Journal of Financial Services Marketing (2011) 16, 244–262. doi:10.1057/fsm.2011.20

Understanding your retirement savings: How the recent economic recession changed advertising in retirement financial services

Taejun (David) Lee 1. Wonjun Chung 2 and Christopher Paik 3

Correspondence: Taejun (David) Lee, Department of Communication, Bradley University, 1501 West Bradley Avenue, Peoria, IL 61625, USA. E-mail: davidtjlee@gmail.com

1 is an advertising assistant professor in the Department of Communication at Bradley University. His research interests are in advertising information, creative strategy, financial services advertising, brand placement, cross-cultural consumer behavior and advertising regulations. His work has appeared in publications such as the Journal of Consumer Affairs, Journal of Consumer Policy, Journal of Applied Communication Research. Journal of Services Marketing. International Journal of Advertising, Marketing Intelligence & Planning. among others.

2 is an assistant professor in the Department of Communication at University of Louisiana at Lafayette. Dr Chung has 4-year professional experience in public relations and marketing. His research interests include Strategic Corporate Communication, Public Relations Campaigns, New Media, International PR, Issue and Crisis Management, and PR Pedagogy. He has had articles published in several journals, including Journal of Applied Communication. Journal of Consumer Affairs. Journal of Services Marketing. International Journal of Sports Marketing and Management. Journal of Computer-Mediated Communication. PRism. etc.

3 is a postdoctoral research associate in the Woodrow Wilson School of Public and International Affairs at Princeton University. His research interests include institutional analysis, social networks and political methodology.

Received 29 June 2011; Revised 29 June 2011

Abstract

This study investigates how messages, creative strategies and advertising disclosures utilized by US retirement financial services (RFS) providers changed in response to the recent economic crisis. A content analysis examines a total of 1819 RFS print advertisements published in six national magazines during the period 2005–2009. Three significant findings emerge: (1) the recession led to a change in the use of informational message strategies over transformational message strategies, (2) there were significant differences in the use of message and creative strategies during the five-year period, and (3) the RFS providers increasingly adhered to governmental advertising disclosure guidelines concerning consumer financial welfare. Implications for financial services advertisers and public policymakers are addressed.

Keywords:

retirement financial services advertising; institutional role of advertising; economic crisis; advertising strategies; advertising disclosure

INTRODUCTION

There is no question that the aging of America will have a profound impact on individuals, families and US society. At no time has the need to examine and understand the antecedents and course of retirement been greater than now as baby boomer, the largest generation in history now, begins to turn age 65 and approach retirement in 2010. 1 There is notable evidence suggesting that this group will have the longest expected longevity, the most assets for which consumers are personally responsible for making last their lifetime, and a range of new retirement income products. 2 Against this backdrop, it is easy to understand why retirement savings and pension investment vehicles are important among financial service products for American consumers – now and for the foreseeable future. 3 An aging population’s demand on retirement incomes has made the consumer’s accumulation of retirement savings a significant economic phenomenon and a focus of US domestic policy. Specifically, US federal policies that have created or enhanced tax-advantaged savings accounts have proven integral in helping Americans prepare for retirement and other long-term savings goals. 4 Currently, many American investors rely on an array of income sources such as social security payments, traditional employer-sponsored defined-benefit pension plans, employer-sponsored defined-contribution savings plan and individual savings accounts, which are tied neither to the government nor to private employers. Interestingly, despite the US economy facing one of its most tumultuous periods since the Great Depression, the market for investment and personal pension products has expanded. 1

