Jack Marrion

I recently read an article in which a couple in their early fifties had accumulated $1 million that they hoped would grow and allow them to receive $80,000 a year when they retired. The money was allocated 80 percent to government bonds and 20 percent to stocks because the couple had a very low risk tolerance. The couple’s advisor is quoted as saying that if the couple didn’t change their allocation they might run out of money in their eighties. The advisor’s statement illustrates an issue that often affects retirement income planning—trying to get people to act as the computer model says they should.

A typical retirement planning model uses a world that consists of stocks and bonds, plugs in their historic returns and looks at a variety of allocations to see what results are produced. What is found is that putting too much money in bonds increases the likelihood that the allocation mix will not last long enough to produce retirement income for a lifetime, but that increasing the allocation of stocks often does. The model is clear—own more stocks. However, the risk of principal loss is greater with stocks than bonds, and that makes many people averse to stocks.

When the advisor told the couple they could potentially earn a higher return if they would accept more risk, I doubt the couple simultaneously smacked their palms to their foreheads and said, “Wow, we didn’t know that.” Any couple with a million dollars is aware of the concept of risk-reward. This couple has clearly shown they don’t want more risk, but the advisor ignored this because it didn’t fit the model.

During our coming of age years—the time roughly between age 17 and 23—our beliefs on fairness, our political views, and views on money and risk are solidified. Although these beliefs can moderate over the years, our original core values hold a lot of power over us. It’s important when working with clients on financial matters to understand what their financial beliefs are and that an advisor is unlikely to change those beliefs.

In short, the person is usually not going to act like the computer model says they should act. Because of this, the advisor needs to deal with the reality of the client’s beliefs and try to find solutions that don’t contradict them. When the problem is a low tolerance for risk of loss, often an annuity is a solution.

The goal here is to produce an income of $80,000 that lasts until the death of the surviving spouse. One way to do this would be to take a part of the money and buy a deferred income annuity that starts payments roughly 30 years from now. Another would be to take the million and put it in some fixed index annuities offering lifetime income benefits with an increasing payout. I spent 20 minutes and found a few fixed index annuities that would guarantee a joint lifetime income of at least $80,000 starting in 13 or 14 years—when the couple said they wanted to retire—and the income is guaranteed to increase in future years. The annuities are fixed, so there is no market risk to principal or credited interest, which should be a better fit for their risk tolerance.

The problem with many model solutions is that they ignore the realities of the way people really are and how they make decisions. To have a shot at being used, the advisor needs to try to fit the model to the client’s reality and not the other way around. 

Whose comments would you find more trustworthy if you were going to try out a new restaurant? An ad from the restaurant saying, “We have the best shakes in town,” or a friend who said, “We ate there last week and that was the best steak in town.” My hunch is you’d put more trust in your friend. After all, we know marketing always puts on its best face, which is why we tend to take any positive thing a business or salesperson says with a dose of skepticism. But how about if the message from the restaurant was, “To be honest, our seafood is only so-so, but we like to think we have the best steaks in town.” The odds are you’d be more inclined to believe the message and also to have a more favorable opinion about the restaurant. Facts that would help prove that a restaurant really is good, like if they were using the very best restaurant equipment from somewhere like Nella Online, for example, don’t normally make it into marketing campaigns because the average customer wouldn’t understand them. This is why we are reliant on the opinions of either the restaurant or friends who have experienced it for themselves. In fact, if your friend had instead said about the restaurant, “God bless them, the decor wasn’t great, but that was the best steak I’ve had in this town,” you’d be even more inclined to find your friend’s comment trustworthy.

Tempering a negative criticism with a qualifying phrase is called “discourse markers of dispreferred responses”-dispreferred marker for short. The markers don’t alter the negative message, but they show that the commenter understands the hurt the negative remark may cause. By tempering the statement the commenter is seen as more likable and more credible. This has strong implications for agents and brokers.

