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MM leader: The Kiids aren’t alright

Advisers could have easily predicted the results of an FCA behavioural study which found consumers of financial services are badly served by an overload of information.

The study suggests too much information can lead to consumers making poor decisions, ignoring important product features and focusing solely on headline rates.

Disclosure requirements which fail to take account of how consumers process information are likely to be ineffective or counter productive, it warns.

The findings are hardly revelatory to most people but the rather simple concept that too much information can do more harm than good has been lost on previous regulators at a UK and European level.

Advisers report they are being forced to bombard clients with a small rain forest’s worth of disclosure material just to inform them about a range of investments in their portfolio.

The European-led Key Investor Information Documents, introduced as an attempt to add transparency, appear to be doing the opposite due to the deluge of information that needs to be supplied.

Bombarding consumers with pages of material they will not engage with is clearly in the interests of no-one except for printing companies and paper suppliers.

Let’s hope this behavioural study is the trigger for a debate about the true value of disclosure material to consumers.

Simplification will not be easy as documents will have to abide by European rules. But UK regulators should be prepared to take the battle to Brussels if they believe this to be in the interests of consumers. 

The death of bank advice?

There was a 44 per cent drop in bank adviser numbers post-RDR, from 8,658 to 4,809. More recently, Santander quit investment advice, with 740 jobs to go, while Axa is following suit with 430 jobs at risk.  Axa says regulatory requirements make it too tough to make a profit whilst keeping investor costs affordable.

Other big institutions are considering their options and it is reasonable to speculate that we could see an end to bank advice altogether.

Whatever your views about a sector which has been guilty of widespread misselling, this would be a troubling development at a time when policymakers should be focused on getting more people saving and protecting themselves and their families. It is also likely to reopen the debate on simplified/basic advice. 

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. To solve this problem I suggest a Key Investor Information Document Investor Information Document (KIIDIID) which would disclose to prospective clients exactly how much paperwork they could expect to receive as a result of seeking independent advice.

    Obviously the document would have to be somewhat generic but to help investors you could have, say, a simple scale of expected volume of paper ranging from 1 (“oof”) to 7 (“your dog’s spine is broken in three places”) backed up by a list of potential percentage decrease to the Amazon rainforest (percentages may or may not reflect actual things that happen).

    This would be mandatory to issue to anyone who is even thinking about possibly seeing a financial advisor, and would help potential investors make a fully informed decision on whether they want to go to the bother of seeking financial advice, or alternatively just stick all their money with their helpful friendly local bank.

  2. Making sure you have issued a document is not the same as making them read it. We issue non client specific documents as PDFs as a rule BG email and only print client specific documents. That way the client can prioritise what they read and when and still find it by checking their email in box or asking us to resend it. Less is more, but the clients have to have access to it.

  3. I was trying to work out what you could drop from the sales process to prevent information overload. KIIDs could be one (they do not fit into the advice process) but you still require the fact find to be checked by the client and signed, the Risk Questionnaire checked and signed, the application forms checked and signed, the Fund factsheets to be sent. Then there is the review documentation supporting the sale or switch. It is not only the regulators at fault but frankly the fear of the CMCs looking over your shoulder knowing full well that while you can pass an exam with a 70% mark you have to be 100% right with your advice and the process you used.
    One further comment and I often see the point misunderstood. It does not matter whether you post it, print it, or email it the client is expected to read what you sent because that is what the regulator believes they should have. How can you send several emails inferring that this second or third one is not important – how many email inboxes can accept 16MByte attachments…..

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