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.
Consumer desire to reduce waste and improvise recycling clashes with safety requirements on refilling smaller propane canisters.
Small propane canisters commonly used to fuel camping stoves and lanterns - known as one-pounders – are generally not refillable. Yet it is easy to find internet retailers who can provide adapters that claim to safely allow for the transfer of propane from larger barbecue containers to the empty camping containers. It’s easy to see the appeal for campers looking to reduce the waste generated by multiple empty metal containers at the end of a camping trip. The adapters can be purchased for $20 or less. There are numerous instructional videos, as well as web sites and message boards that extol how easy and smart it is.
But it’s not legal in Ontario, for a number of safety reasons. Ontario’s Technical Standards and Safety Authority issued numerous safety alert bulletins noting that the adaptors designed to complete transfers into smaller, non-refillable cylinders are illegal under the Propane Storage and Handling Code. This is because of the public safety risks posed by fires, explosions and burn hazards. As a result the adaptors cannot be sold in stores.
Propane cylinders must be filled by weight or volume at a TSSA-licensed facility, and Specification 39 canisters (the one-pound camping propane bottles) cannot be refilled at all. More details on the TSSA bulletin are available here.
Ontario campsites have large containers to collect the empty canisters, which are later vented, crushed and recycled.
The TSSA is responsible for promoting and enforcing public safety in Ontario. The Technical Standards and Safety Act regulations apply to three key sectors:
1. Boilers and pressure vessels and operating engineers
2. Elevating devices, amusement devices and ski lifts
A group of Canadian consumers recently discovered that the value of gift cards can disappear very quickly.
Most provinces have rules to protect consumers who purchase gift cards, but if the retailer goes out of business, gift card holders are likely to be treated as unsecured creditors with few options.
This story from Cabin Radio describes how a number of Yellowknife, NWT consumers purchased cards for $100 or more at a customer appreciation event shortly before a retailer was set to go out of business. Customers were particularly disadvantaged because the Merle Norman brand chose not to backstop its franchisee’s gift cards, and because the Northwest Territories is one of the few Canadian jurisdictions without gift card legislation.
Consumers Council of Canada Executive Director Ken Whitehurst is quoted in the story. He noted that civil claims might be the only option for any recovery. He also noted that consumers with no other recourse could consider complaining to the Competition Bureau of Canada or to the Canadian Anti-Fraud Centre.
The Federal Government’s Financial Consumer Agency of Canada provides a link to the different provincial rules on gift cards, but as Ontario’s Consumer Protection site notes “If you have a gift card for a business that has closed, your options may be limited.”
Here are a number of guidelines for consumers to protect their gift card or gift certificates’ value:
1. Don’t rely on brand image when buying a gift card. Know who is issuing and standing behind it.
2. Read the terms and conditions to understand how the merchant may attempt to limit its liability to you.
3. Understand your rights and the laws in the province or jurisdiction you live in.
4. Don’t hesitate to report any problem collecting on a gift card to your provincial or territorial consumer protection department. Some say they can have non-binding influence with the merchant or franchisor.
5. Share the experience with the Consumers Council of Canada through https://www.consumerscouncil.com, so we can work on improving protections for consumers in the future.
6. If the value of a gift card is large, enter a claim for restitution in writing with the merchant and franchisor. In the event a bankruptcy ensues, unsecured creditors could receive partial compensation.
7. Some businesses will negotiate an exchange of products still in inventory in order to settle, if they haven’t already filed for bankruptcy. Consumers can propose creative solutions to get all or part of their value back.
8. Be suspicious of gift cards sold just days before a business closing and alert authorities. Fraudulent misrepresentation to raise cash by a business that expects to soon fail is not acceptable. A consumer who feels unsure about whether they have been defrauded, can discuss their experience with Canada's Anti-Fraud Centre.
9. Although consumer protection law may provide your rights, it may be up to you to enforce those rights through a court to collect against them.
10. If enough consumers are harmed and the right of claim is relatively clear, lawyers experienced in class action may be interested in making a case for you and other consumers as a class, without cost to the affected consumers. The Canadian Bar Association has an online “find a lawyer” service to help identify lawyers experienced in class action.
“I rob banks because that’s where the money is”, a quote once attributed to bank robber Willie Sutton, is helpful in understanding the risks of consumer loss in electronic fund transfers.
Consumers are growing more comfortable with electronic fund transfers. Because “that’s where the money is”, criminal elements have also capitalized on weaknesses in security of those transfers.
CBC News’ Go Public facility has recently focused on numerous tales of consumers defrauded using e-transfers. In one, a Manitoba consumer lost the $3,000 he sent to a contractor, when the contractor’s e-mail account was hacked and the hackers were able to correctly answer the security question (“What is your wife’s name?”) with a simple glance at Facebook. The financial institution said the consumer was to blame.
In another, a Toronto contractor had his e-mail hacked, and e-transfer payments to him were redirected into a different account. Each story contains numerous other examples of consumers being defrauded and financial institutions unable or unwilling to intervene.
The victims argue that the banks promote that transactions are safe and secure, while the smaller print in online agreements undercut that security.
The banks note that password-based security can be disarmed if the body of the email contains the password, or if the password is sent in a separate e-mail to the same hacked e-mail address.
TD-Bank’s online resources note that the e-transfer sender has some key responsibilities, including “an effective security question and answer that isn’t easily guessable, and is known only to the sender and the recipient…..this means avoiding easily obtained or guessable information like names, birth dates, places of employment, etc..” The site notes the Federal Get Cyber Safe campaign offers tips on how to protect money online. The bank also recommends reporting scams to local police and the Canadian Anti-Fraud Centre.
Interac notes that its e-Transfer transactions cannot be reversed once a recipient has deposited the funds, and recommends only using the service with people you know and trust “the same way you would with cash.” It also describes some of the common scams that deceive consumers into providing personal information or cash, such as false classified ads, unsolicited job offers, threatening messages from the CRA, fake transfers and “phishing” scams.
The CBC report also quotes security and risk management experts about the shortcomings to Canadian systems. Measures such as “two-factor authentication” (which only allows a user to log on to an account once they receive a code on a separate device or an e-mail at a different address) could reduce fraud. Others noted payments could not be intercepted if they were bank-to-bank and avoided e-mail altogether.