Why the success of targeted support is so important

I see targeted support as a giant behavioural economics experiment – a sector-wide, regulator-approved, long-awaited attempt to change the behaviour of vast numbers of consumers.

The only question is, will it work?

Making good decisions easy

When it comes to changing consumer behaviour, we have a few options.

At one end of the spectrum, we can simply inform consumers about the benefits of doing things differently – a very light-touch approach. Engaged consumers may shift their behaviour, while the disengaged probably won’t.

At the other end of the spectrum, we can try to force people to make different decisions by changing the law. This is probably not appropriate for encouraging more people to invest their savings in the stock market, or to draw down their pension at a different rate.

Thankfully, in the middle of the spectrum, we have behavioural interventions – designed to change consumer decisions by overcoming the behavioural barriers that hold people back. These interventions make good decisions quicker and easier.

“Targeted support will change the balance of ‘friction’ in taking action versus taking no action. Buying and interacting with a pension or investment product will be quicker and easier than ever before.”

Tim Hogg, Fairer Finance

For example, employees in the UK are now ‘nudged’ into saving for a pension through auto-enrolment. To be fair, I think of auto-enrolling as more of a ‘shove’ than a ‘nudge’. Changing the default option is one of the most powerful types of behavioural intervention, as it harnesses – rather than counteracts – the power of inertia.

By comparison, targeted support will be significantly less intrusive than auto-enrolment. It won’t change the default option. Inert customers will remain in their current products.

Instead, targeted support will change the balance of ‘friction’ in taking action versus taking no action. Buying and interacting with a pension or investment product will be quicker and easier than ever before.

Will this be sufficient to change consumer decisions? Will targeted support overcome inertia?

Keep it easy, or support empowerment?

From a behavioural science perspective, the main tension with targeted support is ensuring that the journey is ‘easy’ without removing autonomy.

If it isn’t quick and easy, too many consumers won’t make it to the end.

However, people are more likely to change their behaviour if they feel empowered to make their own choices. If you feel in control of your decisions and outcomes, you are more likely to be receptive to change. It’s about feeling that you’re in control.

We see this effect across financial services. Where consumers feel empowered, they are more likely to take positive steps to manage their finances.

On the flip side, if consumers are pressured into making a particular choice, consumers may feel defensive and push back. If you feel that you have insufficient freedom to exercise choice, you may choose to resist.

I suspect that resistance is more likely where consumers are presented with a binary yes/no choice at the end of the targeted support journey. ‘Take it or leave it’ choices might not feel empowering.

A more empowering journey might also permit – or even encourage – the consumer to engage with the assumptions made about them and increase their accuracy.

Why not both?

All that being said, there are plenty of areas where providers of targeted support can make it easier without reducing empowerment.

• Choice overload is real. Refining the options to a small set of suitable products will help consumers make informed decisions.
• Information overload is also real. Cutting unnecessary detail will help consumers make a proactive choice.  
• Jargon is off-putting, especially to new investors. Explaining complex concepts in plain language helps consumers understand the nature of the trade-offs that they face.

This isn’t about dumbing down. Fairer Finance runs consumer testing all the time, and we’re yet to hear consumers telling us that jargon makes them feel empowered.

We must communicate with consumers as equals. Explaining the trade-offs that they face with their money, and trusting them to make decisions in their own best interests.

As you can see, an effective targeted support journey probably needs to be designed from a blank page. Importing legacy ways of talking to consumers is unlikely to be successful.

That’s why we’re so excited about targeted support. Newly reduced levels of friction, with a whole new way of talking, going the extra mile to empower consumers to take control of their finances.

Tim Hogg is a director and behavioural economist at Fairer Finance.