President Obama recently called for a new fiduciary standard for retirement plan advisors, saying, “the rules governing retirement investments were written 40 years ago … I am calling on the DOL to update the rules.” You might have missed this story — or at least assumed that designing a fiduciary standard is the fraught work of policy makers. The reality, however, is that this issue is deeply connected to how we make decisions on digital displays, which is of crucial importance to investors, businesses, and policy makers.
The details of the proposed new rules are sure to raise questions about things like fee disclosures and conflicts of interest. Such a debate is unavoidable. But I also believe it will be a distraction, preventing us from considering a far more urgent set of questions for retirement plan advisors, consultants, and those tasked with evaluating benefit plans for their businesses. Simply put, we need a fiduciary standard for the digital age, one that takes into account the fact that people saving for retirement are increasingly making major financial decisions on screens and smartphones.
If the job of a plan fiduciary is to act in the best interest of their plan participants, then research suggests they need to understand how people think and choose in the online world. In the twentieth century, being a fiduciary for employee benefit plans meant having a deep knowledge and expertise of investing. Now, in the twenty-first century, these fiduciaries need to add digital expertise to their skill set.
Let me explain with an experiment Professor Richard Thaler of the University of Chicago and I conducted onMorningstar.com. The experiment itself was straightforward: we asked two groups of Morningstar subscribers to allocate their retirement savings among eight different funds. The first group was presented with a website that had four blank lines on it, although there was a highlighted link if people wanted to select additional funds.
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