Mentioning a small negative in combination with a positive point may make the agent more credible and likable. It could be along the lines of “I have to say upfront that this premium isn’t the lowest out there, but this insurer’s financial strength is exceptional” or “To be blunt, there are other annuity carriers with better service, but this annuity pays a higher interest rate.” Preemptive admission of a fault by the agent changes the dynamic of the buying process because it is unexpected. After this admission, further agent statements will be viewed as more believable.

This can be incorporated into broader marketing messages. Ad copy saying “We may not be all things to all people, but by golly we bust our hump to get the people of [your town] the best Medicare supplement coverage for their pocketbook” or “Sorry we don’t have offices across the country, but we have good parking at our health insurance office on Main Street (and we even make free house calls)” identifies what your specialty is and makes  you sound friendly and credible because you recognize your limitations.

This article was inspired by the study mentioned below that caused me to do even more research on the topic. It does appear that opening a presentation with a negative comment about your product or service in tandem with a positive one makes everything said after that more believable, and if you temper the negative comment with a dispreferred marker (e.g., to be honest, I hate to say this, etc.) it makes you more likable and more likely to get the sale.

Hamilton, R., K. Vohs & A. McGill. (2014) We’ll be honest, This won’t be the best article you’ll ever read: The use of dispreferred markers in word-of-mouth communication. Journal of Consumer Research, 41, 1 p. 197-212.

1.  Low cost won’t get people to do something they aren’t already doing.

Life insurance is a great example. Market­ing pitches for term life insurance often highlight the low cost, and it’s true that term life insurance premiums are lower than they have ever been. Yet life insurance ownership is the lowest in 50 years. The same LIMRA data also says that 83 percent of consumers say they don’t buy life insurance because it’s too expensive—they think the average monthly premium is $33, when it’s really $12—but I wouldn’t be surprised if that answer is used by consumers to rationalize why they don’t own insurance (if you were ready and willing to spend $12, would you not spend $20 more a month to protect your family?).

In life insurance it could be that the primary reason for low utilization is that more than 40 percent of households, according to the U.S. Census, are dual income. This could mean the husband feels he no longer has to buy insurance to support the widow, since the widow will be self-supporting; the same self-supporting logic could be used when children are involved. If believing that two incomes eliminate the need for life insurance, then the cost of the insurance is irrelevant because the need is seen as irrelevant. What is needed is an agent to show why there are still gaps, even in a dual income household, that life insurance can fill. Low cost has shown it causes people to shift existing buying habits, but it is much less likely to create new buying habits.

2. Low cost lowers margins which often narrow distribution.

 What if the primary reason for low insurance utilization is because consumers no longer see life insurance agents? I have two adult children with children; neither of them remembers ever being contacted by a life insurance agent. Why not? I’ve been told by agents that it doesn’t make sense to spend hours with a prospect where, even if they buy, the agent only earns a couple hundred bucks. Of course not all prospects buy, so the average income per interview is much lower. As life insurance trends switched from permanent to term and premiums declined, so did the compensation—forcing agents to move to more profitable prospects, higher margin products, and meaning the mass market was no longer served.

This happened with life insurance and, I believe, will happen in the investment world if a fiduciary-only standard becomes the law. Commission-based compensation makes it distribution-effective to meet with clients who don’t have enough assets to use fee-based services.

3. Low cost only works well with high volume (which may not be a good thing overall).

If your fixed expenses are $100 and your net revenue per sale is $5, you need to sell 20 widgets to cover your expenses. If your net is $2, even if you now sell 40 widgets, you’re not covering your fixed costs. To lower your fixed costs you can cut compensation, use more effective technology, which allows you to lay off employees and decrease overhead, cut the quality of the product, or maybe all three. On the supply side, a low-cost approach only benefits those who produce on a massive scale and harms many others. The cosmic question: Is it better for society if a person now pays $3 less on a product if it puts 10,000 other people out of work? Pursuing the lowest cost isn’t always a good thing.

Passing the General Educational Development (GED) is designed to show that an individual has the same knowledge and intellectual skills as that of a high school graduate. And yet, even though a GED shows the same knowledge as a diploma, the typical GED individual is more often unemployed than an individual with a diploma. Why? The problem with a GED grad can be why there was a need for a GED in the first place. If traits of frequent absences, tardiness and general disrespect in high school were the reasons for the GED instead of a diploma, these same traits make the person a bad employee.

