fair financial services for consumers bart combée consumentenbond, the netherlands consumers...
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Fair financial services
for consumers
Bart Combée
Consumentenbond, the Netherlands
Consumers International World Congress 2011
2 Consumers International World Congress 2011
An equation
Consumer characteristics + market characteristics = ??
3 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
contract
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Misconception II: rational decicionmaking
Behavioural science shows:
Consumers1. Have asymmetric risk perception 2. See good news better than bad news3. Are selective in information they use4. 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
Lowrisk
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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
10 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?
Offerte Contract
Service document
Services doc.
Hypotheekakte
healthdeclaration
Survey
Financialaddendum ProspectusRequest for
Bank guarantee
Productguide
Client profile
Mortgage costs calculation
RenteoverzichtPrepayment
notice
annulmentmortgage
De Ruiter 1
Risk appetite
Insurance policy
De Ruiter 2
Client agreement
NHG Brochure
Leaflet
Product brochure
Generalconditions
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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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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
Black box
Market funding rates
Customer interest
rates
banks
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Campaigns of Consumentenbond
Black box
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Thank you
Time to re-think financial services
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