The “Netherlands risk man” — laboring under a misapprehension?
Netherlands has always been big on consumer information. So it’s no surprise that the Netherlandish financial regulators are almost alone in Europe for having tried the most innovative approach to investor protection yet.
The traditional approach, as we all know, is to force companies to slather their communications with impenetrable legal prose. The irony is that all this disclosure has the opposite effect. Instead of feeling informed and protected, we merely feel overwhelmed and alienated.
Working on the premise that investment risk was like a burden, the Netherlands regulators created a simple, graphical device that reflects how much risk an investment involves.
When the risk is light, the little man (and it is a man, to be sure) is able to carry it easily. You can almost see him whistling as he totes his easy burden.
When the risk is heavy, it’s a different story. Poor Meneer Risicometer is bent over by all the weight. He doesn’t look very happy. Which is exactly the point.
So the risicometer is an innovative approach that communicates quickly and clearly. The one problem: the analogy of risk to weight is not really accurate. Greater risk, in investing, isn’t just more dead weight. It generally comes with the potential of greater reward. Otherwise, no one would invest in higher-risk investments.
The newer risicometer addresses that. It’s a numerical scale, from 1 to 7, with a notation that ties the level of risk to potential reward.
Is it less graphical? Yes. Does that generally mean we would expect it to be a less effective communication? Yes. Yet overall, it’s much better.
That’s the thing about communications. Like cooking, it’s not how good the recipe looks, it’s how the end result tastes. There are things that are more likely to work, or less likely. But in the end, the only thing that matters is what actually works in the situation at hand.
Ever wondered why communications is so complicated? Now you know.
Click to see this column in the September 2015 issue of Discover Benelux.