The FSA seems to think so. It is considering limiting product choice to consumers, blocking access to complex products and intervening on pricing.
FSA chairman Lord Turner last night told the regulator’s financial capability conference in Cambridge that too much investment choice can lead to consumer confusion and prevent consumers from acting for fear of making a bad decision.
To illustrate his point Turner used an example about jam.
He said an experiment was set up in a supermarket with two tasting stands – one had six jams and the other had 24.
Turner said although more people stopped at the larger stand (60 per cent compared to 40 per cent) customers at both stands sampled exactly the same number of jams.
And 30 per cent of people at the stall with fewer jams went on to purchase a product, compared to only 3 per cent at the larger stall.
Turner said this shows that given too much choice consumers often prefer not to act at all for fear of making a wrong decision and that too much choice causes confusion.
Turner said “radical questions” need to be asked, including whether there can be too much innovation in some markets, with complexity acting as a barrier to understanding.
Turner also speculated on whether some products are too complex to be sold to consumers at all and if the FSA should intervene on pricing, at the expense of access to the market for some people.
But is it right to limit what is available to consumers based on a belief that they will be scared away by innovation and are not sophisticated enough to understand what they are buying?
Do they necessarily need to understand how their investments work, if they have good financial advice and are receiving regular reviews from their IFA?
Should consumers be mollycoddled by the regulator? And is it right for the FSA to control pricing?
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