Nobel Winner Richard Thaler Can Help ‘Nudge’ Your Client’s 401(k) Decisions

Nudges make it easier to do the right thing. It also makes it harder to make another stupid, illogical, emotional, uninformed human investment management mistake.

Your best clients own expensive company 401(k) mutual fund options that continually lag the annual investment performance of their benchmarks. An investment advisor would not be caught with those same mutual funds in a client’s non-retirement plan accounts. Why are they tolerated in the same client’s 401(k)?

Worse, expensive and underperforming mutual fund choices have costs. Every individual company 401(k) retirement plan participant has “made money” over the last few years. How much more company 401(k) retirement plan money would they have now if their mutual fund choices were improved?

The analysis and answer to that question will form the basis of the expansion of your investment advisory relationship to include your best client’s company 401(k) retirement plan account management.

There is an investment advice niche opportunity for investment advisors to bring behavioral finance concepts that Richard Thaler developed to the attention of their best clients. What would happen if you used the concept of a nudge in regards to your best client’s company 401(k) retirement plan accounts?

How would this group react if you asked them for a copy of their default company 401(k) retirement plan menu of options along with their most recent quarterly statement? I will guarantee you that you will be surprised by the reaction when you ask.

Individual 401(k) plan participants don’t pay attention to their accounts. They don’t read current information on their mutual fund options. And they don’t have any rhyme or reason why they own the mutual funds they chose.

Worse, every few years their existing mutual fund choices are “mapped over” to completely new mutual fund options. Most individual company 401(k) retirement plan participants can’t name the current mutual funds they own.

Normal human beings don’t know how to make logical, disciplined and organized investment management decisions regarding their largest retirement asset, their 401(k) plan account. Fortunately, you can help.

Investment advisors need to remind their best clients of that fact. The headlines surrounding Thaler’s Nobel Prize announcement this week are a good time for that conversation.