A college degree is often used as a qualifier for a position of employment, believing it shows a person has greater knowledge and intellectual skills. However, a lack of a college degree often does not mean knowledge and intellectual skills are less. Work experience gained by not going to college can translate into knowledge the degree holder does not have. Besides, the availability of a myriad courses in any sector imaginable (for example, this advanced ECDL course with certificate) allows a person, college graduate or not, to gain any number of skills that qualifies them to do the job required. A person of average intellect that has the self-discipline to pay attention and apply what they’ve learned to the task at hand will do a better job than a smarter person who doesn’t apply himself.

Similarly, someone who has spent years playing violins and cellos might not have a degree, but someone with a degree won’t necessarily be able to play string instruments to the professional standard that the violinist can. The violinist isn’t unskilled or dumb, they just chose a different path and now they’re one of the best in their field.

A little more than 20 years ago the government conducted an employer survey on the skills employees needed (Learning a Living: A Blueprint for High Performance, 1992). The employers were clear that an acceptable degree of mental skills was essential: employees needed to know how to read and write, communicate, solve problems, and have the ability to learn. However, employees also needed the skills to display leadership when needed, to assume responsibility, to be dependable, show integrity and not be a jerk to coworkers or customers. Subsequent studies found that a person’s character-which might be summed up as non-cognitive skills-ranked higher than grades and years of schooling in determining who was hired and promoted. Employee character had far more to do with the next promotion than intellect.

Success in the workplace is not based solely on intellectual abilities. Indeed, intellectual abilities are only one ingredient in the mix and often are not even the main one. Twice as many job applicants are not hired or not promoted due to their lack of non-cognitive skills than for their lack of cognitive skills. This holds true for all staff, including HR.
It’s critical that those in charge of recruiting the workforce understand how the job is done.
This is why there are online HR academies like Josh Bersin Academy (https://bersinacademy.com) that specialize in getting the best out of HR so that the rest of the staff may focus on their work.

The bottom line is that unless there is a specific skill set that can only be provided through formal education, one should not assume the requisite knowledge and intellectual skills are not there because a degree is missing-nor should the presence of a degree lead to the assumption that the person is qualified. In both cases, the non-cognitive skills are the other pieces of the mix. These non-cognitive skills include the self-discipline already mentioned, as well as being organized in thought and deed, having the ability to follow a plan, the ability to be a team player, and to be cooperative and feel compassion toward others.

A problem in hiring is that it is difficult to test for character. Sure, you might carry out background checks like the australian federal police check to make sure they’re morally sound in the eyes of the law, but most personality tests involve self-reporting, where the individual says how he would act or feel, but these tests are easy to “game.” The best results are achieved through in-depth interviews with former employers and references. However, even here the true picture may not be revealed. What we’re left with is hiring with a probationary period during which the new employee’s character may be tested. It’s not the perfect solution, but it’s a better one than basing hiring solely on whether or not the applicant has an academic piece of paper.

Keeping resolutions is a bugbear. Why? Our brain develops mental pathways when we continue to do something for a period of time. A resolution is usually an attempt to change and create a new pathway, but the brain wants to go back to the existing trail. It’s never easy, but there are behavioral things you can do to make it more likely to keep that resolution.

?Belief insertion. The easiest road is to create a pathway where one didn’t exist. As in: You never really thought about making www.brokerworldmag.com your home page, but now that you’ve thought about it, it’s a good thing to do.

?Create a slight detour. Taking the stairs two flights up instead of the elevator still gets you to the office. Swapping an apple for a donut still gets you a morning snack. Parking at the first open space instead of the closest space to the entrance still gets you into the store. Creating many small, painless behavioral detours can be just as effective as one big resolution.

