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FCA warns against too much disclosure about ’emotionally charged’ topics

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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.”


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. Kerrching!

    Finally, the penny drops.

    Let’s hope that this result in sensible disclosure requirements soon.

  2. I don’t know, Tim. I LIKE a good old information assymetry, me.

  3. I imagine that they have clearly tried to explain the clean share class debacle that’s incurring extra tax and needless problems. However I don’t think attempting to control how people process information is a course we really need to take.

  4. 5 years too late ! When will they make their minds up and how are IFA’s supposed to know what is and isn’t the right amount of information ?

  5. I have seen suitability reports for term assurance that were themselves a justification for the product because the client would lose the will to live before reaching the end!

  6. Here is an idea. What about listing the benefits the policy has and what the client is paying for it those of us old enough to remember it will remember FAB. A 2 page (possibly extend on to the 3rd page) suitability letter that actually will mean something to clients instead of 12 and 15 page letters/reports for a simple pension/ISA/UT etc that add no value and give too much information, most of which is a repaeat from the KFD. Get rid of a lot of useless cr*p and then things can start in the right direction.

  7. Just wondered but does two papers being released on the same day about a topic represent one too many?

    Discuss in less than 140 characters.

  8. Looks like the regulator is trying to censor the debate.

    The answer is to clean up the industry NOT deny customers access to the truth and information. The FCA should be ashamed of itself. What would the free press make of this ? Or consumer rights organisations ? The is an own goal and it is only the 10th April. This does not bode well.

  9. Marty

    Well said, The clients neither understand nor read these letters. They are designed as cover your backside letters, not reasons why letters. But with ambulance chasers on the horizon the situation lookst to get worse not better. Your reason why not letter, volumes 1-3 !!!

  10. When is the regulator going to arrive in the real world?

    Reading between the lines they are saying that clients make bad decisions because they don’t read all the information eben when it is put in front of them.

    I’m all for making clients aware of the risks and adapting my approach to different clients based on individual circumstances but at some point clients have to take responsibility for their own decisions.

    We can’t keep wrapping clients in cotton wool and heaping 100% responsibility onto advisers. Fair enough we should shoulder most of the responsibility but to keep tilting the scales in the clients favour will only drive up our costs and signal an end to the IFA sector. Thats if RDR doesn’t destroy it first.

    Rant over……………………………………………..

  11. Topical. We have just recently carried out an annual portfolio review for a client which required some rebalancing of their investments. It also included back to back ISA applications, a move over to explicit pricing on all their funds and setting up their income withdrawal for the next year.
    The bewildered client had to receive 182 A4 pages. SIDs, Fund Fact Sheets, applications forms, declarations, suitability letter etc. And this excluded the initial disclosure documents! There was nothing that we could have left out without the sale being non compliant.
    So what would the FCA have us not provide? SIDs, Conflict of interests declaration, suitability letter? Which part of EU law would they like us to ignore or not highlight to the client? And having provided that guidance would they like to indemnify us against future retrospective reviews by the FCA or claims from disgruntled clients?
    I totally agree with the sentiment but I have long suspected that the FCA do not understand how much information we actually have to give. A few years ago, the best practice guidelines for suitability letters were pathetically naive.

  12. @Sam Caunt (had to be careful typing that) 3:18pm

    Exactly right, damned if you do, damned if you don’t.

    Give the client too much information and the FCA believe we are blinding them with facts and impeding their ability to make an informed balanced decision. Don’t give them enough information and await the inevitable knock on the door from your local CMC claiming you have mis-sold something (strangely i reckon the FCA and FSCS would be right behind them backing them up in a hurry to side with the client).

  13. Glad to be over 50 10th April 2013 at 3:50 pm

    With ambulance chasers lurking around every corner, I have no intention of ever changing my CYA letters (cover your ass). I have successfully avoided the only ever claim made against us, in 16 years trading, precisely because I was able to rubbish every bogus statement made by the PPI claims management firm, with written evidence held on file. I am afraid the original views expressed by former regulators (if it isn’t on the file, it didn’t happen) have stuck with this old guy and will never change before I retire.

  14. This is why people enjoy relationships with advisors they TRUST!
    I know this is a strange concept to regulators and bankers alike, but having a close working, trusting relationships works for normal people in many industries and fileds. From your local mechanic to your GP, decisoins are made by service providers to understand the detail a client requries.
    Advisors are responsible for their own reputations and accountable not only to a regulator, but to the peole in their community they work with.
    Not everything should be measured in terms of finance and it is pathetic that regulators consistantly fail to recognise the more effective curtailing realities of running an advisory business badly, people tell you to piss off very quickly when your fail.
    Anyone joining the FCA from FSA should now please piss off! I do not accept a dilution of responsibility from working in a corporate enviroment, this is why as an individual I am paying £25k specifically for banking staff rip offs.

