Defaults, disclosures, advice and calculators: One size does not fit all

Abstract

The effect of regulatory standards regarding the presentation of investment products on financial behavior is poorly understood. In two incentivized online experiments (N = 2,221) we examine the impact of information-based and tool-based guidance on the selection of retirement plan investment funds. Participants chose between funds that followed identical investment strategies but charged different fees. Over multiple trials, participants were instructed to identify the fund which charged the lowest fees given their hypothetical plan balance. Defaults and disclosures were found to be situationally helpful, but highlighted participants' naivete with regard to the calculations underlying the fee structure. Advice tended to be underutilized but was beneficial when sought. Tool-based guidance in the form of a smart calculator had a moderate impact on accuracy but benefits did not persist. Together the results highlight the danger of taking a homogeneous approach to financial guidance and emphasize the need to build consumer competency.