However, it is important to note that government has shifted more of the burden for income provision in old age to individuals, 5 while the popularity of retirement savings and investment products is on the rise. 6 According to research conducted by the Investment Company Institute (ICI) and the Employee Benefit Research Institute, US retirement assets increased to US $ 16.0 trillion at year-end 2009, up 14 per cent from year-end 2008 but still 11 per cent lower than the $ 18.0 trillion in retirement assets as of year-end 2007. 5 These assets are held in a variety of tax-advantaged plan types. As of year-end 2009, the largest portion of retirement assets was held in individual retirement accounts (IRAs) and employer-sponsored defined contribution (DC) plans, $ 4.2 trillion and $ 4.1 trillion, respectively. Other employer-sponsored pensions include private-sector defined benefit (DB) pension plans ( $ 2.1 trillion), state and local government employee retirement plans ( $ 2.8 trillion), federal government DB plans and federal employees’ Thrift Savings Plan ( $ 1.3 trillion). 5 In addition, there were $ 1.4 trillion in annuity reserves outside of retirement plans at year-end 2009. Eighty million, or 68 per cent of US households reported that they had employer-sponsored retirement plans, IRAs, or both in May 2009. 5 Sixty per cent of US households reported that they had an employer-sponsored retirement plan – that is, they had assets in DC plan accounts, were receiving or expecting to receive benefits from DB plans, or both. Thirty-nine per cent of households reported having assets in IRAs. Furthermore, 31 per cent of households had both IRAs and employer-sponsored retirement plans.

In this active environment, American investors regularly utilize marketing materials from advertising, public relations, personal selling, sales promotion and corporate web sites as important information intermediaries to facilitate financial investment decision making. 4. 7. 8 Accordingly, financial companies are engaging in vigorous marketing and communication activities in order to shape and maintain strategic relationships with current and potential investors, consumers and shareholders. 9

This study was designed to examine how the nature of advertising by retirement financial services (RFS) providers altered in connection with recent changes in the economy. Specifically, we start within a theoretical framework considering advertising as market information, as manufacturers’ quest for market power, as social control in an abundant society, and as capitalistic mechanism to serve the best interests of citizen and society. 10. 11. 12. 13 We investigate the message and creative strategies reflected in RFS advertisements in selected national magazines during the past 5 years (2005–2009), analyzing the process by which financial companies can effectively inform, persuade and communicate with their target audiences in challenging economic times.

In addition, the current study evaluates the inclusion of advertising disclosures presented in RFS advertisements. Since the Pension Protection Act of 2006, financial companies have been encouraged to clearly provide information on retirement savings and investment practice in order to improve the quality of consumer decisions and, ultimately, enhance consumer empowerment and welfare in the financial marketplace. 14. 15 By including this element in our study, we hope to better understand the role of RFS advertising on consumer information in the marketplace.

LITERATURE REVIEW

The role of advertising in market capitalism

The basic institutional function of advertising in capitalism involves the provision of market information by interested sellers and buyers with the consequence of facilitating consumers’ judgment and decision making. 10 Thus, it is vital to understand the source and type of information necessary for the proper functioning of advertising within the market system. A different view is that the growth of advertising had little to do with the problems of selling and buying, and rather through branding and encouragement of consumer preference beyond just the provision of economic information (that is, price). 11 In other words, advertising changes the pattern of consumer economic activity in the direction of increasingly less perfect competition, in turn leads to both positive and negative consequences for the prevailing economic system. Advertising’s important effects also relate to the values of society, in that advertising serves as an instrument of social control that instills new needs, educates and trains consumers, alters values, and thus hastens the adjustment to potential abundance. 12 In comparison to the role of different social institutions such as schools and churches, advertising is a unique institution that plays a major role in mass media. It has a far more universal and dynamic influence in shaping human standards, beliefs, and attitudes and social values. In that regard, advertising can exercise social control without social responsibility. More recently, advertising is understood as helping to achieve abundance by informing and persuading its members with respect to products, services and ideas. 13 Advertising has the function of education in the ways of consumerism – the development of judgment on the part of consumers in their purchase practices. Thus, advertising should be expected to facilitate freedom of choice by supplying consumers with adequate and accurate information about available alternatives, thereby enhancing the socially beneficial aspects of advertising in the marketplace.

Given these notions of advertising as institutional, it is probable that RFS advertisers shift their advertising strategies quantitatively and qualitatively in a recession. Retirement services providers may respond differently to the market condition and societal circumstance while understanding advertising and concentrating for its positive values. On the basis of this theoretical assumption, the current study views the changes in message strategies, creative strategies and advertising disclosures presented in RFS magazine advertisements.

