The Annuity Sales Tactic That’s Backfiring on Advisors

You know that leading advisors regularly read Retirement Upside, right? 

While that’s true, it’s also an example of a persuasion technique that behavioral psychologists call “social proof” or “herd mentality” in action. Social proof is a documented psychological phenomenon in which people mirror the actions of others to behave more appropriately in uncertain situations. Driven by the assumption that others possess more knowledge, individuals tend to conform to group dynamics to fit in or make faster, validated decisions. While research suggests social proof is useful in some financial planning contexts, such as when suggesting clients switch from mutual funds to exchange-traded funds for their greater tax efficiency, it’s not universally helpful. In fact, a new study conducted by the AI company Jump, in collaboration with retirement researcher Eric Ludwig, suggests social proof is actually counterproductive when promoting annuities, so much so that advisors should probably avoid it.

“This was a surprising and very interesting finding,” said Liam Hanlon, head of insights at Jump. “If you didn’t actually look at the dataset, you would just assume that social proof would work for annuities. Not so.”

Mind Those Assumptions 

Probably the most famous example of the social proof effect was documented in a 2008 study by Robert Cialdini and colleagues, who found that telling hotel guests that “the majority of guests in this room hang up and reuse their towels” meaningfully increased towel reuse compared with standard environmental messages about saving water. That result led researchers to ask whether social proof works in other contexts, and the answer was a clear (but not universal) yes. 

Given his focus on retirement income planning, Ludwig wondered whether social proof would work for promoting annuities. Answering the question required constructing a large dataset based on anonymized client-advisor conversations captured by Jump’s notetaking and automation platform. The results were clear: 

• Utilization of social proof framing reduced the acceptance rate of annuity purchase recommendations by nearly 18%. 
• The only greater negative effect occurred with framing annuities as a solution to long-term inflation, which reduced acceptance by about 19%. 

“The inflation framing turning out to be negative was also pretty surprising,” Ludwig said. “We can’t say for sure why these two techniques are counterproductive, but we can point to approaches that seem to work better.” 

What Actually Works. The first of those, default bias framing, involves suggesting to people that a certain course of action is the normal or expected course. This strategy increased annuity purchase recommendation acceptance by nearly 27%. The second, consistency framing, involves reminding people of repeated receptive conversations about a given action or decision. That approach increased acceptance by over 20%.