CI’s Investing and Retirement Experts Review Some Mostly Bad Ideas
Over the last month the S&P 500 has both flirted with entering a bear market and seen its eighth highest single-day percentage gain. When markets become this volatile, how can financial services firms help their customers navigate the swings?
We have some ideas.
Corporate Insight’s competitive intelligence researchers record (and make available to our clients1) the methods that firms have employed in recent weeks to calm investors: banner notifications on websites and apps, market outlook emails, and prominent volatility resources on thought leadership pages.
“We’ve really seen firms push thought leadership pieces on both the public and secure site homepages about shortsightedness when it comes to volatility,” says Ian Bonhotal, brokerage research manager at CI.
“These banner messages are generally short and do not include any direct advice,” says Eli Fraerman, analyst on the CI retirement team. “But they may nudge participants to stay calm or look to the firm’s guidance to make decisions.”
The overall message is consistent: Stay the course. Firms aim to validate their clients’ feelings that the recent economic developments are unprecedented and urge them to remember long-term planning principles.
But is this really the best financial services firms can do? Americans are facing a retirement crisis. Rising housing costs require long-term savings for ownership. Financial professionals agree that reacting emotionally to the market hurts long-term performance. Are banner notifications and emails really the cutting edge of UX? Can’t firms do more to nudge clients in the right direction and discourage emotional reactions to wild market swings?
We think so. Or I think so, at least.
Below are groundbreaking ideas for dark patterns to help financial services clients navigate turbulent markets, as well as our experts’ reactions to these ideas. Are they best practices or worst practices2? That’s for you to decide. Either way, they are very much not endorsed by CI’s industry experts.
Dark Patterns: Trying to Cancel Amazon Prime, but for Bad Financial Decisions
“I’m sure any recordkeeper that tried something like any of the above would have a lawsuit on their hands in no time.”
Dark patterns (or deceptive patterns) are employed across web and mobile to influence user behavior. Amazon’s cancellation process for Prime is the most famous example, a multi-step process the company dubbed the Iliad Flow and that the FTC has sued them over. Gyms are another stereotypical employer of dark patterns, often allowing members easy online registration but requiring mailed forms or in-person visits to cancel.3 Legalized sports gambling represents a new frontier in dark patterns on mobile. Quasi-legal sports gambling event contracts are also a new frontier for investing apps.
Dark patterns make it annoying to do something. Confirmshaming. Forced action. Nagging. Obstruction. Trick wording. UX designers universally frown upon these practices, but is it time to use dark patterns in financial services to save America’s long-term investments? And perhaps make it harder for customers to try to time the market? The possibilities are endless:
- Users may miss a single notification about volatility. So why not add several undismissible popup notifications across every page of the website and app to make sure the message gets across?
- What better time to do site maintenance, test out a new idiosyncratic main navigation, or update your 100-page-must-scroll-to-the-end-and-click-accept privacy policy than market upheaval?
- Preselection offers several opportunities for benevolent interference.
- Do you want to boost your contribution rate? We have a quicklink on the homepage. Do you want to invest all your savings in a triple-leveraged crypto ETF? That requires four printed-out paper forms, hand delivered to the top of a mountain, and a blood-test finger prick to confirm your identity.
- Gambling platforms use pattern recognition to limit or prevent sharps from placing bets, while allowing poor-performing gamblers to continue betting.4 Financial services firms could be selective about introducing friction and employ personalized dark patterns for users whose usage patterns suggest they are at risk of making poor long-term investing decisions.
We asked some of CI’s retirement and brokerage experts whether dark patterns could be a competitive advantage for financial services firms in times of volatility:
“Depends on how subtle they were!” says Andrew Denegre, senior analyst on CI’s retirement team. “I think participants will tolerate a certain amount of inefficiency from financial providers as long as it doesn’t come across as manipulative. Anything too heavy handed would of course infuriate folks, and I’m sure any recordkeeper that tried something like any of the above would have a lawsuit on their hands in no time.”
“We generally do see firms burying links to take withdrawals,” adds Fraerman, “requiring multiple steps to do so and making sure to notify participants about penalties related to those withdrawals. They want their participants to keep money in their accounts.”