A framework of advertising message strategy: What to say

Message strategy is ‘a guiding approach to a company’s or institution’s promotional communication efforts for its products, its services, or itself ’. 16 For example, a rational-approach strategy that emphasizes product attributes differs from an ego-approach strategy that emphasizes consumer self-image. Taylor’s six-segment message strategy wheel is a comprehensive way to generate message strategy, to plot competitive strategies and to compare message strategies across cultures. The model suggests that advertising works in at least six different ways, with the appropriate advertising approach for any given product or service depending on the importance of the item to the audience and whether the audience has primarily a rational or emotional relationship with the product or service. 16 The six-segment strategy model further distinguishes between two broad strategy types: informational and transformational. 16. 17. 18 Within each of the two broad strategy types are at least three segments; within the informational approach are ration. acute need and routine. and within the transformational approach are ego. social and sensory. 16

Advertising that employs informational strategies focuses on the product and its benefits, often making claims about efficacy, efficiency, value, longevity or function. 16. 18 A ration ad focuses on the product and its benefits and is sometimes referred to as containing ‘reason why’ copy. 16 A ration example is a June 2009 ad for American Century Investments that introduced its ‘integrated retirement portfolio’, emphasizing ‘a single investment designed to maximize your chance of reaching all your retirement goals’. An acute need ad focuses on situations where special needs must be met and the consumer does not have a lot of time to gather information before making a decision. 16 As an example, an August 2008 ad for Liberty Mutual showed a scratched car parked on a city street with the headline ‘Who Could Have Done This?’ and assured the readers that Liberty Mutual has a total retirement package. Because it is difficult to predict when the service will be needed, advertisers often follow a brand familiarity strategy. Finally, a routine ad either takes advantage of routines that exist or tries to create new ones. 16 As an example, a November 2005 ad for the Charles Schwab used the headline ‘Need help deciding which funds to buy?’ The ad featured an illustration of a retirement fund and offered a ‘free’ consulting for the fund.

In contrast, transformational ads commonly focus on the use of the product or service and the image of its user. 16. 18 As noted above, three segments are often used: ego, social or sensory. An ego -based ad attempts to convince a certain consumer that the service is designed just for him or her. 16 As an example, an October 2006 ad for MassMutual showed a mid-50s women with the headline, ‘It’s the excitement of knowing your retirement is just around the corner and we are here for you’. An ad based in the social segment often focuses on taking care of loved ones. An example of the social segment was that a March 2008 ad for Prudential showed a grandfather who hugged his grandchildren with a big smile. Finally, a sensory segment ad focuses on one of the five senses and often incorporates the ideas of treats and rewards. 16 A sensory example is a May 2006 ad for American Century Investments, headlining ‘Worry about your golf swing, not your retirement plans’.

A framework of creative strategy: How to say it

In addition to message strategies, creative strategies play a crucial role in projecting the salient attributes of product or service, and provide means to attract consumers. 19 Creative strategy is defined as an outline of how an ad message will accomplish the advertising objectives, comprising the message content and execution. 17 Like Taylor’s model, this reduces the classification difficulties of other typologies by first dividing creative strategies into informational and transformational approaches. 18 There are several segments for each type of strategy: five within the informational approach (comparative, unique selling proposition (USP), preemptive, hyperbole and generic information), and four within the transformational approach (user image, brand image, use occasion and generic transformation).

Beginning with informational creative strategies, a comparative ad explicitly shows competing brands. The overall focus of the ad is on an information-based comparison with the competing brands. An October 2009 ad of Fidelity is an example of this type of strategy with the headline ‘Only we can handle these [retirement plans]’ while comparing other companies’ products. A USP ad includes a message with explicit assertions of the uniqueness of a product (or its attribute or benefit-in-use), which can be proven objectively. As an example, an April 2008 ad for T. Rowe Price showed several reasons of ‘Why to choose [its product] for your 401(k) rollover’ by some financial benefits in a comparison. A preemptive ad is fact-based, objectively verifiable, and is distinguished from a comparative or USP ad as it does not mention a competing brand or include a claim of uniqueness. Hyperbole ads have the general appearance of being factually based, but often with exaggerated assertions and subjective fact-like statements. As an example, a November 2007 ad for T. Rowe Price showed a direct quote, ‘The best target-date retirement funds’ from a financial report. Finally, a general-informational ad focuses on a product class in general, not on a particular brand. 17

Regarding transformational creative strategies, a user image message primarily focuses on the user of a brand and the lifestyle that he or she enjoys, not on the brand itself. An October 2006 ad of Transamerica is an example of this type of strategy with the headline ‘I want solutions for My Business’. In contrast, brand image -based ads emphasize the image of a brand while conveying the brand’s personality. A use occasion ad mainly relies upon the experience of using a brand or on certain situations where use of the brand is most appropriate. A June 2005 ad of Principal, ‘Need a lift’, is an example of this strategy. A generic-transformational ad is clearly transformational-based identifying a product class rather than a specific brand.