?Make the resolution an absolute. If your daily goal is to make 100 calls to prospects and clients, then direct all of your efforts and attention to making the calls. Ignore everything else. If your goal is not to eat ice cream or to quit smoking, then that becomes the key goal of the day. Everything else is secondary. If you don’t make the resolution the primary goal, you will create excuses to avoid doing it. For instance, if your goal is to give up cigarettes then it might be a good idea to research some of the alternatives. Vaping for example has soared in popularity and is being spoken about as a safer alternative to smoking. Nowadays, you can even get Shortfill eliquids in just about any flavor too, so there are no excuses for not giving vaping a go if you are trying to stub out cigarettes for good. Unlike most other smoking devices, which rely on combustion, nebulizers like pax 3 vaporizer resort to heating. Therefore, eliminating your exposure to potentially harmful toxins.

?Don’t start resolutions when there are external obstacles. Starting a diet on New Year’s Day when you’re beginning a Caribbean cruise the next means a failed resolution. A goal of making 100 calls a day won’t happen if the field examiner walks in for an audit. If you encounter an external obstacle, shelf the resolution until the obstacle is gone and try again.

?Make it a default choice. If your resolution was to go for a swim each morning, throwing your car keys in the pool each night would aid in keeping it (or you’d walk more and still get some exercise). If you’re trying to lose weight, filling up the fridge and pantry with nothing but vegetables means you’ll either eat right or have to go out of your way to get something else.

?Self-punishment. If you don’t hit your sales or activity goal today, you deny yourself an activity you find pleasurable. “Eat your cauliflower and you’ll get cake for dessert” is still an effective behavioral tool.

?Bring the future into the present. Many resolutions have a distant end goal: Sell $3 million of annuities this year; lose 20 pounds by June. This can cause you to procrastinate or get discouraged if you fall off track. Instead, break the long term goal down into short term ones. You will lose a pound a week or you will sell $60,000 of annuities a week. If you blow it for a couple weeks it doesn’t take much to get on track-you now have to lose 1.1 pound a week or sell $62,500 of annuities to still hit the goal.

?Be a nag. You can set smartphones to sound alarms at multiple times. If your goal is to spend more time during the day working instead of goofing off, a series of alarms will cause you to work more to avoid being caught not working. If your goal is to get in 30 minutes of daily exercise and you place sticky notes all over your house asking “Did you exercise yet?” you’re more likely to exercise.

My wife is part of a group which typically, on the third Friday of the month, has lunch together at a different member’s home. The last time it was at our house. As I was sneaking into the kitchen to get a cup of coffee, my wife spotted me from the dining room and called out, “Dear, could you come here? Ellen has a question about annuities.”

It turned out that Ellen’s advisor had suggested that she should take $125,000 of her savings and buy a deferred income annuity that would start paying out $850 a month for life at age 66. Ellen is 60 years old and single. She did not like the annuity suggestion. “If [the advisor] thinks I’m going to give him $125,000 in exchange for $850 a month, he’s wrong. That’s a bad deal.”

I did some quick mental math and mentioned that getting a little more than $10,000 a year in income meant she’d have her money back by age 79, and if she made it to age 86 she’d have gotten back $204,000. She responded, “Why didn’t the advisor explain it like that? That doesn’t seem that bad.” And then a minute later she asked, “What happens if I die?”

I said if the quote had been for “life only,” then the income would stop when she died. “So, if I die in a year the insurance company keeps the money. That’s not right,” she said. I asked her if she had any children or other beneficiaries that she wanted to leave money to. She replied, “No.”

I said that this type of annuity could also be set up so that the payments continued for at least 10 years or until the $125,000 was returned if she died early, but the income would be a little less. This seemed to mollify her for a minute, but then she remembered she wouldn’t have access to the $125,000 lump sum if she bought the deferred income annuity. “What if I need the money for an emergency? If I put it in the annuity it’s gone,” she observed. I asked if she had other assets she could use for emergencies and she said “yes.” In fact, she shared that this annuity purchase still left her with quite a bit of other money, but it really bothered her that with this type of annuity she’d lose immediate access to that $125,000.

