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					Fair financial services for consumers




Bart Combee
CEO
consumentenbond
2008, when disaster struck
Underlying problems


•   Bonusses and other perverse incentives
•   Is your banker your advisor, or a seller of financial products?
•   Products that are too complex to understand
•   Products that are too risky
•   Hidden costs
•   Unresaonably high costs
•   Over indebtedness and over selling
•   Change of terms of agreement after a period of time



→ Shareholders value was more important than consumers value
Consumer perversities: policy stashing
Consumer perversities: intermediate change of
conditions
Consumer perversities: hidden costs
Consumer perversities: too risky products
Reaction of banks: consumer central….?
Trustmarks


                  ABN Amro Verzekeringen
                      Allianz Leven
                    Arag         Avéro Achmea
                  Centraal Beheer Achmea         Chubb
  CZ                  DAS Delta Lloyd            DVZ
       Facultatieve   FBTO       Generali        Interpolis
  iZio London De Nationale       Nationale-Nederlanden
Particulieren Ohra    Onderlinge 's-Gravenhage   Proteq Reaal
        VVAA Zilveren Kruis       Achmea     ZLM
Is there still a problem?


•   20% of mortgadges are non fitting
•   Massive amounts of ill advise in savings and life products
•   A long range of incidents of extremely high costs
•   Many incidents of non customer friendly behaviour
Customer interests




              The cliënt central

                     =>

           Cliëntinterests central
An equation




  Consumer characteristics + market characteristics = ??
Characteristics of consumers of financial services


Misconception:

I.    Financial services are important, so consumers pay a
      lot of attention to it

II.   Money can be counted, so financial services are
      subject to rational decision making
Misconception I


  Consumers don’t feel involved in Financial services
Misconception II: rational decicionmaking

Behavioural science shows:

Consumers
1. Have asymmetric risk perception
2. See good news better than bad news
3. Have a disaster bias
4. Are selective in information they use
5. Loose track in the structures of the information
Irrational behaviour, example


• people prefer to stay in the middle.
 => providers use this in their product propositions




                                               Very high risk

Low
risk
Irrational behaviour, example


• people tend to lack self control.
 => people will base their decisions on the short
      term and not the long term
Irrational behaviour, example


• Lack of experience.
 => the ability for customers to understand the
      product is limited.
Other consumer problems


•   Huge information gap between bank and its customer
•   Long timespan between the moment of a decision and the consequences of a
    decision
•   No experience by the consumer
Usability of information
Financial markets are overcomplicated




Financial market

                      suppliers
                  Service providers
                      Advisors
                     customers
Financial markets are overcomplicated




Financial market

suppliers               Service providers

                           Brokers

                                     Advisors


            Customers
Financial markets are overcomplicated




Financial market


Brokers & Advisors   : Approx. 9000!
                       - population: 16mln
                       - larger than no. of dentists
Financial products are too complex




Financial product
Is the answer transparency?


                                Insurance policy            General
  Service document
                                                Leaflet    conditions
         De Ruiter 1      Productguide
                                              Mortgage costs calculation
                               Financial
               De Ruiter 2
                              addendum        Request for Prospectus
      Services doc.                         Bank guarantee annulment
                         Client profile
                health                                       mortgage
                              Risk appetite
             declaration                       NHG Brochure Prepayment
                             Survey                              notice
                                          Renteoverzicht Hypotheek
  Client agreement
                                      Offerte Contract        akte
             Product brochure
Analysis so far


 Consumers superficial involvement
 + irrational decision making)
 + complicated supply
 + complicated products
 + wrong incentives
 + unclear information
                      +


 = recipe for problems
Result of the equation




  consumers payed for services
     •   That were too risky
     •   That were too expensive
     •   That were unnecessary for them
Campaigns of Consumentenbond



 Improve the equation for consumers
    Simpler products
    Incentives that work for consumers
    Better price / quality of services
Campaigns of Consumentenbond: products



 Transparancy alone is not the answer
    Safety,
    usefulness and
    understandability
   are required as ingredients in financial products
   to further mitigate the risk of misselling
Campaigns of Consumentenbond



 Understand your money?! Know what you sign for

   Consumentenbond has challenged the providers to come
    up with simple products in most relevant categories
    such as car insurance, mortgage loan, payment
    account, etc.
Campaigns of Consumentenbond: regulation



 Prohibition of incentives that induce misseling

    By 2013 financial advisers and brokers will no longer
      be allowed to receive any payments from banks of
      insurers for selling complex products
       No volume based bonusses
       No transaction related remuneration
Campaigns of Consumentenbond



 Call on banks to lower margins on interest rates


                             banks
  Market funding
             rates


                                           Customer
                                             interest
                                                  rates
Campaigns of Consumentenbond
Tips en trics financial services
Credit and loans


•   Credit and loans cost money
•   Credit card payments are the most expensive of all
•   Consumption on credit makes the product much more expensive
•   When borrowing, consider:
      – The interest rate
      – If the interest may change over time
      – Duration
      – Pay back schedule
      – Extra costs
•   Avoid revolving loans
•   Do not borrow more than you can pay back
Fair financial services


                          Customersinterest
                              Carefree
                          Transparancy on
                          quality and costs
                          Own responsibility
Thank you



   Time to
    re-think
      financial
        services

				
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