Does disclosure really help?

Even if disclosures are easy to think about, investors still may not focus on what matters most. A team of economists, including David Laibson of Harvard, tested whether investors would favor the lowest-cost choice among four index funds if the importance of fees was hammered home in a one-page "cheat sheet."

The good news: By presenting a simplified emphasis on fees, the researchers tripled the number of investors who favored the lowest-cost funds. The bad news: That tripling brought the proportion up only to 9% from 3%. "We still ended up with a 91% failure rate," says Prof. Laibson. Encouraged to focus on fees, investors nevertheless fixated on—and chased—past performance.