Hunt, S., Stewart, N., & Zaliauskas, R. (2015). Two plus two makes five? Survey evidence that investors overvalue structured deposits. Financial Conduct Authority Occasional Papers in Financial Regulation, 9.

Innovation in retail financial markets has led to increasing product complexity over the past two decades, but there is little evidence of a comparable increase in consumers’ financial capability. Over the same period, there have been numerous instances of mis-selling that have led to regulatory action in the UK. When examining whether the market for a particular complex financial product is working well, one of the things regulators need to ask is whether consumers can understand and adequately assess the products they consider buying. There are a number of reasons why investors may struggle to understand and assess complex products, including product features and marketing strategies that exploit behavioural biases, such as focus on headline returns, reference dependence and loss aversion.
In this paper we describe the results of a survey which investigated how well consumers understand and value structured deposits, a class of complex products. Structured deposits are capital-protected term investment products that are widely available to retail investors and whose returns are typically linked to the performance or price movements of an index or basket of securities and calculated according to a pre-set formula. Our survey investigated:

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