Trust, Education & Behavior

Low trust levels in financial institutions diminishes educational effectiveness

By Warren Cormier

CEO, Boston Research Technologies

CBO, NARPP

For decades the DC industry has been using education as a key lever to change participant behavior; few would argue that this lever has fallen short of its goals. Improving participant behavior requires examining why education has fallen short. The literature sites a variety of execution issues as well as the lack of participant interest, laziness, etc. However, a factor that has never been introduced as a barrier is the level of trust participants have in their recordkeeper. Intuitively we have assumed that trust plays a role in participant behavior, but we now have data that demonstrates the specific magnitude of the impact of trust on savings rates.

Research conducted by NARPP and Boston Research Technologies has revealed that the level of trust one has in their particular recordkeeper has a profound impact on their savings behavior. Specifically, if trust is high, the participant will defer more income, contact the recordkeeper more often for advice, and use more recordkeeper products. The inverse is also true. But as importantly, participants in a low trust environment have a lower quality-perception of the recordkeeper’s education program. Furthermore, they are far less likely to agree that the “information presented is always in their best interest”.

Unfortunately, the same study showed that participants’ level of trust with their recordkeeper is very low. Only one-in-four (26%) participants said they can “always trust their recordkeeper to do what is right”. Given the impact of trust and its low level, even the best education program is seriously degraded in terms of its behavioral efficacy. We cannot ignore the fact that higher levels of financial knowledge translate into better savings rates. The DC industry can and should continue to improve its delivery and packaging of education materials. However, until or unless it increases its trust levels with participants, those improvements will have little effect on behavior.

Warren Cormier has more than twenty-five years of quantitative and qualitative experience in financial services and consumer financial decision-making. He is the Co-Founder of Rand’s Behavioral Finance Forum, and is regarded as an expert in the field of behavioral finance and retirement savings.

NARPP is a 501(c)(3) non-profit organziation whose mission is to advocate for individual savers. Through pioneering research, independent coaltion building and innovative educational programs, NARPP is making financial information transparent and universally accessible for the 145 million working Americans saving for retirement.