Vanguard is taking a cue from Kahneman, Thaler, Ariely and others, and diving deeper into 401k behavioral finance research and experimentation.
The Valley Forge, Pennsylvania-based company revealed its Center for Investor Research (CIR) on Wednesday, which it says “will be initially dedicated to the study of the behavior of individual investors. The Center will also design experimental interventions—or “nudges”—to directly improve investor outcomes.”
“Ultimately, Vanguard’s mission is to propel better investor outcomes,” Steve Utkus, principal and head of the Center for Investor Research, said in a statement. “The Center will take a data-driven, scientific view of investor behavior, and transform this knowledge into practical application. Our research agenda will advance our understanding of the fundamental nature of investor decision-making and uncover strategies to improve the financial lives of our investors.”
The CIR will continue to produce 401k and DC-centric research such as How America Saves, which is widely leveraged by plan sponsors, consultants, regulators, and academics alike.
Its reach “will extend to a range of individual investor types and demographics, including direct and advised clients, and 401k participants, as well as millennials, accumulators, and retirees.”
Potential research topics will address the behavioral and psychological aspects of investing.They include:
- investor expectations for stock market returns,
- the role of trust in advisor-client relationships, and
- the transition from work to retirement.
With more than 90 percent of Vanguard’s direct and 401(k) client interactions conducted online or via a mobile application, the new Center will also explore how investors make choices in the digital realm, informing test-and-learn strategies to guide online investor behavior.
Vanguard says it has already demonstrated “the efficacy of behaviorally-oriented interventions,” particularly among 401k plan participants, with the growing use of automatic enrollment in 401k plan design, and the design and application of online experiences to increase savings rates.
Online savings “nudges” provide personalized, specific guidance on how much participants should save to maximize their critical earnings years, and a simplified—often “one-click”—path to take action, according to the company.
“We know that successful investors exhibit smart behavior—they keep costs low, diversify their portfolio, and refrain from trading,” added Vanguard CEO Bill McNabb. “Investor behavior is at the heart of successful outcomes, and the aim of our new Center is to advance the case for better investor outcomes through research and experimental techniques in an increasingly digital world.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
