“As 401(k) advisors, a lot of what we do is counseling,” said Kelli Grelles, who considers herself a “behavioral financial advisor” in her role as Participant Engagement Consultant with Moneta Group.
Grelles hosted a recent session of the Excel 401(k) 2020 Digital Series, titled, “Using Behavioral Finance to Improve Employee Outcomes,” to discuss how advisors can influence participant success by gaining a deeper understanding of how human beings make decisions.
She shared how advisors might feel frustration when they feel like they give participants all the information and tools they need, yet participants still seem to make decisions that are not in their own best interest.
With a goal toward helping fellow 401(k) advisors understand how they can use behavioral finance principles to make a more significant and positive impact for participants, Grelles shared a variety of tips and techniques she uses when presenting to and working with plan participants.
“What I really want to communicate today is understanding why people make the decisions they do and how to help direct those decisions,” Grelles said.
But there is a clear distinction between “directing” those decisions and making them for them. Guiding decision-making is more than just telling someone what they should do; it’s anticipating and understanding why they may want to do something other than that. People make decisions based on how those decisions make them feel, Grelles said, so a lot of it’s not rational.
“We are not trying to tell people what to do. We are trying to help them make their decision,” Grelles said. “It’s really tempting to tell them what to do, so that you don’t have to watch them struggle through the process. But the process is important, because it’s really important that that decision is theirs.”
She told the Excel 401(k) session audience why it’s so important to know your client and their participants before presenting to them, or you risk losing the room right out of the gate.
“If you’ve ever been the one that goes out there and tells a room full of Millennials they need to skip their morning coffee, you know how that goes over,” Grelles said. “People don’t like being told what to do. They don’t like being told how to spend their money. They don’t like being criticized for decisions that they’ve made.”
Seizing a captive audience
So how can a 401(k) advisor make that captive audience in the room want to listen to what they have to say?
Grelles said sometimes she’ll start out by scaring them a little, using data points such as:
- Only 22% of workers are very confident they will have enough money in retirement
- 45% of Americans have saved $0 for retirement
- $220,000 is the amount an average 65-year-old couple can expect to spend over 20 years on out-of-pocket health care costs
“You don’t want to make it so scary that it seems insurmountable, but you want it to be just enough that they relate to it and see themselves in that situation,” Grelles said. “They want to listen to you because they think you might be able to help them get out of that situation.”
Another important thing? Setting expectations at the beginning. Tell people why you’re there.
“I’m not here just to check a box,” she might say in opening a presentation to participants. “I’m here because there are some things I want you to think about,” going on to mention how much they should be saving, how they’re going to reach that savings target, where the money is in their plan (and if that’s where it should be).
But she cautioned advisors, “don’t just offer problems, but also solutions.”
If the goal is to improve decision-making behavior, offering guidance to help them make good choices on their own might mean using repetition—but without nagging.
“Nagging and repetition are different. Humans are going to exhibit a preference for something they are familiar with,” Grelles said, so it’s a good idea to reiterate key points or ideas from past presentations in individual meetings or subsequent sessions on topics like budgeting, financial wellness or debt management.
She also emphasized that using relevant, relatable examples to reinforce how important these decisions are can be effective.
The entire session, “Using Behavioral Finance to Improve Employee Outcomes,” from the Excel 401(k) 2020 Digital Series event can be viewed on-demand by following a few simple instructions at the link below. The series continues with new half-hour sessions each weekday afternoon well into November.
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