I mentioned that there was another type of annuity. It also provided lifetime income; however, she would always have access to the cash value. The negative being that it wouldn’t provide as much income—perhaps around $750 a month—and although she’d have access to the cash value, it would go down over time because she’d be getting more income than she was probably going to earn in interest. She said she understood that if she spent more than she earned that the cash value would go down—that was common sense. She also said it was worth getting $100 less each month to know that she’d have access to the remaining cash value and to know that the insurance company wouldn’t “cheat” her by keeping the money if she died early. Her last question was, “Why wasn’t I told about this [guaranteed lifetime withdrawal benefit] annuity?” I didn’t have an answer.

There have been several studies done in recent years investigating why people don’t generally buy a life income annuity for retirement, and my impromptu encounter highlights several reasons.

 • Valuation. Many people can’t see the value of a future income, so you need to bring it into the present. Showing that she might get back $204,000 for her $125,000 premium seemed a much better deal than getting $850.

 • Fairness. The fact that the insurance company might “win” overrode the financial realities of transferring longevity risk and getting a higher income.

 • Being in Control. Ellen was willing to take $100 less a month to have access to whatever cash remained in the annuity.

My meeting with Ellen (not her real name) shows that buying an annuity is a multi-layered decision, not merely a financial one.

An important paper recently released strongly supports conclusions reached by previous studies as well as breaking new ground in the areas of trying to teach financial literacy and showcasing that retirees want annuities. Major findings:

Classes in general financial literacy are next to worthless in getting consumers to make better retirement planning decisions. This conclusion has also been reached in other studies, yet some politicians and regulators are pushing for mandatory general financial literacy courses, based on information pitched to them by organizations that sell financial literacy courses.

Consumers are clueless about how annuities really work. As shown in other studies, consumers are dismally ignorant about how annuities work. Only 20 percent knew an annuity could guarantee a lifetime income, nor were they aware of the various income options such as period certain.

A majority of consumers say they would fully or partially annuitize their retirement savings to produce a guaranteed lifetime income that can’t go down, but they say they don’t want an annuity. When asked initially if they wanted an annuity the vast majority said no. However, when annuity features were described without first saying the “a” word, coupled with the fact that they could still keep a large part of their money liquid in other investments if desired, annuities were generally well received.

Highly numerate people were much more likely to buy an annuity. Numeracy is to numbers what literacy is to reading. Highly numerate people understand risk when it is expressed as probabilities. After numerate people looked at the risk of retirement ruin (running out of money before death) under various investment portfolios they were more likely to choose annuities.  Education helped numerate individuals manage their retirement savings better.

Even after financial literacy training, half of the respondents were so insensitive to the risk of running out of money that they increased their portfolio risk even when it increased the risk of retirement ruin. What this means is one-half of retirees should not be managing their retirement savings and all the financial literacy classes in the world won’t help.

Governments and pension plans are doing a lousy job of informing retirees about annuities.

There have been several studies done that show financial literacy courses are a waste of time, because only those who are financially numerate benefit, and they would have done this financial research on their own. There have been several studies done that show that when told of the benefits and income choices of annuities, many retirees want an annuity. This study confirms these findings.

The new ground covered in this study is when a large group of consumers is taught about general financial concepts, various types of risk and annuities—and then given clear choices about different investment/annuity allocations and the likelihood of running out of money early with each—in spite of the training and being shown the consequences of choosing wrong, one-half of the consumers continued to make bad financial decisions.

In the grand scheme of things, studies such as this one are an indictment of the 30-year experiment with defined contribution plans and shows one-half of the people would have been far better off just getting a pension at age 65. This also shows that when you educate people about how fixed annuities work, more people will buy them. The task is to get regulators, politicians and the media promoting the annuity message.

Reference:

H. Bateman et al. 24 July 2014. Individual Capa­bility and Effort in Retirement Benefit Choices. Australian School of Business Research Paper No. 2014ACTL07. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2494036

Cognitive biases are like a fog that keeps us from objectively looking at the facts when making a decision. Bull markets tend to increase the density of the fog of certain biases. These are the main ones.

