Boutique

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Resolution Foundation seminar
Influencing financial behaviour the role of
Generic Financial Advice

• 29th June 2007

An Industry Perspective Ian Costain, Head of
Industry Affairs, AXA Life
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What I want to cover today

• . is a look at how what the industry does today
  takes account of human behaviour - with a focus
  on the planning ahead dimension
• consideration of the old adage sold not bought
• findings from the workplace
• marketing and sales techniques used in response
  to human behaviour
• insights from the AXA Avenue study
• thoughts, in conclusion, on what it might mean
  for Generic Financial Advice

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But first a couple of overriding observations

• Helping people help themselves
• i.e. encouraging in people behaviour that is in
  their own best interests
• Resolve potential tension between
• encouraging personal responsibility and
• shaping what determines behaviour
• by recognising policy can have twin goals
• empower and give choices and
• set the defaults to be in the best interests of
  individuals

• People are not rational economic human beings
• perfect information is not the answer to
  imperfect human behaviour
• Also need to guard against an over focus on
  logical mechanistic models of human
• behaviour while insufficient attention is paid to
  the emotional component in decision
• making and actions we are a rationalising
  species rather than a rational one

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Consideration of the old adage sold not bought
The acronym AIDA describes the basic process by
which people become motivated to act on external
stimulus A - get their attention I -
create some interest by ensuring it is relevant
and potentially advantageous D - create desire
by demonstrating how the customers identified
needs can be met A - overcome natural inertia
and caution by being encouraged and prompted to
take action used in sales training as it also
describes, of course, how sales are made
We want to own our homes, and therefore take out
mortgages We want new cars, and therefore take
out loans People wanting to put in place better
financial plans for themselves is an altogether
different proposition!
Do we need much more than a rudimentary
understanding of human behaviour to conclude that
persuasion is fundamental in overcoming inertia
in order to move people from Desire to Action?
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Findings from the workplace

• Sometimes its difficult even to give money away!
• estimated 4.6 million workers who are not taking
  advantage of contributory schemes that their
  employer provides
• sophisticated communication tools have been
  developed to increase employee engagement..

E.g. blue collar staff
E.g. white collar staff
High Value
High Value
Text
Email
Printed Generic Material
High
High
Email
Text
Printed Generic Material
Tailored Printed Material
Tailored Printed Material
Volume per
Desk Drop
Standard Presentations
Desk Drop
Standard Presentations
Bespoke Presentations
Outbound call centre
Outbound call centre
Bespoke Presentations
Web cast
Low
Web cast
Low
One to one advice
One to one advice
DVD
DVD
Low Value
Low Value
50
100
150
200
50
100
150
200
High
Low
High
Low
but the principal solution to overcoming
inertia is still auto-enrolment
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Marketing sales techniques used in response to
human behaviour

• Sales approach
• disturbance consequences of inaction/relating
  to people that you know
• questioning to help people think through
  implications
• making people feel like its their decision
  coming to their own conclusions
• limiting range of options/addressing one goal at
  a time
• follow-ups to ensure action

• Developed implicitly
• in response to
• behaviours such as
• inertia
• time pressure
• loss aversion
• mental short cuts
• over-confidence
• social norms
• hyperbolic discounting

• Presentation
• demonstrating small decrease in spending now for
  large increase in spending ability in the future
  relate to small price tag goods
• case studies helping people imagine the impact
  of events
• words and pictures tailored to audience (rational
  thinking v those inspired by aspirational or
  emotional creative treatment)
• simple calculators, easy concepts

• Specific techniques
• streamlined joining/auto-enrolment
• use of default funds

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An example that specifically takes behavioural
economics into account

• Increasing employee saving save more tomorrow
• Basic Idea Whenever the employee gets a pay
  rise, a proportion of the additional
  increase goes to their pension
• Result Average pension savings rate went up
  from around 3 to about 11 over a 3 year
  period
• Why it worked well
• takes contribution increases only out of pay
  rises addresses loss aversion
• contribution feels much smaller using
  hyperbolic discounting positively
• organised across the company harnesses social
  norms

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Insights from the AXA Avenue study

• Learnings from the provision of advice
• much of the advice given to the AXA Avenue
  participants was really quite generic
• for the most part advising people on how to help
  themselves
• need for advice to be both personal and relevant
  in relation to the individual
• importance of persuasion in order for action to
  be taken
• trust in the adviser is imperative
• importance of ongoing engagement to reinforce
  continued appropriateness of decisions
• positive impact of advice on the participants
• Living on a State Pension participants tried
  to live for a week on a State Pension
• most ran out of money after a day or two
• became aware of the consequences of not taking
  action

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In conclusion

• Helping people help themselves
• key measure of success for Generic Financial
  Advice is meaningful action being taken by
  customer - as opposed to we gave them the
  necessary information from which they could have
  figured out what was best for them
• some US studies have shown that financial
  education increases peoples intentions to save
  but has minimal impact on actual behaviour
• Lots of learnings for Generic Financial Advice
  out there on what works
• advice needs to be personal, relevant and
  specific
• persuasion is a fundamental component
• importance of follow-up and ongoing reinforcement
• it is not a case of build it and they will come

Auto-enrolment is required as a policy response
to overcome inertia even when there is free
money to be had so this tells us that, in order
to be effective, Generic Financial Advice will
need to incorporate a strong element of persuasion