News 16/02/23

More carefully considered design of online investment platforms needed

The design of an online investment platform influences the behaviour of investors. The Dutch Authority for the Financial Markets (AFM) has observed several online investment platforms to gain insight in the design of these platforms and the potential influence of this design on investors’ decision-making. A well designed choice environment can promote sensible investment decisions or, by contrast, lead to suboptimal investment decisions. Therefore, the AFM deems it important that investment firms carefully consider this when designing their platforms.

Exploratory study into design of investment platforms

A previous AFM study found that many retail investors in non-advised services make suboptimal investment decisions. This behaviour can be (partly) caused by the choice environment they are presented with by investment firms. Consequently, in 2022, the AFM performed an exploratory study at a number of investment firms into the way in which they have designed their online investment platform. The insights from this exploratory study are presented in the report entitled ‘Observing online investment platforms – An exploratory study into guiding investor behaviour’.

Influencing investor behaviour

We noticed several elements that might influence investor behaviour. For example the use of default settings for depositing money into the trading account. Some platforms offer an instant bank transfer (via iDeal) as the preset way of depositing money, which encourages investors to trade with money they really have. Whereas other platforms offer a credit card payment as default option, which encourages investors to trade with borrowed money. By contrast, other platforms offer a credit card payment as default option, which encourages investors to trade with borrowed money

Another example is the way in which the choice set is structured. Some platforms do not show all investment categories initially. By limiting the displayed categories, investment firms can avoid products being sold to investors outside the positive target market. This way firms could meet the product governance requirements.

Report supports discussion on design of investment platforms

The design of an investment platform influences the decisions investors make. A well-designed choice environment can promote sensible investment decisions. Investment firms should therefor carefully consider this when designing their platforms.

The AFM will share this report with European and national supervisory authorities and policymakers as input for the discussion on the design of online investment platforms.