
Much to their surprise (and relief), the missing people appeared standing in the rear of the theater. What followed was a tremendous applause… and a lawsuit.
One of the 13 people claimed he was injured in the trick and sued for damages. Copperfield was eventually found not liable, but not before he was forced to reveal his trick that explained how the people got from the stage to the back of the theater (i.e., tunnels in the MGM Grand Resort).
Speaking of avoiding liability, plan sponsors can’t deny participants from seeing plan-related materials (see “Where Can A Plan Participant Find the 401k Plan’s Investment Policy Statement?” FiduciaryNews.com, February 13, 2020).
What they can do, however, is take a page out of David Copperfield’s playbook. Actually, it’s a page from behavioral economics. But alluding to an illusionist captivates more readers, so let’s go with that metaphor (with the appropriate subtitles).
Magicians entertain because they train themselves to become experts in misdirection. They make exaggerated and animated movements with their right hand so you’re not paying attention to what their left hand is doing. Then they switch your attention to your left hand while their right hand performs the actual trick.
Behavioral research calls this “anchoring.” Anchoring occurs when you focus your attention on one predetermined element “just because.” You may think there’s a good reason for this undue focus, but that’s just your “confirmation bias” (another behavioral anomaly) kicking in.
Again, think of what a magician does. He wants you to anchor your attention away from the real action. He’ll use words to reinforce your decision to focus only on the anchor he’s presented to you. This plays precisely to your confirmation bias.
How does this help plan sponsors? Here’s an example:
Plan participants have every right to read through the plan’s Investment Policy Statement (IPS). What does reading that document offer the participant? Some of the information in the IPS may be helpful, but much of it can be unhelpful.
It can be unhelpful because it contains details of the plan’s investment policy that the participant can do nothing about. In fact, the only choice offered a participant is the choice of the investment options.
This is where the “anchor” of demanding a review of the IPS needs to be changed. To accomplish this, plan sponsors need to become familiar with another trick from behavioral finance: “Framing.” Specifically, I’m talking about “re-framing.”
Much of what the participants want and really need can be contained in the periodic due diligence reports that the IPS should call for. These reports contain specific detailed data on the performance of each investment option – both on an absolute basis and with respect to their perspective benchmarks.
So, how should a plan sponsor react when a participant asks for an IPS?
Well, the plan sponsor cannot say “no.” But the plan sponsor can do this: Deliver the IPS in the right hand, but, in an exaggerated and animated manner, offer the “real” data in the left hand by providing the due diligence report.
Do what a prestidigitator does. Talk up the greater relevance of the due diligence report. Appeal to the plan participant’s confirmation bias.
It might just be the magic the plan participant is seeking.
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