Financial decision-making explained: what we can learn from behavioural economics
In the current discussion on the EU Retail Investment Strategy (RIS), the German Insurance Association (GDV) maintains that bans on commissions - even partial ones - will not lead to more people starting to invest their savings in the capital market. Scientific studies support this position.
The European Union aims to encourage more people to become active in the capital market, also in order to make sure that they have adequate income in retirement. The European Parliament and the member states are currently examining a corresponding legislative proposal from the European Commission for a European retail investment strategy. An important question raised in the discussion on these proposals is whether stricter regulations on commissions can increase people's confidence in the financial market and its players and help more people to start investing.
The future retirement provision of millions of people is at stake. That is why it is crucial to put the debate around this issue on a balanced, evidence-based and scientifically sound footing. In a study commissioned by the German Insurance Association (GDV), the internationally recognised consulting firm Oxera investigated the influence of different intermediary compensation models on the behavior of investors, intermediaries and providers. In the video below, Reinder van Dijk, partner at Oxera, explains the key findings of the study:
Insights from behavioural economics and empirics on the EU retail investor strategyTo the GDV media library
Evidence suggests that there are far more significant drivers for why people do not invest than a lack of trust in the financial markets and its players. Lack of trust plays a rather subordinate role. So why don't more people invest in the capital market?
The two most important reasons are that people do not think about investing or find it complex to deal with financial decisions. Scientific studies find a certain "inertia" to make financial decisions. In addition, people tend to be cautious in financial matters and overestimate the negative consequences of investing in the capital market. Social influences and emotions such as the famous "gut feeling" strongly influence financial decisions. People are susceptible to psychological influences and therefore do not always make rational and correct decisions.
That's why intermediaries play a crucial role: They take the initiative and break through inertia. They analyse their customers' wishes, needs and preferences and explain the opportunities and risks of an investment. In this way, they help people engage with the topic, inform themselves and make informed, rational decisions. Study results show that many people want support and need help with financial decisions, which is why easy access to financial advice is essential.
In Germany, people currently have the choice of buying investment products directly from the provider, getting advice for a fee, or using an intermediary who earns commissions. It would be wrong to restrict this freedom of choice. Most people appreciate receiving information, explanation, advice and support without immediately receiving a bill for it.