Two Plus Two Makes Five? Survey Evidence that Investors Overvalue Structured Deposits

56 Pages Posted: 9 Mar 2017

See all articles by Stefan Hunt

Stefan Hunt

Financial Conduct Authority

Neil Stewart

Warwick Business School, University of Warwick

Redis Zaliauskas

Lloyds Banking Group

Date Written: March 24, 2015


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:

• to what extent investors understand how different types of structured deposits work, • whether there are systematic biases in investors’ evaluation of the expected performance of the structured deposits, and • whether giving targeted information improves this evaluation.

Suggested Citation

Hunt, Stefan and Stewart, Neil and Zaliauskas, Redis, Two Plus Two Makes Five? Survey Evidence that Investors Overvalue Structured Deposits (March 24, 2015). FCA Occasional Paper No. 9, Available at SSRN:

Stefan Hunt (Contact Author)

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Neil Stewart

Warwick Business School, University of Warwick ( email )

Gibbet Hill Road
Coventry, West Midlands CV4 8UW
United Kingdom


Redis Zaliauskas

Lloyds Banking Group ( email )

10 Gresham Street
London, EC2V 7AE
United Kingdom

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