Transparency in banks: the Kid does not really inform investors

As they say: the eyes do not lie. And this can also help to understand investors. But let's go in order. When banks or consultants propose an investment, they are obliged by European regulations to deliver the Kid (Key Information Document), a summary form that should illustrate the product's characteristics and risks in a clear, comparable and non-technical manner. To get an idea, more than 8 million Kid were notified to Consob last year. And yet, the reality is that these documents are almost always obscure and indecipherable, discouraging in-depth reading and misleading savers.

To empirically investigate the reasons for this ineffectiveness, a recent study of 79 Italian adults analysed the impact of linguistic and visual wording on financial decisions using eye-tracking technology. This is what emerges from the study Usable Documents Help People Make Better Investment Choices, coordinated by Stefano Rastelli, director of the Laboratory of Linguistics and Experimental Glottodidactics at the University of Pavia, which is currently being published. On the basis of this experiment, Crtcu (Centre for Research and Protection of Consumers and Users) will send a proposal to the European Commission to modify the pre-contractual information sheets of retail and pre-packaged insurance investment products (Priip).

The data from the experiment showed that confusion does not arise from the inadequacy or age of investors, but from the very drafting of documents that seem designed (it is explained) to confuse or hide important information in dense blocks of grey text. Today's financial bureaucratese, according to Rastelli, is not intended to truly inform: 'It is not a language made to be understood and to be read, but rather a language that is a disclaimer, a "language of décor". And the Kid is furniture language, language that has to be there to be understood, not to be read'. As a result, people tend to ignore crucial textual warnings and focus almost exclusively on the numbers, ending up underestimating the real risks or, paradoxically, rejecting valid products. For example, one mistake that is pointed out is that the 'recommended holding period' indicates a compulsory and insurmountable constraint, and many people reject that investment because they do not want to tie themselves down.

To prove that a reversal is possible, the researchers redesigned the documents by applying specific cognitive usability rules that halve the brain's effort. Three basic linguistic principles were applied: always make the topic explicit from the outset (aboutness), clarify 'who does what' by highlighting the dynamics of actions, and extract the 'core of the sentence' using concrete, imaginable words that the investor can remember in the few seconds before signing off. Visually, percentages were placed before euro values, risk warnings were extracted from the text and highlighted, and universal colours such as red for losses and green for gains were adopted. The textual changes were drastic and direct, eliminating abstract concepts. Rastelli illustrates this transition in an emblematic way: 'Instead of writing, as a title, stress scenario, unfavourable, favourable, we wrote if the market goes bad, if the market goes quite good, if the market goes well. The word scenario doesn't tell you if it's a real thing or a fake thing'. The impact of these usability interventions was immediate: faced with such clear consequences, savers changed their choices and 'the percentage of those who refused to invest of our subjects in the experiment doubled'.

Making financial documents cognitively usable ceases to be a mere style option and becomes a vital standard for the protection of citizens and, at the same time, a true 'commercial value' capable of instilling confidence and encouraging suitable investments. The urgency of moving to a totally transparent communication is also confirmed by the legal and practical implications, as shown by a recent case in Trentino Alto Adige where an eighty-year-old pensioner, supported by the Crtcu, managed to get 80 thousand euros back from a bank because the Acf considered the signed document illegible and incomprehensible. On the need to armour these rights, Carlo Biasior of the Crtcu, calls for a systemic change: 'In order to have the confidence of investors, comprehensibility must be at a maximum, making the characteristics, nature and risks of financial products evident even to the weakest. We hope that the recent EU strategy, aimed at encouraging investment in European markets and capital, will lead to reinforced investor protection, including through the introduction of usable forms of language, developed together with consumer representatives'.