Too Many Choices: How Many Investment Options Should You Offer?
Many plan providers struggle with deciding how many investment options to offer in their retirement plans. While people generally like to have lots of options when making other decisions, having too many plan options can potentially lead to poor investment decisions by plan participants. In addition, increasing plan options can also increase plan costs, as well as the administration associated with the plan.
Choice Overload
In a study on retirement plan options, researchers concluded that it is possible to present plan participants with too many options1. The researchers began by offering people selections of jams and chocolates. Some were offered a wide variety, while others received fewer choices. The wide variety of jams got more attention from people, but more people purchased jams when the choices were limited. When sampling chocolates, people enjoyed choosing from the larger selection more, but also expressed more dissatisfied with the choices. Those who sampled from a smaller selection were more satisfied and more likely to buy chocolates again. The study showed that as the number of options increased, people became concerned with the possibility of making the wrong choice and were increasingly uncertain that they had made the best choice possible.
