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UK regulator puts fund fees under microscope

Jessica Yun
— 1 minute read

Research conducted by the UK’s Financial Conduct Authority (FCA) has demonstrated consumer decision-making is significantly impacted by the way fund fees and charges are disclosed.

A recent report by the FCA revealed that the presentation and method of disclosing fund costs and charges affected investors’ decision-making and price awareness.

“Making information available does not necessarily mean that investors will take notice of or understand it,” the report said.

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“Previous research has shown that the way information is presented can affect how consumers access, assess or act on it.”

The FCA conducted behavioural research with over a thousand non-advised investors that involved a simulation of an online investment platform and four different ways of disclosing fund costs and charges.

Source: UK Financial Conduct Authority

Of the four different treatments, ‘Warning & Review Screen’ was found to have the greatest impact on investors’ decision-making.

“It led to a 10.5 percentage point increase in the proportion of participants selecting a cheaper fund,” the report said.

“This treatment also led to an improvement in awareness and understanding as measured by our survey questions.”

The second most effective treatment on decision-making was ‘Warning & Impact Chart’, but the research found it had a lesser impact on participants’ awareness and understanding.

Source: UK Financial Conduct Authority

“Our results also support a growing body of evidence that shows that where information is located can have an impact on how consumers engage with it,” the report said.

“The treatments which had the biggest impact on decision-making were prominently positioned; the warning and impact chart were at the top of the landing page whilst all participants in the review screen treatment had to view the comparator chart to proceed with their decision.

“These results highlight that simply providing consumers with information does not guarantee that they will use it in their decision-making.

“However, clearly presenting understandable and engaging information in a prominent way can increase the effectiveness of disclosures.”

 

UK regulator puts fund fees under microscope
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