19.09.2021 Study on the comprehensibility of financial product information published in the Journal of Consumer Policy

Can investors understand product information for mutual funds? Oscar Stolper and Dominik Scheld are investigating this research question together with Andreas Walter from the Justus Liebig University of Gießen in their current study “Double Dutch Finally Fixed? A Large-Scale Investigation into the Readability of Mandatory Financial Product Information”. The study has now being published in the Journal of Consumer Policy.

Photo: Journal of Consumer Policy

Using a text mining algorithm to allow for big data approach, the authors examine two key features of the legally required product information for all mutual  funds licensed for distribution in Germany. On the one hand, we record the comprehensibility of mandatory pre-contractual product information, on the other hand, we examine to what extent product providers comply with the regulatory requirements regarding the structure and format of these essential documents.

In a nutshell, we find that:

  • on average product information for mutual funds has to be classified as (very) difficult to understand for investors.
  • the use of jargon and non-compliance with design requirements (among others font) contribute to impaired comprehensibility.
  • new disclosure requirements (within the framework of legal reorganization after 2012) have improved the comprehensibility of the financial information - especially by using a simpler syntax and writing style, but still at a low base level.

In the study, we propose a number of solutions to reduce the complexity of KIIDs. Our findings have already attracted widespread attention, not only by the academic community, but also among financial regulators and practitioners