  15. Reminds me of an old compliance review.
    2 reason why’s pulled out one was too long the other too short.
    First was 3 major investments and 3 protection products running to ten pages.
    The second was a small life term policy.
    The result of the meeting was that it was irrelevant the number and complexity of services. A reason why letter can be no longer and no shorter than 4 pages according to the numpty.
    And no right of appeal 🙂

  16. People like Evan Owen, Alan Lakey, Brian Lentz and Terry (b*gger forgotrren his sir name, sorry) have been telling the FSA for free for 10 or 15 years now, what they have only just PAID for a report on!
    As to CYA, the only complaint we had, the suitability letter wasn’t what covered my arse, it was the recordings of the client meetings which proved that what they had told their solicitor was untrue. Case dismissed. The suitability letters for Keydata were ignored by the FSCS, they carpet bombed advisers who’d used the Life settlement plans whether the client had been advsied to invest 1% or 100% and threatened legal action which would have cost more than a firms capital adequacy to defend!
    Wake UP. Make sure if we are to be hung it is for what we have done rather than what we are accussed of NOT doing. Wake UP and record what the regulator says to as they are not perfect either as we know from some who should have been disciplined for offesnvie comments or aggressive and abusive use of POWER with no limits or controls.

  17. I guess they now want us to use political speak keep them in the dark and feed them BS
    So whats new politicians been doing this for years.

  18. whoops, gone off at a tangent. On the FSA warning about excess of disclosure, Peter Turner is a compliance consultant and I read his newsletter. He has recently started to produce non company specific KFDs which I think is an excellent idea as why should we throw the info from a company at the client, we should tell them the general background and generig KFDs sound a much better way to me.
    As to Sam Caunt’s problem with the amount (and I agree it is too much to read before effecting a contract) info we must send to a client delvering it in different mediums and clipped together differently can help a client focus on reading the essentials first. We provde a mixture of hardcopy and emailed PDFs. The PDFs ARE a durable medium provided our back up system is good. They last longer than a lot of faxes from the 80’s which have faded to illegable. The durability of the clienst copy, as with paper is in the clients control and NOT ours. For any who insist that electroinc is NOT durable, I agree if North Kored strikes, the EMP will wipe the data and we may have been better using waxed tablest (like survice on Hadrian’s wall) or even stome tablets which have lasted even longer……

  19. The FCA are, understandably, concerned abiut headline rates. They refer to the issue of other feautures and benefits and charges being overlooked.

    Why then does a KFI for a mortgage not have the total cost of borrowing which includes alll charges on the front page and highlighted in bold? If it is a 2 or 3 year fix why doesn’t it have the cost for that period on the front page as well highlighted in bold?

    Surely this is the basis on which consumers should compare the cost of loans (one for the whole term and one for the period to which they are likely to re-mortgage)? Isn’t the total cost of the loan what the FSA said must be included in order to aid consumers shop around?

    Instead it appears in section 5 which may be on page 3 and gets lost with the other mandatory information they have finished reading by then.

    It strikes me that the FSA was guilty of setting out a mandatory requirement that does not support TCF and the FCA concept of putting the consumer at the heart of business practice.

    Will they change this – wouldn’t hold my breath!

  20. As a restricted advisor working on the high street (not many of us left since RDR killed most off) my company now has an expectation of just one file being submitted a week. This is because a 1st meeting is taking around 2 hours, needs following up most of the time with a continued 1st, then it takes most staff around a day to do all the paperwork on a simply cash case (usually a ISA, so not profitable for the busness) or if dealing with replacement investments 3-5 days. The documentation is then placed into a 104 page advice document that we go through in detail with the client along with all the KFD’s illustrations and so on. The recommendation meeting takes around 2-3 hours to go over all the areas, is this overkill? will the clients actually take all of this in? will they really read all the info we give them? If regulation is there to protect the client, something needs to change as most clients have lost the will to live before we have a chance to finish.

  21. The FCA states: “Behavioural biases can render regulatory interventions aimed at addressing information asymmetries harmful”

    I often wondered where Gus from Drop the Dead Donkey went when the series ended!

  22. Over the last 15 years or so I was asked to attend Regulatory focus groups on disclosure documents. On both occasions the consensus from the 4 or 5 advisers who were asked for input reached a quick and unanimous opinion. If it’s more than one side of A4 it’s too long. You all know how much notice was taken.

    However it is all very well having less paperwork and shorter reports or reasons why letters, but this MUST go hand in hand with a review of the compensation culture. We are hostages to fortune if all the various aspects aren’t put in writing – no doubt 15 years down the line we will be called to account and without robust files we will be sunk.

  23. Whenever I have sat down with a client to explain the features of a recommended product, after producing a written report they can study at their leisure prior to that meeting some days before, I have found that sensible clients read the report and come up with some quite interesting obervations and queries, which I always address, never dismiss and if I haven’t got an answer, do not proceed with any sale / purchase until all issues are clear in their own mind.

    My networks sitability letters are by their very nature quite long, but broken into sections, most clients read them and do not ignore the content.

    Who would want a client to part with say £100,000 without first knowing how their funds are allocated, the performance of those funds to date and the prognosis for future returns and the risks associated with those funds.

    If you have clients who trust you, then they will trust you to do your job right and as part of that trust, you have to identify if they have any reservations or concerns.

    it’s all about identifying whether your clients have the capacity to understand what you are recommending, if they do not, don’t proceed until either they do or they shy away.

    Much better to say to clients as I did last year to one couple, who wanted to secure an investment of £100,000 to make more money than their best available deposit based options. They wanted to make more money, but were not prepared to take any risk whatsoever, so I declined to advise further.

    Glad I did that because I heard on the grapevine that some other “friend” who was an adviser with a major banking group did encourage them to invest in a non deposit based product, which to date has cost them loss.

    Phew!! Narrow escape

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