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In 2013, while performing his famous "Lucky Number 13," magician David Copperfield invited 13 randomlyselected audience members to the stage where he asked them to sitinside a large box. After they all got comfortable, the box wasraised in the air and covered with a curtain.

After spouting a few magic words, Copperfield raised the curtainto reveal those 13 men and women had vanished! The audience gaspedaudibly (probably more so if one of those missing audience membershappened to be a spouse). Copperfield smiled that kind of smileonly a supremely confident magician could smile and said, "Everyonelook behind you."

Much to their surprise (and relief), the missing people appearedstanding in the rear of the theater. What followed was a tremendousapplause… and a lawsuit.

One of the 13 people claimed he was injured in the trick andsued for damages. Copperfield was eventually found not liable, but not before he was forced to revealhis trick that explained how the people got from the stage to theback of the theater (i.e., tunnels in the MGM Grand Resort).

Speaking of avoiding liability, plan sponsors can't denyparticipants from seeing plan-related materials (see "Where Can A Plan Participant Find the 401k Plan'sInvestment Policy Statement?" FiduciaryNews.com, February 13,2020).

What they can do, however, is take a page out of DavidCopperfield's playbook. Actually, it's a page from behavioraleconomics. But alluding to an illusionist captivates more readers,so let's go with that metaphor (with the appropriatesubtitles).

Magicians entertain because they train themselves to becomeexperts in misdirection. They make exaggerated and animatedmovements with their right hand so you're not paying attention towhat their left hand is doing. Then they switch your attention toyour left hand while their right hand performs the actualtrick.

Behavioral research calls this "anchoring." Anchoring occurswhen you focus your attention on one predetermined element "justbecause." You may think there's a good reason for this undue focus,but that's just your "confirmation bias" (another behavioralanomaly) kicking in.

Again, think of what a magician does. He wants you to anchoryour attention away from the real action. He'll use words toreinforce your decision to focus only on the anchor he's presentedto you. This plays precisely to your confirmation bias.

How does this help plan sponsors? Here's an example:

Plan participants have every right to read through the plan'sInvestment Policy Statement (IPS). What does reading that documentoffer the participant? Some of the information in the IPS may behelpful, but much of it can be unhelpful.

It can be unhelpful because it contains details of the plan'sinvestment policy that the participant can do nothing about. Infact, the only choice offered a participant is the choice of theinvestment options.

This is where the "anchor" of demanding a review of the IPSneeds to be changed. To accomplish this, plan sponsors need tobecome familiar with another trick from behavioral finance:"Framing." Specifically, I'm talking about "re-framing."

Much of what the participants want and really need can becontained in the periodic due diligence reports that the IPS shouldcall for. These reports contain specific detailed data on theperformance of each investment option – both on an absolute basisand with respect to their perspective benchmarks.

So, how should a plan sponsor react when a participant asks foran IPS?

Well, the plan sponsor cannot say "no." But the plan sponsor cando this: Deliver the IPS in the right hand, but, in an exaggeratedand animated manner, offer the "real" data in the left hand byproviding the due diligence report.

Do what a prestidigitator does. Talk up the greater relevance ofthe due diligence report. Appeal to the plan participant'sconfirmation bias.

It might just be the magic the plan participant is seeking.

READ MORE:

• 401(k) plan sponsors must keep eye on the IPS ball– Carosa
• Speed, accuracy, and the 401(k) investment policystatement – Carosa
• Use the 401(k) investment policy statement as asponsor training tool – Carosa