Flicking the Switch: Simplifying Disclosures to Improve Retirement Plan Choices
59 Pages Posted: 24 May 2016 Last revised: 22 Jan 2018
Date Written: October 22, 2017
Simplified disclosures can make comparisons between complex financial products easier, and increase consumer expertise. We use incentivized experiments to investigate whether and to what extent simpler information on fees and investment returns assists retirement plan members to make competent choices. We find that members switch quickly from a high-fee plan to the low-fee alternative when fees are shown in nominal dollars. Showing fees as percentages, however, significantly slows down their transition to a low-fee plan. Complex returns information makes it hard for members to recognize and react to relatively poor investment performance, while simplified information reduces losses considerably.
Keywords: fees, returns, prescribes information, financial product disclosures
JEL Classification: D81, G11
Suggested Citation: Suggested Citation