OPINION | Advancements in technology, notably artificial intelligence and big data, and an increasingly sophisticated appreciation of how behavioural strategies affect funds’ understanding of, and influence on, their members are two mega-trends set to reshape the superannuation industry over the next decade.
In short, there will be a synergistic collision of behavioural finance and technology to create ‘behavioural fintech’.
Technology may be part of the solution, but it is also part of the problem. It is enabling a flood of information to permeate our daily lives, much more than our brains were designed to handle. Our cognitive capacity reaches its limits quickly and throws up defense mechanisms to filter information and avoid seemingly unnecessary thinking. When the problem is information overload, the answer is not more information.
In this context, some current well-intentioned attempts by super funds to better engage members might be having the opposite effect. We should not use technology to open another floodgate – the one containing all the information about superannuation that we think members should know. If we do, we should not expect our letters and emails to be opened, or our forms to be completed correctly.
The traditional route to influencing behaviour is through member education: teach them what they need to know about saving for retirement; show them what they need to do, give them the tools, and sit back and let them shine. This might work for some, but clearly it doesn’t work for many others. The reason is that the barriers to action for most are not rational, but behavioural. And behavioural barriers require behavioural solutions.
Members will not thank us for making them the best-educated paupers in the retirement village! A behavioural fintech approach can use technology to find alternative ways to influence outcomes.
The following five steps are a brief summary of what I will present to super fund employees across Australia at a series of seminars, Digital: the game changer for your members, hosted by the Australian Institute of Superannuation Trustees (AIST) later this year.
Step 1: Simplify things
We can’t escape the fact that super is complex. But we can make the subjective experience of it less overwhelming. We should layer information, break it into individual steps, focus attention on the next step, and show how much progress members are making. Giving members a 100-page product disclosure statement (PDS) and a 15-page paper application form is almost the antithesis of this. But while lengthy disclosure documents might be a necessary evil in some cases, this does not mean there aren’t ways to better engage members.
The behavioural fintech approach would deconstruct the members’ decisions and required actions into steps and use technology to guide the member through those steps. When you do this, it can be surprising how many decisions and steps are required to, for example, submit an application for insurance. At each step of the process, appropriate influencing strategies (‘nudges’) can be applied to overcome the barriers relevant for that step.
Step 2: Make it personal
How does this affect me? It’s a fair question, and not one that is obvious from reading some member communications. Communication channels need to be de-cluttered by removing material not directly relevant to the member viewing it, offers and communications need to be tailored, and member-relevant guidance provided.
Using technology to access more, better, and better integrated member data can be a stepping-stone to achieving this, and some funds are well down this track. But even using existing technology and limited data, opportunities for improvements can often be identified.
For example, a letter stating that my balance might be transferred to the Australian Taxation Office could be amended to make it more personally relevant by telling me the actual quantum of investment earnings or insurance benefit I could potentially lose as a result. If you tell me that I stand to lose an estimated $5425 (based on last year’s earnings) I’d pay more attention than if you just tell me I might lose “investment earnings”.
Step 3: Make it easy
Behavioural research shows that even the smallest impediments can sometimes stop people from completing a task. Every time the member has to make an additional click or turn another page, the chances increase that they will fail to do so. But as an industry, we throw much bigger hurdles in their way than mere clicks and page turns – hurdles that members sometimes stumble across seemingly without warning.
The behavioural fintech approach would be to remove as many of these small frictions as possible and provide smart defaults and easy comparisons. Technology can assist here. Simple approaches include auto-populating forms with information a member would otherwise have to track down, helping them make comparisons between options by highlighting the aspects that are most relevant for them, and providing them simple rules of thumb or relevant social norms.
Step 4: Make it enjoyable
I’ve not seen a survey that asks members how many consider superannuation to be fun, but I can guess the likely response.
However, that doesn’t mean the way we engage has to be dull. Gamification is a funky catchword, but the concept is simple: make it fun and people are more likely to do it.
My personal favourite strategy is using mini-behavioural finance quizzes to create surprise, and to allow members to view their response relative to others. I then link the quiz response to real-world financial decision-making. (I plan to employ some of these strategies with participants at the upcoming AIST workshops!). For members, prediction contests and share-market games can similarly create a gamified environment linked to real-world member decisions.
Step 5: Make it tangible
Behavioural research has demonstrated a disconnect between the way most people view their current and future selves. Our current selves live in a multi-sensory, tangible world, full of emotions. Our future selves populate an abstract, probabilistic world that many members can scarcely imagine. The difference distorts member behaviour, causing them to favour the present over the future version of themselves, and creating difficulties for funds trying to engage with them.
While this present-future gap will gradually close as members near retirement, behavioural fintech can help open a window into this future. The concrete language used in communications, the senses stimulated through videos, and perceptions tickled through aged avatars all can play a role.
You don’t need to be fancy
None of the above is rocket science. Yet, for a number of reasons, a large gap often exists between current practice and best practice. The trick seems to be in implementation. As an industry, we seem to have our own knowing-versus-doing problem.
There is a lot of cool technology on the horizon. But well-documented strategies using relatively simple technology can make a big difference. The barriers to using them can be legal, operational or financial, but sometimes they appear to be merely the result of existing cultural norms and ways of doing things. In some cases, I think all that is required is a fresh set of eyes to view existing member engagement through a behavioural fintech lens and provide constructive ideas about how things could be done differently.
At the upcoming sessions with AIST, I will invite participants to bring with them a piece of employer or member communication they would like to improve and challenge and assist them with applying these principles to their own engagement strategies.
For more information or to register your interest in the workshops, click here.
Simon Russell is the director of Behavioural Finance Australia. He is also the author of Applying Behavioural Finance in Australia.