Fair financial services
for consumers
Bart Combée
Consumentenbond, the Netherlands
Consumers International World Congress 2011
An equation
Consumer characteristics + market characteristics = ??
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Consumers International World Congress 2011
Characteristics of consumers of financial
services
Misconception:
I.
Financial services are important, so consumers
pay a lot of attention to it
II. Money can be counted, so financial services
are subject to rational decision making
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Misconception I
Consumers don’t feel involved in Financial services
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Misconception II: rational decicionmaking
Behavioural science shows:
Consumers
1. Have asymmetric risk perception
2. See good news better than bad news
3. Are selective in information they use
4. Loose track in the structures of the information
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Irrational behaviour, example
• people prefer to stay in the middle.
=> providers use this in their product propositions
Very high risk
Low
risk
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Irrational behaviour, example
• people tend to lack self control.
=> people will base their decisions on the short
term and not the long term
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Irrational behaviour, example
• Lack of experience.
=> the ability for customers to understand the
product is limited.
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Financial markets are overcomplicated
Financial market
suppliers
Service providers
Advisors
customers
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Consumers International World Congress 2011
Financial markets are overcomplicated
Financial market
suppliers
Service providers
Brokers
Advisors
customers
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Financial markets are overcomplicated
Financial market
Brokers & Advisors : Approx. 9000!
- population: 16mln
- larger than no. of dentists
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Financial products are too complex
Financial product
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Is the answer transparency?
Insurance policy
General
conditions
Leaflet
Productguide
De Ruiter 1
Mortgage costs calculation
Financial
De Ruiter 2
addendum
Request for Prospectus
Services doc.
Bank guarantee annulment
Client profile
mortgage
health
Risk appetite
NHG Brochure Prepayment
declaration
Survey
notice
Renteoverzicht Hypotheek
Client agreement
akte
Offerte Contract
Product brochure
Service document
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Analysis so far
Consumers superficial involvement
+ irrational decision making)
+ complicated supply
+ complicated products
+ wrong incentives
+ unclear information
+
= recipe for problems
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Result of the equation
consumers payed for services
• That were too risky
• That were too expensive
• That were unnecessary for them
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Campaigns of Consumentenbond
 Improve the equation for consumers
 Simpler products
 Incentives that work for consumers
 Better price / quality of services
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Campaigns of Consumentenbond: products
 Transparancy alone is not the answer
 Safety,
 usefulness and
 understandability
are required as ingredients in financial products
to further mitigate the risk of misselling
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Campaigns of Consumentenbond
 Understand your money?! Know what you sign for
Consumentenbond has challenged the providers
to come up with simple products in most
relevant categories such as car insurance,
mortgage loan, payment account, etc.
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Consumers International World Congress 2011
Campaigns of Consumentenbond: regulation
 Prohibition of incentives that induce misseling
 By 2013 financial advisers and brokers will no
longer be allowed to receive any payments
from banks of insurers for selling complex
products
 No volume based bonusses
 No transaction related remuneration
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Campaigns of Consumentenbond
 Call on banks to lower margins on interest rates
Market funding
rates
banks
Customer
interest
rates
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Campaigns of Consumentenbond
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Thank you
Time to
re-think
financial services
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