In summary, extant literature suggests that there should be a relationship between message strategy and creative strategy. 16. 20 Therefore, we assume that informational message strategies should be associated with informational-oriented creative strategies, and transformational message strategies should be associated with transformational-oriented creative strategies. In addition, in a time of crisis it can be reasonably expected that message and creative strategies used in RFS advertisements will change. For instance, advertising message and creative strategies for RFS offerings may seek to inform, convince or motivate their primary publics to action or to tell the target audiences about their mission, values and operations within an informational strategy. 21. 22 Alternatively, they may attempt to maintain a positive image or restore a damaged one using a transformational strategy.

A framework of advertising disclosure: How to enhance consumer information

The advertising of financial service products presents challenges for both financial service providers and policymakers. While financial service providers furnish information to consumers in an attempt to enhance brand perceptions and purchase probabilities, policymakers seek to ensure that such information is adequate to ensure a level of quality in consumer decisions. 23 Of course, the type of effective communication envisioned by policymakers necessarily involves the interaction between information provision on the sellers’ side and information utilization on the buyers’ side. 24 Thus, the potential benefits of providing information to consumers should be expected to accrue only to the extent that consumers notice, process and comprehend such information. 25

From a societal perspective, even advertising critics acknowledge that advertising’s informational function lends credence to its role in the economy. 26. 27 Previous research suggests that advertising disclosures (a.k.a. advertising information provisions) play a potentially important role in reducing misleading impressions arising from advertising claims, messages or other cues, and in enhancing the level of consumer decision makings, thereby contributing to the overall consumer welfare in the marketplace. 28 Foxman et al 29 maintain that disclosures not only provide information to aid in decision making, but also help to protect advertisers from accusations of misleading or deceptive advertising. Given these dual functions, it is not surprising that advertising disclosures are ubiquitous in the consumer informational environment. 30

Financial insecurity represented as excess debt, insufficient savings, poor retirement planning and suboptimal financial management behavior has attracted considerable concerns from the US policymakers and civic groups during the recession. 31 From a public policy and consumer welfare standpoint, one of the governmental remedies and social responses to reduce the vulnerability of consumers in the financial marketplace is advertising disclosure. 32 Disclosures on financial offerings help consumers make more rational and effective decisions about financial products and, at the same time, provide regulatory compliance and liability protection for financial service providers. 33 Indeed, in response to widespread concern about the fairness of advertising, financial service firms have many new obligations. Some are mandated by the federal government (such as the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC)), while others are required by industry associations (the National Association of Securities Dealers, the New York Stock Exchange), and various state agencies (state banking department, attorney general’s office, insurance office). In particular, the FTC and SEC maintain that financial services providers for retirement savings and investment provide enhanced advertising disclosure – regardless of the medium – because of their potential to impact large segments of the economy. 31. 33 For example, in order for that information to have a positive impact on the consumer decision-making process, the FTC has recently developed a standardized advertising disclosure concerning financial issues, including open-ended credits (such as credit cards and lines of credit) and closed-ended credits (mortgages, investment funds, retirement plans, vehicle loans, installment loans) in a clear and understandable type that consumers need and want. 28 Furthermore, and of particular relevance to this study, in 2003 the SEC formed and adopted special advertising rules for financial firms including retirement plan providers that require advertisers to provide advertising claims and information with reasonable, balanced and informative practices. 33. 34 This study measures the advertising disclosure presented in RFS magazine advertisements by relying on the enhanced advertising disclosure rules developed by SEC (2003) and, thus, determines if RFS ads include specific financial information in the following categories: past performance, legend and information regarding the objectives, risks, charges, and expenses of retirement services offerings.