Month after month for the last year the media has been talking about the stock market hitting new highs. The forex trading industry has been the trendsetter in terms of exponential growth. If you type in “stock index hits record” on Google you get 451,000 results. By contrast, if you search for “bear market coming” there are 3,930 results. Although there isn’t the irrational exuberance of 15 years ago, it is much easier to find positive articles on why you should keep investing than ones that say you shouldn’t. Availability bias creates an illusion because when we ask our brain to bring forth all of the data on a topic, it instead brings the data easiest to recall. This recollection is based not on how good t he data is, but on how many times we’ve heard it. A way to lessen this bias is to intentionally search for broader news. If you take a broader look and make a point of looking at articles supporting bear markets as well as bull, you may still decide that this current bull market will continue, but at least you’ll base that decision on more information than just the most readily available.

When I was a rookie stockbroker an old pro told me, “Son, never confuse brains with a bull market.” When a bull market is charging and everything is going up, the bias of overconfidence is created by the illusion of superiority and the illusion of control. Every additional day you stay invested, the bull market adds to this overconfidence because it helps you believe that the reason you’re making money is that your market instincts are better than average. Even if you’re not in control, it might be a good idea to read all the ASX news and keep yourself updated about the current trends in the market. This means you also believe you will know when to exit the market just before the crash. Sadly, the only way to truly deal with this bias is to have the next bear market show you that you are not superior and you are definitely not in control.

Professional investors cut their losers quickly and keep their increasing stocks using etoro trading as well as other resources. Amateurs keep their losers because they “can’t afford the loss” and sell their winners because “you can never go broke taking a profit.” This is due to the disposition effect and regret aversion. We feel that if we don’t sell a losing investment that it isn’t truly a loss and thus we don’t have to accept that we made a bad buying decision (even though the loss is still there). Selling a winner releases positive emotions because it shows we chose correctly-but it may have been too early to sell. The way to dispel the fog is to critically determine whether you would buy the stock at today’s price, whether that is from a broker or a trading website like bei aktienkauf.at. If the answer is you would not buy the stock, then sell the stock.

The final bias also causes the most damage because it affects professional money managers more than amateurs. This is the tendency to take what happened yesterday and today and believe it will continue tomorrow. It’s called projection bias and it’s the reason people consistently buy high and sell low. The way to clear this bias is to broaden your yesterdays. As an example, instead of looking at how the stock market has done this year, see how it has performed since 2007 or 1999. A bit of historical perspective often dispels the fog.

To cut through the suspense the answer is yes. If you look at two individuals of the same age, the person who retired early will show greater cognitive decline than the person who retired later. However, there are a couple things one can do to help partially offset the decline (that don’t involve returning to work), and this finding does not mean early retirement causes dementia. First, a little background.

It has been known for many years that our ability to remember things and process information-called our fluid mental abilities-gets worse as we age. While there is some evidence that certain Nootropic supplements may help prevent this decrease in cognitive decline, age will inevitably impact a person’s mental agility. The drop-off is typically mild for years, but then usually accelerates sometime in our seventies. Since the decline occurs in years associated with retirement, there have been some researchers suggesting that the act of retirement causes the decline, but others say no, it is simply an age-related coincidence. A recent study by Celidoni, Dal Bianco and Weber separated out the other variables to focus solely on how mental function was affected by the time spent in retirement. Their chief finding was that the number of years spent in retirement increased the decline in fluid mental abilities. In other words, if you looked at two 75-year-old individuals who were identical, with the difference being one had retired at age 62 and the other at age 69, the individual who had retired at age 62 would be worse at remembering things and processing information.

As life expectancy has increased, the issue of age-related mental decline leading to dementia has become more prominent. The Plassman studies (2007, 2008) found that while few people in their sixties suffered from cognitive impairment, more than half of people in their eighties are impaired. This knowledge has resulted in increased anxiety over protecting our own mental prowess and resulted in the appearance of many pop-psych books and self-anointed cognitive gurus claiming one can stop mental decline by eating or not eating certain foods, taking particular pills, and doing certain brain exercises. Sadly, almost none of this has been proven to work.

This new study did reinforce the notion that engaging in regular physical activity appears to slow down the decline. Indeed, engaging in any regular ongoing daily activities worked to maintain cognitive abilities. However, even these activities did not fully offset the negative effects of early retirement. The study indicated-but couldn’t prove-that retirement lifestyle is a factor. Those who led low stress retirement lives seemed to have lower rates of decline.

