Default bias
‘Too much choice can lead to paralysis and inaction’
‘To do nothing is within the power of all men’ (Samuel Johnson).
In the UK, Hewitt Bacon and Woodrow estimate that more than 80% of members in DC plans accept the default fund choice. Particularly in areas where people have little knowledge, default options thrive. The world of investment is a classic example.
action
As an adviser, you’ll doubtless make a personal recommendation, so this shouldn’t be an issue, but be mindful of the following:
- Clients who first use an adviser when they reach or approach retirement, may be currently invested in default funds that may not be appropriate for decumulation.
- Similarly, some clients who approach you as they near retirement, may have already taken a tax-free lump sum and moved into drawdown by default (they may also have chosen default funds).