Fair financial services for consumers

1. Fair financial servicesfor consumers Bart Combée Consumentenbond, the Netherlands Consumers International World Congress 2011

2. An equation Consumer characteristics + market characteristics = ??

3. Characteristics of consumers of financial services • Misconception: • 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

4. contract Misconception I Consumers don’t feel involved in Financial services

5. Misconception II: rational decicionmaking • Behavioural science shows: • Consumers • Have asymmetric risk perception • See good news better than bad news • Are selective in information they use • Loose track in the structures of the information

6. Very high risk Low risk Irrational behaviour, example • people prefer to stay in the middle.=> providers use this in their product propositions

7. Irrational behaviour, example • people tend to lack self control. • => people will base their decisions on the short • term and not the long term

8. Irrational behaviour, example • Lack of experience.=> the ability for customers to understand the • product is limited.

9. Financial markets are overcomplicated Financial market suppliers Service providers Advisors customers

10. Financial markets are overcomplicated Financial market suppliers Service providers Brokers Advisors customers

11. Financial markets are overcomplicated Financial market Brokers & Advisors : Approx. 9000! - population: 16mln - larger than no. of dentists

12. Financial products are too complex Financial product

13. Is the answer transparency? Insurance policy General conditions Service document Leaflet Productguide De Ruiter 1 Mortgage costs calculation Financial addendum De Ruiter 2 Prospectus Request for Bank guarantee Services doc. annulment mortgage Client profile health declaration Risk appetite NHG Brochure Prepayment notice Survey Renteoverzicht Hypotheek akte Client agreement Offerte Contract Product brochure

14. Analysis so far Consumers superficial involvement + irrational decision making) + complicated supply + complicated products + wrong incentives + unclear information + =recipe for problems

15. Result of the equation • consumers payed for services • That were too risky • That were too expensive • That were unnecessary for them

16. Campaigns of Consumentenbond • Improve the equation for consumers • Simpler products • Incentives that work for consumers • Better price / quality of services

17. 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

18. 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.

19. 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

20. Campaigns of Consumentenbond • Call on banks to lower margins on interest rates banks Market funding rates Black box Customer interest rates

21. Campaigns of Consumentenbond Black box

22. Thank you Time to re-think financial services