By guest contributor Simon Russell, Director, Behavioural Finance Australia
The new product design and distribution obligations are due to come into effect in October 2021. If your organisation issues or distributes investment or credit products, now is your chance to prepare. The obligations will apply to a range of financial products, including investments, super, insurance and various credit products. The obligations are particularly relevant for super funds, investment product providers, banks, credit unions and insurers, among others. They appear to indirectly impact financial advisers and mortgage brokers too.
This article is the final in a 4-part series that discusses what you need to know about behavioural finance and associated decision-making research to implement these new requirements successfully.
How can you avoid misleading consumers?
While many of the new product design and distribution obligations shift the onus of ensuring product suitability away from the consumer, the shift isn’t absolute; a role for the consumer remains. To give the consumer the best chance to fulfil this role requires, at least in part, making sure they aren’t misled.
One of the problems of communicating with consumers about products is that they can easily get the wrong impression. One of my favourite demonstrations of this is where I present workshop participants from across the financial services industry with text labelled ‘Important information’. Despite the label, typically a large proportion of people ignore it – assuming that the text was, ironically, unimportant.
When given the same test, more than three quarters of individual investors do the same. But not only do they ignore it, they seem to do so without being fully aware that is what they are doing. In my experiment, of the individual investors who ignored the ‘important information’, approximately three quarters of them rated their attention to detail as being either good or very good!