“In investing, it really depends on the type of firm,” says Bonhotal. “In retail brokerage, clients would be rightfully upset, and self-directed firms would certainly be going against the very nature of what a self-directed account entails.”
Potential lawsuits and rightfully upset customers: CI’s experts give these ideas for dark patterns in financial services a thumbs down.
Dark Patterns for Good: Real World Examples
There are, however, better examples of financial services firms and organizations employing dark patterns or semi-dark patterns—gray patterns?—for the good of users:
- The state of California requires auto-enrollment, auto-withholding, and auto-investing in CalSavers, its program for employees whose employer does not otherwise offer a retirement plan. Users can opt out, alter their withholding, and change their investments at any point. But if users do nothing, the program’s preselected options will withhold five percent of a user’s pre-tax wages and invest it into a target-date fund.
- CI’s Fintech team points out that one fintech firm offers an option to block gambling transactions with an obstructionist twist: “Revolut has an optional feature that will try to identify gambling transactions and block them,” says Rosalie Goldberg, CI research manager for fintech and mobile. “The client still has to explicitly opt in to the service, which is super easy to toggle on and off. But if they later want to turn off the gambling block, it takes 48 hours for the change to go into effect.”
- Bonhotal notes that advisor-centric brokerage firms already require clients to call someone to make trades, adding friction to the process and giving advisors a chance to talk down worried clients. “Advisor-centric firms,” he says, “are in a different boat, as clients are basically outsourcing their investment decisions to a trusted third-party. In a lot of ways they are already using ‘dark patterns’ by design—e.g., with many full-service advised firms, clients must call their advisor to make any market moves and cannot take it upon themselves to make trades on the website because this feature just doesn’t exist.”
Login Processes Should Be Smooth—Right?
“It would be a definitive disadvantage.”
Officially, CI endorses several best practices around login and security. Users expect a smooth flow and have higher expectations around login than other areas.5 New options like biometrics and passkeys make remembering usernames and passwords a thing of the past.
Unofficially though: Should it be easy to log in and check your investing or retirement account? If the market drops 20% in a short period of time, do you really want your customers to look at their balances? The best-case scenario is that customers log in and see a number that makes them sad. The worst-case scenario is that a customer logs in and executes some trades that upend their financial future, and then feels sad later. Do firms really want their brands associated with sadness?
What if, instead of introducing friction to the trading experience, firms introduced friction in getting to the trading experience? Could firms make it harder to log in during times of high volatility?
“I’d assume you’re looking at significant client flight and long-term legal battles if someone was silly enough to pull the trigger on a decision like that,” says Denegre.
“It would be a definitive disadvantage,” says Bonhotal. “Take the 2021 GameStop saga on Robinhood, when the firm froze trading of GameStop’s stock. Users complained loudly on social media to the point that other firms that did not halt trading of these securities used the incident to promote themselves.”
“I think that would pose extreme frustration for those who try to access their accounts,” says Fraerman. “Firms should aim to educate rather than deflect.”
Denegre adds, “If I’m not mistaken, it was the ability of digital traders to consistently and quickly execute orders during times of high volatility or market disruption when compared to a conventional broker services that helped push the industry toward a digital-first orientation. So, no, this is not a good idea?”
This idea gets a big thumbs down from our experts.
The Ultimate Worst Practice: Do You Really Need a Digital Presence?
“I could see a certain user actually seeing appeal in a product kind of like this.”
“This is already what a lot of participants do.”
“There is probably a very niche market for it in some sense.”
Implicit in all these worst practices and dark patterns is the idea that financial services firms should have a website or an app. But in times of volatility, could a complete lack of digital presence be a competitive advantage? Can we create a better digital platform by doing away with the digital experience entirely?
One suggestion: The best—in a really loose sense of the word best—investing or retirement digital experience would be one that doesn’t exist. You set-up auto withdrawal, your money is auto-invested in the blandest possible index funds, and you’re allowed to look at your balance once a year with a special computer only available at the DMV. Otherwise, logging into the app or website prompts a confirmation noting that your account exists and your money is invested. You never feel sad looking at a number that dropped 20% in a week…
Unless, for retirement accounts, your automatic withdrawal is not getting the maximum employer match, in which case the app sends Duolingo-style notifications until you meet the employer match.
Further attempts to log in redirects you to some videos of puppies or kittens.
