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Research Questions

  1. Can disclosure be effective in conveying desired information in a way that the recipient can understand it?
  2. Can disclosure be effective in providing decision support and helping consumers make decisions aligned with their own interests?
  3. In what instances is disclosure most effective?

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.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Use of Disclosures of Conflicts of Interest in the Financial Industry

  • Chapter Three

    Effectiveness of Disclosures of Conflicts of Interest

  • Chapter Four

    Effectiveness of Other Disclosures in the Financial Services Industry

  • Chapter Five

    Best Practices in Designing Effective Disclosures

  • Chapter Six

    Summary

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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