In the financial services market, financial service providers often have better information about the quality, features, fees, risks, and benefits of their products or services than consumers. In this report, we review the literature on consumer disclosures in the financial industry. The primary focus is on disclosures of conflicts of interest, but we also examine use of disclosure associated with other common financial products or services.

Effective Disclosures in Financial Decisionmaking

Angela A. Hung, Min Gong, Jeremy Burke

ResearchPublished Oct 12, 2015

In the financial services market, financial service providers often have better information about the quality, features, fees, risks, and benefits of their products or services than consumers. In a market with this type of asymmetric information, disclosure is an often-used policy tool designed to increase transparency and provide consumers with valuable information to make informed decisions. We define disclosure as a statement that provides relevant information to consumers for informed decisionmaking. A disclosure often reveals estimated costs and impacts to consumers, commitments of the relevant parties, existence of any conflicts of interest, and the nature of the relationship between parties. In this report, we review the literature on consumer disclosures in the financial industry. The primary focus of the review is on disclosures of conflicts of interest, particularly with regard to financial advice, but we also examine use of disclosure associated with other common financial products or services, including credit cards, mortgages, and mutual funds.

Key Finding

Disclosure may not be enough

  • Disclosure, particularly disclosure used in isolation, may not provide sufficient support in helping investors make more informed decisions.

Recommendation

  • Given that many consumers have low levels of financial capability, disclosure is likely to be most effective when used in conjunction with other policy tools.

Topics

Document Details

  • Copyright: RAND Corporation
  • Availability: Web-Only
  • Year: 2015
  • Pages: 35
  • Document Number: RR-1270-DOL

Citation

RAND Style Manual
Hung, Angela A., Min Gong, and Jeremy Burke, Effective Disclosures in Financial Decisionmaking, RAND Corporation, RR-1270-DOL, 2015. As of September 23, 2024: https://www.rand.org/pubs/research_reports/RR1270.html
Chicago Manual of Style
Hung, Angela A., Min Gong, and Jeremy Burke, Effective Disclosures in Financial Decisionmaking. Santa Monica, CA: RAND Corporation, 2015. https://www.rand.org/pubs/research_reports/RR1270.html.
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This research was undertaken within the Center for Financial and Economic Decision Making (CFED), a part of RAND's Labor and Population research division.

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