Chief Investment Officer

as salesy, not believable. That was kind of a turn-the-industry-on-its-head event. In doing further research, we found a much stronger word: “protect.” It was much more believable, much more plausible.

CIO: Were there other instances of people rejecting words they once embraced?

DeMoss: Another phrase we tested was “financial freedom” versus “financial security.” We thought most people would prefer the idea of financial freedom because we were coming off a time of incredible prosperity in the 1990s and 2000s. But after 2007 to 2009, financial freedom was no longer a believable concept. What people wanted was financial security. It was a sea change in attitude. Now, interestingly enough, we’re starting to see things come back a little bit more to a theme of financial freedom. But by no means does it dominate. Another good example was the word “institutional,” as in “institutional management.” When we in the business hear “institutional,” we think about high quality and low costs. Participants think of prisons and hospitals.

CIO: Can you share some highlights from your other studies?

Greg Jenkins: We’ve found that talking about fees is a very difficult conversation to have with participants. One problem is that the word “fees” has been hijacked by banks and airlines—think about baggage fees. People have a very negative reaction to the word. We found that the word “costs” has much more appeal, because everything costs something and everyone understands that. When we talk about fees, people think of an additional surcharge on top of what something already costs.

DeMoss: Other topics where we’ve found a broad lack of understanding include alternatives, exchange-traded funds (ETFs) and risk. Some of the most confused focus groups we have ever had were the ones where we talked about ETFs. Some of the most surprising were the ones where we looked at risk. After 2007 to 2009, everybody in the financial services industry wanted to talk about risk management. We wondered whether this was what investors really wanted to hear. So we asked them which they preferred: a growth-led portfolio or a risk-led portfolio. To this day, growth wins all the time. People want to know if you’re going to grow their money. Yes, they want you to protect it, but they don’t want you to lead with that. If you’re leading with the fact that you’re managing risk, you’re kind of playing not to win.

CIO: The financial crisis of 2008 upended the way people think about their prospects for achieving a financially secure retirement. Besides your findings on financial freedom versus financial security, how else have you seen that in your work?

Jenkins: Since the global financial crisis, the level of skepticism around trusting institutions to manage your money is sky-high— the highest we’ve ever seen. More than ever, people are paying attention to the words being said by financial services firms and plan sponsors. There’s almost a hyper focus on language. So whether it’s on websites or in sales materials, the words you choose are very, very important.

CIO: Tell us about some of your latest research.

Jenkins: There is still massive confusion around target-date funds. A lot of us in the industry talk about them as if the general population understands them. They really don’t. This is reflected in a number of other surveys, like one from PricewaterhouseCoopers which found that 62% of participants are combining target-date funds with other funds in their portfolios—even though target-date funds are designed to be a one-stop solution. Participants don’t understand the diversification built into the products. They’re a put-all-of-your-eggs-in-one-basket proposition, which people have been trained from birth to believe is a bad idea. You’re asking participants to do exactly the opposite of what their instincts are telling them.