Costs of structured finance products in the light of investor protection ten years after the financial crisis - How do retail investors understand and take into account banking information in information documents? (KosFi)

Costs of structured finance products in the light of investor protection ten years after the financial crisis - How do retail investors understand and take into account banking information in information documents?

Before making an investment decision, private investors face a multitude of different investment opportunities. If one does not want to rely only on advice from bank employees who are generally not independent, reliable information about the functioning of investment products and their opportunities, risks and costs is indispensable. The project focuses on informing consumers in sales brochures, leaflets and investor information documents published by banks, focusing on the market segment of structured financial products.

Structured financial products are investment objects whose repayment depends on the performance of one or more underlying assets such as equities, currencies or commodities. Particularly in Germany, such products are often offered explicitly for small private investors under the term "certificates" and enjoy great popularity. The market segment as a whole and the offering banks are repeatedly criticised, especially by consumer protection groups. Criticism is levelled at the complexity of the products, which is hardly transparent for private investors, the opaque pricing and cost structure as well as inadequate or even misleading information in information documents and offer brochures. In recent years, national and international regulators have therefore increasingly issued regulations regarding the standardised and transparent presentation of information towards structured financial products, with particular emphasis on the cost structure.

The extent to which such standardisations and regulations of consumer information achieve the desired effect - namely to raise awareness of (hidden) costs, to make products more understandable and comparable and thus to promote an informed investment decision - depends crucially on how the information is perceived by potential investors. The project addresses this issue with a focus on the cost structure. Cost transparency was an essential element of the so-called PRIIPs Regulation, which came into force EU-wide at the beginning of 2018 and aimed at standardising consumer information by introducing a Key Information Document (KID) for a large number of investment products. The project investigates to what extent potential investors react to the relevant information in the product information sheets and whether the existing regulation increases transparency in terms of consumer protection and thus offers advantages for private investors.

The project is funded by Verbraucherzentrale NRW.