The big takeaway from the study is don’t retire-at least not early-if you want to maximize retention of your mental power. The others are to exercise regularly and create a daily routine of doing things so you’re not simply watching television all day. A final point is don’t get too hung up on all of this. Your fluid intelligence has been declining for decades, but during this time you’ve been gaining knowledge, also called crystallized intelligence. What this means is that while it may take you longer to process data, and you may need to make more notes to yourself so you don’t forget, you can still make good decisions and enjoy life regardless of your age.

References:

Martina Celidoni, M.C. Dal Bianco and G. Weber. (2013). Early retirement and cognitive decline.

A longitudinal analysis using SHARE data. Marco Fanno. WP N174

Plassman et al. (2008). Prevalence of cognitive impairment without dementia in the United States. Annals of Internal Medicine. 148, 6: 427-434

Plassman et al. (2007). Prevalence of dementia in the United States: The Aging, Demographics, and Memory Study. Neuroepidemiology. 29: 125-132

It is estimated that more than 90 percent of the nation’s largest companies have most employees work in groups. They will give the group a project and have the group come up with the best way to complete it. They will put people into groups and then have them brainstorm to be more creative. They will tear down office walls-and now even cubicle walls-because they say this will encourage the free flow of ideas and improve productivity. Thousands of companies force people to work in groups to facilitate projects, be more creative and productive-and the results are less creative and productive workers.

This groupthink all began due to quasi-academic articles appearing in the ’60s and ’70s that theorized that group work does better than individual work, but these were opinions not based on independent facts-the writers had done little or no testing on the efficacy of groups versus individuals. However, the idea seemed so logical that people began adopting teamwork methods without proof that they worked-after all, aren’t two heads better than one? On the football field there is no “I” in team!-and the very concept of teams fit changing work demographics. In American culture, women tend to be more collectivist and group-oriented than men. As the percentage of women in the work force grew, the use of groups increased as well. The idea of groups was so embraced by schools that from the 1970s on, primary school students were typically taught in groups and rewarded for being a good group member and not selfish individualists. However, actual studies found that most of the supposed benefit from this groupthink and groupwork was baloney.

Multiple studies have found that “brainstorming”-where people sit around and throw out ideas-results in less creativity, not more. The main reason being that brainstorming usually means the loudest idea prevails, not the best. In study after study it was found that the best idea was usually held by one of the quieter members of the group, and he either didn’t speak it because he was afraid the group would disapprove, or the idea was ignored because it wasn’t shouted.

Offices that tore down walls to encourage “the free flow of ideas” found individual productivity went down. Why? Productivity is tremendously enhanced when people are left alone and not disturbed. This is why many office administrations incorporate partition wall in their interior designs. Think of it like building a fire on a stove. It takes time and works to get the fire going and growing, but after the fire has reached its critical mass, simply adding a small log from time to time will keep the fire burning hot-but a bucket of water puts out the fire and you have to start all over again. Every time “free-flowing communication” interrupts a person who is deeply involved in creating or working, it is like throwing a bucket of water on his productivity.

Roughly one in three adults is an introvert. Introverts are much less effective-and more uncomfortable-in team environments than extroverts. Worse results occur from projects completed in groups with introverts because they are more effective when assigned specific tasks or goals to meet. Forcing introverts to participate in teams not only drastically lessens their effectiveness, but may also be viewed as a type of bullying.

The best “teams” are those that aren’t, but are simply called a team because upper management likes the word. You can refer to a team of actuaries, but what they typically do is get their assignment, go off by themselves, and then everyone regroups where individual results are judged. A company can refer to their “sales team,” but when the team meeting is over, most salespeople go their separate ways.

If a company truly wants its workers to be more productive and creative, it will disband the teams, put up office walls and install office doors, and do away with brainstorming sessions. I doubt this will happen, because cultural myths are difficult to overcome. But if groups and teams were put to rest, workers and companies would be better served.