“Retail investors do not always make rational, well-considered decisions. Factors such as overconfidence, emotions, or the way information is presented - for instance, in popular trading apps - can strongly influence their choices. When the law fails to take that into account, it undermines not only individual investors, but also trust in the financial market,” says Dominic van Kleef, PhD candidate at Erasmus School of Law and Junior Legal Counsel at the Netherlands Authority for the Financial Markets. “My research helps policymakers and legislators to better align rules and regulation with real human behaviour, making investor protection both fairer and more effective.”
That ambition lies at the heart of his doctoral research, in which Van Kleef examines how insights from behavioural sciences can be incorporated into financial regulation. “In law, there is still too little awareness of the psychological pitfalls that investors can fall into,” he explains. “My research explores how lawmakers, policymakers and judges can take such behavioural insights into account when creating and applying financial rules.”
Between protection and persuasion
The issues Van Kleef focuses on are also high on the European agenda. Within the European Union, there is growing attention for the application of behavioural insights in regulation – for example in the Retail Investment Strategy of the European Commission and in the new Digital and Monetary Financial Services Directive (DMFSD), which prohibits so-called dark patterns or manipulative design choices.
The RIS is a proposal by the European Commission aimed at making saving and investing in Europe safer and more transparent for retail investors. According to the Commission, many investors still find it difficult to access clear and comparable information, which makes them hesitant to invest. The RIS therefore proposes adjustments to EU rules to ensure greater transparency of investment product information, fairer marketing practices, and advice that better reflects investors’ interests.
In the Netherlands too, attention is shifting towards the balance between investor protection and autonomy. Policymakers are exploring how citizens can be supported in making well-informed financial decisions, while the media highlight how investment apps can also entice young investors into taking excessive risks.
A roadmap for more realistic investor protection
Van Kleef’s research brings together a range of perspectives - from autonomy to responsibility - into a single, practical framework, all viewed through the lens of behavioral insights. This framework serves as a roadmap for those involved in investor protection, showing how insights from behavioural economics can be translated into policy, regulation and case law. In doing so, it helps legislators, policymakers and judges to design rules that better reflect actual investor behaviour.
Van Kleef also extends his findings to practical recommendations. He argues that investment firms should structurally incorporate behavioural insights into their services, in a way that reflects their specific role. An adviser will naturally do so differently from an execution-only party. A concrete example is his proposed new investment service, ‘guidance’, which enables firms to help investors make more informed decisions – without crossing the line into personal advice. This approach allows for guidance that supports rather than steers.
Looking back – and ahead
“It was fascinating to see how insights from different disciplines such as law, economics and behavioural economics influence and interact with one another,” Van Kleef reflects. “In my work at the AFM, I also see how valuable that interdisciplinary lens is for financial law.”
Looking ahead, Van Kleef foresees both opportunities and challenges in the rise of new technologies. From personalised interfaces to AI-driven advice, digital innovation promises tailor-made solutions for every investor, yet blurs the line between assistance and influence. That, he says, is where the next major challenge lies: how can investor protection remain sufficiently tailored to an ever-changing and increasingly digital financial sector, and how do these developments affect (how firms approach) investor behavior?
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Dominic van Kleef’s PhD research: 'Towards a new investor image: The integration of behavioural economics insights into investor protection’
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