Why do People Fail to Act on Financial Plans, the first published report by the Behaviourally Informed Organizations partnership, takes a behavioural approach to help financial planners address two common issues that prevent Canadians from proper financial planning.
The report identifies two gaps, an inaction gap that keeps some from planning at all and an implementation gap that prevents those who have written plans from implementing them.
The BI-Org partnership includes 18 partner organizations, including the Consumers Council of Canada. The report was produced by the Behavioural Economics in Action Research Centre at the Rotman School (BEAR) at the University of Toronto.
The report presents a number of immediate benefits. It’s attractively designed, not too long with a 30-page “powerpoint-style” presentation format, and well-organized.
The report’s diagnosis and discussion of consumer types and forces that keep them from implementing plans is somewhat intuitive. Financial planners who have been in the practice for any length of time have likely experienced many of those behaviours, and may have altered their own approaches. They may not call them “naive intenders” but they almost certainly have encountered customers who are persuaded to plan but “simply need help in making things happen.” Planners may already have found approaches to turn those intentions into action.
Less intuitive will be the report’s components on the different approaches the planners need to adopt to improve results. The report poses a number of rhetorical questions. On choice architecture: “How do I embed positive choice architecture in the ongoing communication? Specifically, how can I frame my messages to elicit action?” On packaging the plan: “Should the plan be a consolidated detailed plan versus a collection of short-term brief plans?” On timing: “When is the right time to remind the client?”
The report doesn’t provide answers to those questions, which leaves it for the planner to develop. It also directs firms to consider working with behavioural experts. “We also encourage interested organizations to ‘start small’ in their interventions, relentlessly test, learn and adapt their ideas and build out experimentation capabilities over time.”
That will certainly test an industry where growth often comes from more immediate measures such as new products to sell, and new services to provide.
The report that focuses on implementation gaps and behavioural approaches of consumers may be challenged by the implementation gap it leaves for planners.
Canadians still have trouble planning for their financial futures. Financial planners across the nation find getting people interested in drafting plans – and then getting clients to act on those plans – are the two most significant barriers.
The report notes that there are two major “gaps” that lead to Canadians failing to implement financial plans. The first are the potential clients that would like to get plans but fail to do so. The report identifies five causes of this gap, from procrastination to the benefits being too abstract. The bulk of the report looks at the second gap, an “implementation gap” in which clients have written plans, but fail to act upon them. This gap has seven causes, many of which are similar to the causes of inaction, but also include overchoice and information complexity.
Clients typically fall into a number of categories. The report helps financial planners understand the behavioural foundations of these consumers, and uses relevant behavioural science to propose some recommendations to address the implementation gap. One category, “naive intenders”, do not need additional education or evidence, for example. They simply need help making things happen.
The Behaviourally Informed Organizations (BI-Org) partnership also released Seeing Sludge, a separate report on context variables that impede rather than facilitate consumers.
You have finally decided on a refrigerator. Compared prices, sizes, energy efficiency and other features. It seems like all the decisions have been made, until you get to the checkout, and you have to make one more decision – whether to purchase additional product protection.
These additional programs – sometimes called extended warranty, or service plus or protection programs – aim to reduce the buyer’s worry that the products may fail after the manufacturer’s warranty expires but before the buyer has enjoyed all the benefits expected from that new refrigerator, computer or other major household item.
Consumers may view that all protection plans are essentially the same. But there are significant differences between coverages offered. The important points of differentiation are described in the Consumers Council of Canada’s 2018 report Consumers and Product Insurance Purchase Decisions.
The report compared the coverages offered by numerous leading Canadian retailers in 2017-18. Comparisons across retailers showed there were many similarities. Items almost universally found in service contracts included:
• language that the contract was the entire agreement
• information about how to file a claim or arrange service
• rules about transferability and cancellation
• limits on liability to the purchase price of the product
• language that allows them to fulfill the contract by issuing a cheque or gift card for the value of the original purchase
• an articulation of what is covered, and not covered. “Not covered” commonly includes items that have had unauthorized service, accessories, peripherals, components with limited life (batteries and bulbs), cosmetic or superficial damage that does not affect a product’s operation, damage caused by natural or man-made disasters, loss or theft, wear and tear caused by normal aging, and abuse, misuse or deliberate damage.
While those were the areas almost always included, there were a number of areas where programs studied showed significant variance:
• Protection on replacement units. Most contracts clearly state that the contract terminates when a replacement item is issued to the buyer, but a few specifically extend the protection to also cover replacement items issued.
• Technical assistance to help with installation or troubleshooting is sometimes provided, sometimes not.
• The location of service – and whether the buyer has to pay for delivery to a specific service depot – also varies between plans. Some plans provide for in-home service.
• Some plans begin coverage only after the expiration of the manufacturers warranty, while others begin with the date of purchase.
