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What’s Really Wrong with 401k Employee/Trustee Education

October 07
00:03 2014

Robert A. Massa had just completed an employee education meeting for an insurance TPA. “And it went great,” he remembers feeling. “The employees were really engaged, laughing, and seemed to really absorb the information. There were 862490_29326952_chalkboard_stock_xchng_royalty_free_300a lot of great questions and the employees all said they felt as if they had learned a lot.”

Massa, Director of Retirement at Ascende Wealth Advisers, Inc. in Houston, Texas, did everything the presentation pros suggest. “During the meeting,” he recalls, “I really tried to remove the industry jargon. I also found places to insert some humor into the discussion which kept the audience’s attention.” In all, it seemed a perfect pitch, smack down the middle of the plate, “or so I thought,” says Massa.

After the general meeting, he sat down with employees for the usual one-on-one session. What Massa discovered surprised him. “Many still felt uneducated,” he says, “with little information available to them and uncertain about what they should do. I felt disappointed in myself as I failed to help them.”

Massa’s experience is not unique. The halls of many a 401k general education session contain the ineffective carcasses of hundreds of “sure-fire” presentation templates, even when given by acknowledged industry experts. Jon Parks, CEO of 401k Strategies in Hunt Valley, Maryland, says, “When you have a lot of knowledge in a given area, it sometimes is hard to find the right level to speak to your audience. Financial advice is such a personal topic it can be easy to misfire when you’re communicating with a group seeking to find a common denominator.”

One may explain in exquisite detail the proper actions for retirement investors to take. Those same investors may actually nod in apparent understanding. But, when the rubber meets the road, their gas tank is empty. The plan sponsor has been kind enough to provide a professional to them for assistance, yet they clam up. Why? “They’re embarrassed,” says Parks. “Often, people tell me that they know they should do planning. Many of these same people also know that they are not going to be able to – or have the time to – Google their own way to all the things they should know. They do not want to expose their financial mistakes, inexperience, and naiveté, to a peer or unknown professional.”

It’s not just the employees. It’s often more difficult to educate the plan sponsor. You’d think they’d be more motivated to learn, given the nature of their legal responsibilities and the liabilities that entails. Massa says, “Providing fiduciary education to plan trustees can be frustrating if the fiduciaries don’t take the risks seriously. The DOL has made it clear that fiduciary education is important and needs to be provided regularly. But if a fiduciary is busy, they will often find this presentation unnecessary to attend.”

Let’s be fair. Disappointing education results extend far beyond the realm of the retirement world. Professional educators are just as frustrated trying to figure out how to teach today’s youth. If full-time school teachers find the job hard, imagine the challenge for financial professionals. Massa believes the number one reason trustee/employee education has failed “is in what we teach and the way in which we teach it. The information has to be interesting and engaging. It also needs to be presented in a way that is interactive and asks them to apply it in a practical and meaningful way. You need to remove all of the jargon we often get caught up in and speak to your audience in their language, not yours. Finally, you need to be sensitive to their time. Offering a retirement plan is important for the well-being of the employees. However it is also a burden on those who run it and distracts many of them from running their business. For employees, while it’s important to save for retirement, many of these employees are living paycheck to paycheck and have never had any tangible education in personal finance. Offering information that is easy to understand and digest is a vital part of reaching your audience.”

Is it as simple as that? Is it merely a matter of providing lessons that are “easy to understand and digest”? Or is it more the nature of the audience itself? Parks feels, even if you provide the “by the book” rules, the listeners won’t believe it. For example, he says, “Our brains tell us that savings is linear. Our brains don’t understand that it is exponential. It just seems too hard to save ‘a lot of money.’ The key is to keep illustrating that ‘a lot of money’ comes by saving ‘a little bit of money’ over a long period of time. Life is a lot longer than most people think! They will likely work a long time after age 65. Time and small savings is the key, but it is a hard message to internalize.”

However, let’s reconsider Massa’s earlier point. He cites part of the reason for the failure of employee and trustee education lies in “the way in which we teach.” Financial professionals often frame the lessons in the same way a textbook would frame them. Unfortunately, those are the same textbooks that have produced education failures at a much broader level.

Oddly, we know the answer to the education dilemma, although many may cringe at the thought of the source. Robert Cialdini, author of several books on behavioral psychology and the art of persuasion, has identified several motivating factors. He calls them the “Six Principles of Influence.” One of the most effective way to produce “automatic unenforced compliance” (a fancy way of saying “getting employees to invest early and often in their retirement”) is to employ the types of brainwashing techniques the Chinese used on American POWs during the Korean War.

These proven psychological techniques don’t require changing the content of the presentation or even removing the jargon. What they do accomplish, though, is reframing the nature of employee and trustee education. Call them “tricks of the trade.” What’s more, most of the research done in this area uses old fashioned technology. Imagine putting the power of influence into modern 24/7 delivery systems.

Next week, we’ll reveal exactly how these methods can be successfully implemented in standard employee/trustee education programs.

Can’t wait until next week’s article to learn more about applying Cialdini’s “Six Principles of Influence” to help 401k investors do what you suggest? Mr. Carosa will be speaking at CFDD ’14 in San Antonio, Texas, next Wednesday, October 15, 2014 at 10:15 in room TexasE on the subject of “Using Proven Psychological Techniques to Motivate Plan Sponsors & Participants to Implement Your Recommendations.” The session will feature a unique but highly effective presentation style and feature tools mentioned in his new book Hey! What’s My Number? – The One Thing Every Retirement Investor Wants and Needs to Know!

If you’d like to discover other important topics confronting 401k fiduciaries, then you’re invited to explore Mr. Carosa’s book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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