Transparency is a necessary but insufficient means of helping retail investors make their choices, the European Commission’s Financial Services DG (DG FISMA) concluded (see EUROPE 12949/31) in a study on disclosure, inducements and suitability rules for retail investors, published on Tuesday 2 August.
Indeed, transparency addresses some of the needs of investors and some of the behavioural biases affecting the decisions of potential investors, as these documents aim to make their choices more rational. However, there are other behavioural biases which, in turn, have an inverse effect on the effectiveness of transparency.
The information on financial products aims to improve the comparability and understandability of products. However, people interested in financial products do not always compare them. The consumer survey showed that 76% of those who hold at least one investment product make comparisons before making their choice, but 40% of them compare products of the same type while only 36% compare different types of products.
The disclosure documents describe the products, risk, past and expected future performance, costs and holding period. They are very important for consumer choice and protection.
Nevertheless, the current legal framework emphasises accessibility and availability, but does not provide for information material that is attractive to users and that will attract their attention. Furthermore, the standardisation of information does not overcome the complexity of terminology.
The study therefore finds that there is mixed evidence on the usefulness of disclosure documents in helping people already engaged in selecting a financial investment product to make an optimal choice. There is also no evidence that transparency would encourage consumers who are not considering financial investments to choose this form of investment.
To read the study: https://aeur.eu/f/2tm (Original version in French by Anne Damiani)