• Some contracts provide for temporary replacements (“loaners”) while damaged items are repaired
• Language around coverage of damage is particularly varied, and important. Except for computers and smartphones, most contracts specifically exclude coverage for accidental damage. However, the popularity of handheld items that can be easily dropped has led to some offerings of protection for accidental damage from handling. This is commonly optional coverage – consumers can choose to pay extra for it. Furniture coverage may also include optional coverages for certain accidental spillage. Intent is also crucial in determining whether a claim is covered. Coverage on a dropped telephone is different from coverage of a telephone hurled in anger, and coverage of spilled drink on a sofa may be different from coverage of a toddler’s Sharpie drawings on a sofa (which may not be considered “accidental” by the service provider.)
• Optional damage coverage is one example of choice. Some providers offer different levels of service so that consumers can choose to pay higher amounts to have service performed in their home, levels of technical support above product defect or to choose different durations of the coverage.
• Another differential element of some programs are terms that allowed unused premium payments to be used as a discount on future purchases.
• Coverages can differ by province, though few consumers can choose the province in which an item is purchased.
Though the contract print is often exceptionally small, consumers should read it before making a purchase decision. The research found that misunderstandings about what was covered (1st) and misleading statements by sales representatives (3rd) were among the most commonly cited sources of consumer unhappiness.
Canadian consumers find it difficult to identify perils of buying ‘counterfeit’ goods and ‘pirated’ digital media, and industry intellectual property protection campaigns don’t help them, report finds.
Canadian consumers find it difficult to identify the perils of buying ‘counterfeit’ goods and ‘pirated’ digital media, and industry intellectual property protection campaigns don’t help them, new research by Consumers Council of Canada found.
The Council based this conclusion, found in its just-released report Consumer Attitudes and Their Role in Reducing the Impact of Counterfeit and Pirated Goods and Services, on a 2,000-person national web survey and focus groups conducted by Environics Research and on a review of academic literature and interviews with experts.
“Generally speaking, consumers set out to find a good deal when they shop and most of them don’t go looking for the kind of trouble that buying fake goods and pirated media can bring them,” said Consumers Council of Canada President Don Mercer. “But when consumers knowingly do so, their reasons can range from saving money to engaging in civil disobedience.”
The research found industry and government make little meaningful effort to work with consumer groups to address the growing presence of counterfeit and pirated goods in the marketplace. Trends reports indicate that trade in counterfeit and pirated goods has risen steadily in the last few years and now stands at 3.3% of global trade, according to a recent report by the OECD and the European Union’s Intellectual Property Office. Some sources claim this trade fuels organized crime and terrorism worldwide.
“Problematic goods are harming and sometimes killing Canadians, from fake pharmaceuticals to goods bearing forged safety certifications,” said Mercer. “Stronger enforcement by government of general consumer protections could take more counterfeits off the market, yielding better results for consumers and business and raising consumer consciousness of their risks associated with counterfeiting and piracy.”
The research found online sales are problematic because consumers do not have the same ability to examine the goods, packaging and labelling that would help them determine if a product is counterfeit as they do in a ‘bricks and mortar’ retail setting. However, it also found consumers encounter fraudulently presented goods in traditional retail settings.
Among the reports recommendations:
A single body to coordinate anti-fraud initiatives by governments across Canada
Engagement and partnership by business and government with consumer organizations to address related marketplace risks born by consumers and facilitate consumer education
Governments, in particular, and business should provide sustainable funding to consumer organizations to play an independent role in curbing marketplace fraud
Consumers Council of Canada has received funding from Innovation, Science and Economic Development Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Innovation, Science and Economic Development Canada or the Government of Canada.
A research partnership that includes Consumers Council of Canada and is being led at the Behavioural Economics in Action Research Centre at the Rotman School [BEAR] at the University of Toronto has been funded by Social Sciences and Humanities Research Council of Canada.
The partnership is composed of a team of 20 researchers and 18 partner organizations across Canada, the U.S., and internationally including private sector firms, government agencies and non-profits, including the Council. With support provided by SSHRC, the University of Toronto, other partner universities, government units, and organizations, the project commitment totals $4.8 million.
Prof. Soman holds the Corus Chair in Communication Strategy and is the Canada Research Chair in Behavioural Science and Economics at the Rotman School. He is director of the Rotman School’s Behavioural Economics in Action Research Centre [BEAR], which conducts leading edge academic research in the field of behavioural economics to help organizations better understand how real people act and in turn, design better products, services, and programs for them.
The grant was announced earlier this month by the Honourable Kirsty Duncan, Minister of Science and Sport, as part of more than $285 million in grants for over 6,900 researchers and graduate students across Canada through SSHRC, a federal research funding agency that promotes and supports postsecondary-based research and research training in the humanities and social sciences.