The information leaflets supplied with complex financial products fall short of the mark. People still run a substantial risk of losing money. This is the conclusion of Carien de Jager, after conducting research for which she will be awarded a PhD by the University of Groningen on 20 September. According to De Jager, financial information leaflets are inadequate for protecting consumers and the government overestimates them.
Complex financial products are combination products that involve investments, such as investment funds and life insurance contracts with an investment component. Many of them are unsuitable for consumers, and providing information does little to change this, says De Jager. She studied ten different Dutch, German, English and European information leaflets.
The profiteering policies and securities lease affairs are prominent examples of situations in which many people lost money because of financial products that they didn’t understand. In an effort to protect consumers from situations like these, the government made information leaflets for financial products compulsory. For example, the Financial Information Document was introduced in the Netherlands in 2001, and replaced with the Key Information Document in 2018. De Jager tried to find out whether leaflets like these actually help consumers to understand the products and make better informed decisions, but she concluded that providing information about financial products does little to help.
De Jager does not believe that the leaflets are the right way to approach consumers. ‘This method doesn’t relate to what we currently know about consumers. A consumer is not a computer that can process information and automatically make a good decision. Consumers can be irrational and make mistakes. Providing information isn’t an appropriate way of dealing with this type of behaviour: one needs to be rational to understand information.’
Many of the information leaflets are also incomprehensible, with too much technical jargon, long sentences and difficult words. According to De Jager, the information could be made easier to understand by using simple language and adding pictures to the text. But she is not convinced that better leaflets will necessarily help people to compare financial products, and she has serious doubts about the efficacy of these leaflets in general. ‘You can’t change consumers. For many people, information simply doesn’t play a role in their investment decisions. In addition, many consumers aren’t motivated to read about financial products, or don’t have the knowledge and skills to understand the products they are considering.’
So, information leaflets are not the right instrument for helping people to understand and compare complex financial products. But should they be withdrawn? De Jager: ‘They can be beneficial. Unlike marketing material, they are an objective source of information. I wouldn’t recommend withdrawing them, but I do think that legislators overestimate them. We shouldn’t spend a disproportionate amount of money, time and effort on such a relatively ineffective instrument. We’ve been doing this at both a European and national level for over thirty years now, without much success. If we really want to protect consumers, we need to look further.’ However, De Jager doesn’t hold out much hope for alternative methods either. ‘An information document is an easy political tool. Alternative solutions that take things a step further, such as a ban on certain products, will meet with resistance from various parties.’
Carien de Jager
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