The Regulator's Perspective
Behavioural insights play a key role in the regulation of the financial services industry and have the potential to impact many aspects of later life financial planning.
The Behavioural Economics and Data Science Unit (now the behavioural Economics and Design Unit) published a series of ‘Occasional Papers’ on this subject. The FCA also publishes research and articles on behavioural economics as part of ‘Insight’, a research project they developed to help financial markets work effectively.
The FCA’s concerned about the impact of behavioural bias on vulnerable clients, and in July 2020, noted that vulnerable clients ‘may have more behavioural biases that negatively impact their decision making’.
They also announced that, in 2021, a second Assessing Suitability Review will be carried out into the advice clients receive at and during retirement. It’s likely the review will include the impact of behavioural biases.
In 2014, the FCA published the ‘Retirement income market study: Interim Report’. The report reviewed behavioural biases in the purchase of annuity products, which included present bias, loss aversion and framing. In the case of ‘framing’, FCA research revealed that when presented as a form of insurance, 66% of clients preferred an annuity to a savings account. In contrast, when presented as an investment product, only 17% chose it.