Behavioural biases, their impact on customers, how the FCA thinks and likely interventions.

I have just read through ‘Occasional Paper No.1: Applying behavioural economics at the Financial Conduct Authority’ in relation to their understanding of behavioural biases in the communication and promotion of investment products.

It provides a clear view of the growing sophistication of the regulator’s perspective on many issues that are directly pertinent to the way both investment managers present product attributes and choices and how advisers run their investment suitability processes.

While its a long way from providing details of what the FCA will actually do in practice, it’s well worth reading. I would imagine that it will stimulate much thought and hopefully, review of current communication practices.

My initial reaction is that it will lead to much more careful discussions around prospective returns and likely volatilities of investments. Consequently this will enhance the current trend towards investment simplification and ready packaged portfolio solutions.

http://www.fca.org.uk/static/documents/occasional-papers/occasional-paper-1.pdf