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AFM: Standardized products and consumer financial decision-making

On March 13, 2015 the Netherlands Authority for the Financial Markets (AFM) published a behavioural analyses of standardized products and consumer financial decision-making. Today, an English translation of this report was published.

Standardized products are products for which all terms and conditions except the price are prescribed. If introduced, all providers would be obliged to carry standardized products in addition to their current product offer. In this report the AFM addresses the following question regarding standardized products: in what way can standardized financial products contribute to good consumer decisions regarding financial products? This research was requested by the Dutch Minister of Finance.

The Minister asked the AFM to analyse standardized products from the broader perspective of consumer decision-making. Insights from behavioural economics and psychology are at the core of this analysis. In this report the AFM focuses on behavioural insights that are relevant to the three problems discussed in the letter to the Dutch parliament (and for which standardized products are the proposed solution): limited product comparison by consumers, the purchase of products having undesirable features, and the underconsumption of certain financial products.

The AFM concludes that in order for standardized financial products to contribute towards good decision-making by consumers, we need to value outcomes (for example, consumers do not purchase undesirable products, or they buy something instead of nothing) more than the decision-making process itself. We believe there is little reason to believe that standardized products will enable consumers to make more thoughtful decisions and choose more suitable products. In other words: standardized products will not turn consumers into (more) rational decision-makers. That is why the AFM holds the opinion that standardized products are not a solution for the first problem discussed in the letter to the Dutch parliament; but they do, in theory, offer a potential solution for the second and third problems.

Besides the AFM, The Netherlands Authority for Consumers & Markets examined standardized products from the theoretical frameworks of competition supervision.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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