Let’s have some plain speaking and common sense
“Behavioural biases can render regulatory interventions aimed at addressing information asymmetries harmful“.
This less than plain English comment was made by the Financial Conduct Authority (FCA) in regard to evidence that “extra information may lead consumers to make poorer decisions by distracting them or making them under or over-react to emotionally charged topics like financial advisers’ conflicts of interest”.
This means that there is a possibility that the very large amount of information produced in regard to financial services products and advice could lead to consumers ignoring important product features and focusing only on the headline information.
This is in some ways good news, possibly even enlightened thinking as advisers often complain that the amount of documents now required to accompany the advice and execution process is huge.
Only recently an adviser told me that he and his client had to go through 274 pages when setting up two ISAs and two pension plans!
While this is clearly an outrageously high amount, due to regulatory rules and the threat of redress, firms need to demonstrate that they have provided enough information and documentation to support the advice given.
Too often we have seen, particularly in cases of alleged mis-selling, that consumers state that they were not provided with sufficient information about the product they had found themselves “saddled” with and had they been provided with detailed the information they would have made a different decision.
And so the regulatory solution was to ensure that did not occur anymore, and the outcome, in addition to deforestation, is now seen as leading to poor consumer decision-making.
If the FCA is concerned that information overload that could lead to consumer bias, now is the time that a fresh regulatory broom can perform the task it was designed for.
The FCA should intervene with a programme of simplification and very specifically prescribe what documentation is needed for what products from advisers and providers, what it should say and that it should all be in plain English so that consumers can make a reasoned and properly informed decision.