Who would have thought that consumers like to sleep at night, preferring to believe that their investments are doing well and they aren’t paying too much?
This was the shocking finding of a 50-page report produced for the FCA by Oxera on whether the hundreds of rules regulators have produced over the years, about what you should tell consumers, are making them more aware of the risks they take on when purchasing a financial product.
The report told the regulator that a pension plan, as set out in a detailed information pack of documents which outline its features, is much more abstract than a piece of furniture or a bus – what a revelation!
People tend to be less responsive to information that is abstract and statistical (as financial services disclaimers typically are) than information which is salient and vivid – yet another finding that was surely a surprise to no-one who works in this industry.
Furthermore, Oxera told the FCA consumers may fail to engage with some financial products because they are linked to negative outcomes. For example, an individual may not think of the possibility of missing loan payments, thus they will avoid investigating the cost of a late payment fee.
This isn’t the first time that the regulator has been told that even if you took out a billboard advertisement stating “You Could Lose All Your Money” consumers will still buy certain financial products.
Let’s just hope it will be the last and the FCA has finally learned that despite their best intentions, consumers are not always sensible enough to read everything that is given to them in the way they should.
The intention behind the long list of disclosure rules that exists is great. Consumers should be well informed and able to make the right decision about what they should do.
But none of these rules deal with the reality of the situation. People don’t want too much information.
When I buy a microwave, I do not receive a key facts illustration or see a photo on the box warning me that if I leave a fork in my ready meal the appliance may blow up in my face.
If I did, I might perceive a machine to be the work of the devil, withhold my cash and decide to instead purchase a few pieces of wood and a box of matches so that I can go all caveman and cook in the open air.
What I expect from a regulator when I buy a microwave is that the chances of this electrical appliance exploding in my face are minimalOr would I?
No, I would probably still buy the microwave because, instead concentrating on the benefits it would bring to my life.
Rather than having to go out to kill and skin an animal, before slowly turning it on a spit, with a microwave I could pop to my local supermarket, pierce the film lid a few times and have a meal ready in a few minutes.
What I expect from a regulator when I buy a microwave is that they have made rules for the manufacturer so that the chances of this electrical appliance exploding in my face are minimal.
I have spoken to so many advisers over the years who were sick and tired of having to say “past performance is no indication of future returns”, knowing full well that their clients were ignoring this statement.
Christopher Woolard, director of strategy and competition at the FCA, said alongside the report that all too often customer communications are so technical that even the most astute consumer would struggle to understand the information.
“Communications play a fundamental role in helping consumers make decisions about the products and services they buy which is why it’s so important that we work with firms to get this right.”
It is important we get it right, however I was slightly worried by the good practice that the FCA highlighted in their discussion paper, which asks you to share your thoughts on how you should disclose key information.
It gave examples of good practice like Nationwide Building Society developing a series of videos to help prospective customers aged between 11 to 17-years-old to understand key banking concepts, along with Barclays Bank providing online videos designed to help customers use its mobile banking app.
So, should you all become YouTube stars?
Given that the most popular videos on YouTube seem to feature cats and babies, should you be looking for a non-speaking co-star in order to go viral?
It would be great to hear what do you think clients should be told and how should you go about informing them of the costs and risks they face by following your recommendations.
emma.hughes@ft.com