Our experts, perhaps worn down by previous dumb suggestions, were weirdly open to this one:
“I actually think it’s kind of a cool idea and there is probably a very niche market for it in some sense,” says Bonhotal. “But probably more as a specific account type and not the basis for an entire app. The reality is that most people would be better off doing something like this, but that’s just not what people want, and it’s the firm’s job to give people what they want more so than what they need in most cases. Time in the market has (historically) been undefeated over timing the market, for the average joe. But nobody wants to think they’re average (or worse)!”
“I mean…I could see a certain user actually seeing appeal in a product kind of like this,” says Denegre. “They have apps that lock your phone for you, so an investing app that actually makes you set it and forget it might really make sense to some folks, DMVs aside. But I think it falls apart when it comes to the annual balance only – a snapshot once a year isn’t going to cut it for 99% of users.”
“I think this is an interesting idea, and funny because this is already what a lot of participants do,” says Fraerman. “They enroll in the automatic target-date fund, they set a contribution rate, they barely check their accounts, but eventually it is full with money. But even if having deep levels of control is important to only 10% of the client base, it should be there for those that want it.”
“People tend to want more and faster access, not less,” adds Bonhotal. “Even firms that look down on playing the market, like Vanguard6, still wouldn’t go that far. On the other hand, I do think there’s room for some kind of new account type that clients can DCA into and make an agreement that they will not sell out of it until some specified date/time/amount is met.”
A Tradeoff between Frustration and Sadness
These suggestions are all paternalistic ways to trade future financial sadness for current frustration. This is not the norm in digital experiences, Amazon Prime cancellation aside. But other elements of the financial system are set up in this way to prevent impulsive decisions, limit fraud, and minimize damage from wild market swings. ATMs have withdrawal limits. Banks slow-walk large cash withdrawals to force you to think twice before doing something dumb with your own money. Credit cards block transactions they suspect might be fraudulent. The SEC sets rules and limits on who can invest in what. Stock exchanges halt and curb trading, of specific securities or of the entire market, when big swings occur. So why not employ digital experiences that similarly freeze or redirect or otherwise make it difficult to trade during market turmoil?
One reason is that it might not be necessary. When it comes to retirement savings, an overwhelming majority of users do not make emotional trades, even during the recent market downturn. CI’s brokerage in-depth interviews, done for our Experience Benchmark, suggest that even inexperienced traders understand when they are making gambling-like trades and when they are doing serious long-term investing, and use different platforms for different types of trades.7 And the popularity of index funds means that even if users were to avoid logging into their financial accounts, if and when they see the headlines, they probably have a rough idea how much their investments are down.
“Most people (with access to a retirement plan) probably have the education not to make rash decisions even when they are available to them,” says Fraerman.
“Hindsight is always 20/20 and it does seem like the market tends to recover,” says Bonhotal, “but how much and when? It might seem like it would be in the client’s best interest to not let them trade through volatility, but what if the market just didn’t recover and the client could have sold when their investments were down 10% rather than at 70%? It took 34 years for Japan’s market to surpass its 1989 high point.”
And of course, there are other reasons to use a financial services app or website.
Says Denegre, “If you need to enter a change to your legal name but you keep getting re-directed to videos of puppies, I don’t think the customer relationship is going to last very long.”
CI has over 30 years of experience helping clients improve their digital experiences in financial services. Contact us to learn more about our best practice and competitive intelligence research. Have ideas for worst practices? Send them here.
- Clients can find the report on the client portal, under Crisis Comm in the main navigation ↩︎
- Spoiler alert: They are worst practices ↩︎
- New York State enacted new laws this year to halt some of gym’s most aggravating practices. ↩︎
- Skilled gamblers try to defeat the apps by mimicking the behaviors of poor or compulsive gamblers. ↩︎
- In our open-ended survey questions, respondents often complain about clunky login processes, because login is an area where financial services firms get compared to all apps and websites, rather than just other industry players. ↩︎
- If a purposefully annoying investing experience were to appeal to anyone, wouldn’t it appeal to Bogleheads? Hmm. ↩︎
- Basically, phone apps are for fun investing, desktops are for serious investing. ↩︎
Patrick Flood is the director of creative content at Corporate Insight.