“You gotta keep them focussed on the transaction, otherwise they wander and cannot make up their minds..sometimes they just need to be nudged in our direction and not away from it..”, you can almost imagine someone quipping at a recent OSC dialogue.
Sometimes, and at times more times than you would wish, you have to wonder if the cards are being deliberately stacked against the consumer in plain view.
According to Rudy Lukko, writing for the Toronto Star, “according to focus groups, benchmark returns aren’t easily understood. So, no matter how useful benchmarks may be, you won’t find them in Fund Facts documents”, and, “”When you have choice overload your cognitive bias is to do nothing.” says Doug Steiner, a principal of BEworks Inc””.
But does the addition of a benchmark actually lead to cognitive overload? Come on guys, the weekly curriculum load of a 7 year old probably exceeds the intellectual demands of a point of sale document, yet the average child’s curriculum slowly expands in terms of complexity and density for at least another decade.
No is the most likely answer! I very much doubt it. But just like a parent stuck with some mathematical notation they have not seen in decades, the problem is one of familiarity and not cognitive weakness. That is unless you view education and its benefits as cognitive overload, which it is really at a point in time, but that is beside the point; these types of arguments are the arguments of totalitarian regimes keen on keeping their populace in ignorance.
The removal of benchmarks has likely less to do with information overload and more to do with keeping the distractions limited and the information simple so the “buy button” comes sharply into focus?
Regulators remain transfixed, like deer in the headlights, on the transaction mode, unable to break free from their cognitive limitations. Perhaps this is all about removing barriers to their cognition – absurd but not beyond the realms of “truth in the subtext”.
If your interest is the sale, then your whole focus is about getting the sale done as quickly as possible.
But is this in the interest of the consumer and why does it appear to be the interest of the OSC/CSA too?
Should the OSC/CSA be entertaining ploys that nudge consumers towards the “right” decision while taking away the information that would lead to better decisions?
If the solution to responsibility is nudging, then who is responsible for the content and consequence of the nudge?
Surely we are not going down the road of prescription and nudge as a way of making the transaction system work?
We can make the process easier, and we can “nudge” the client towards making a decision which is right in terms of the realities of investment and risk while entertaining and adjusting for their preferences, aversions and taste. But nudging in this sense is about communicating the truth and the realities of investment, with the advisor responsible for the risk and return management process and the client the particular skew of the outcome. You cannot nudge safely without transparent structure, process and accountability, and forgive me for saying this for the umpteenth time.
If you want to nudge appropriately and without prescription and an infinite number of rules, you need education alongside structure and process. Regulators while entertaining behavioural economics, at such a superficial level, are set about creating a system that will not work and that will imperil the rights and needs of investors.
The learning process is key to making future quick decisions. So yes, quicker decisions are better for everyone, but the right decisions are the most important ones and learning how to make appropriate while efficient decisions is the platform we want to achieve.
I think the focus the regulators currently have, on what investors understand as opposed to what they need to understand to make an informed decision, is an incorrect one. It is almost as if the glossy feel good (blissful) design is the main goal of point of sale documents and not the decision process.
Q – “What do you think about the product?”
A – “ I like it, the packaging is nice, it has nice colours and the shape is just right. Easy to hold. The information is so accessible, and there is not much of it so I can easily understand it and make my purchase decision”
I do have some serious misgivings about the way behavioural economics is starting to be sold and applied to the real world: it seems that it is no longer about engendering effective choice, or education to better align that choice, or making the right decision, but about consumption and consuming as much as possible of what is available for sale. It is about removing obstacles to the transaction and it is a dirty and dangerous road!
It would appear that the argument is this: consumers cannot make effective choices with new information, so take away the information that interrupts the decision. This is not about behavioural economics, this is about control and it is unethical!
Benchmarks which allow investors to better assess, inter alia, the value added of an investment, portfolio or service are critical to the efficient functioning of all markets. Competition, transparency and accountability are the foundations of ethical competitive market outcomes.
Please read or view the following interesting and topically relevant pieces:
The BBC documentary, “The Century of the Self”