The Financial Conduct Authority says disclosing too much information to consumers about “emotionally charged” topics like advisers’ conflicts of interest can be “harmful” and lead to poor decision-making.
The regulator has today published two papers on behavioural economics, firstly looking at how consumer biases can lead to a lack of market competition and secondly on how consumers react to different redress and customer contact letters.
In its paper on consumer bias, the FCA warns that disclosing too much information to consumers can have a negative impact.
It states: “Behavioural biases can render regulatory interventions aimed at addressing information asymmetries harmful.
“There is 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.”
It states a large amount of information can lead to consumers ignoring important product features and focusing on headline rates. In its 2013 risk outlook, published last month, the FCA highlighted financial comparison websites as an area of concern for promoting headline rates alone.
The behavioural study states: “Consumers often focus on a few headline rates and ignore the additional information about features or charges that is provided to them. Information disclosure requirements that do not take into account how consumers process information are likely to be ineffective or even counterproductive.”
Last week, the Investment Management Association published new guidelines to show the impact of fund costs on performance.
Highclere Financial Service partner Alan Lakey says: “There is a massive information overload for clients who don’t read all the documents they are given or take it in. If the regulator understands that we have gone too far in the other direction then it’s good news.”