Research design

Given the above literature, the article addresses two key issues. First, this article looks for changes in the use of various strategies presented in RFS magazine advertisements during the current recession. These include advertising strategies (defined by Puto and Wells: 18 informational versus transformational), message strategies (defined by Taylor 16 ) and creative strategies (as defined by the Laskey et al typology 17 ). Second, the article investigates whether there has been a shift in the inclusion of advertising disclosures such as past performance, legend and information regarding the objectives, risks, charges and expenses of retirement services offering (as adopted in the SEC’s 2003 enhanced advertising disclosure guidelines) presented in RFS magazine advertisements during the same period.

METHOD

Sampling

Data for this study are collected through a content analysis of print magazine advertisements. Content analysis is a multipurpose research tool developed specifically for investigating problems in which the content of information serves as the basis of inference. 35 In order to guarantee the reliability and validity of the findings, this technique emphasizes the importance of objectivity and systematicity, as well as the use of quantitative measures. 36. 37

In this study, an advertisement for an RFS provider was operationally regarded as a financial message. Using definitions promulgated by the Federal Reserve Board, FTC, Federal Deposit Insurance Corporation, SEC and ICI, all full-page magazine ads placed by RFS providers in selected magazines during the defined period (2005–2009) were collected and analyzed. Considering the profiles of magazine content, target audience, readership and circulation, 38 a web site (magazinecost.com/ ) provided a list of the top 10 business magazines in the United States. The data collection only from business magazines was a good fit for this study because they were also used as the sample for earlier studies of financial services advertising 39. 40. 41. 42 and the 10 magazines are the most widely circulated personal business and financial management periodicals. 38 Of these, six business and finance magazines were randomly selected for this study: BusinessWeek, The Economist, Forbes, Barron’s, Kiplinger’s and Money. To conduct the content analysis, three coders were hired to analyze the RFS advertisements included in all 2005 through 2009 issues of the six magazines.

It is important to mention that in order to avoid confounding the analysis, the 5 years (2005–2009) were chosen in an attempt to identify changes in RFS advertising strategies during the current recession. The baseline year of 2005 and 2006 was chosen in comparison with 2007, 2008 and 2009 because 2005 and 2006 can be considered as prelude to the economic crisis. 43 In 2007 a widespread feeling of unease and crisis of confidence with respect to the US financial markets continued to expand. In 2008, the overall US economy plunged in a sharp recession with astonishing side effects. 43 Overall, for this study, a total of 1819 RFS ads shown on a total of six business magazines during the 5 years were collected and analyzed.

Coding categorization development and procedure

The key to any successful content analysis is the selection of the categorization scheme. Content analysis is no better than its categories as they reflect the formulated thinking, the research questions and the purpose of the study. 35 The categorization schemes selected were based on Puto and Wells’ overall strategy, 18 Taylor’s message strategy typology, 16 Laskey et al ‘s creative strategy typology 17 and the SEC’s 2003 enhanced advertising disclosure guidelines.

After a coding sheet and written coding instructions were developed, the data were analyzed. First, the coders reviewed and discussed categories, previewed a sample of ads, and practiced using the coding instructions in the same way. The coders independently conducted a pilot test of 40 ads. Ads were coded indicating a dichotomous decision (yes / no) for each category. Unclear and disputed items were discussed and clarified before changes were made. When disagreements arose, the coders discussed their interpretations and a final decision was made by consensus.

After the pilot coding, the three coders independently analyzed the RFS ads placed in every issue of the six magazines from January 2005 to December 2009 using the same coding book. Specifically, the issues, years and magazines were randomly assigned and systematically rotated. The coders first identified each ad as either using informational or transformational strategy. 18 Next, every informational ad was categorized as reflecting one of the three segments within Taylor’s message strategy typology (for example, ration, acute need or routine), 16 and further as reflecting one of the five segments within Laskey et al ‘s creative strategy typology (that is, comparative, USP, preemptive, hyperbole or generic-informational). 17

In addition, every transformational ad was categorized as reflecting one of the three types of message strategy (that is, ego, social or sensory) 16 and further as reflecting one of the four types of creative strategy (that is, user image, brand image, use occasion or generic-transformational). 17 Finally, the coders noted whether each ad included such disclosures as past performance, legend and information regarding the objectives, risks, charges and expenses of retirement services offering.

Table 1 lists the operational definitions of each strategy and each one’s types used for this study. The coding was completed between July 2009 and January 2010.