Should financial products be given Censor-like ratings for movies – A,UA, U etc.

Liz Warren has recently become the Senator for Massachusetts  Financial industry managed to keep her away from the Consumer Financial Products Bureau which was her brainchild. It will be interesting to see what role she plays as a Senator..

Here is a nice suggestion from Prashant Saran, Whole Time Member of SEBI on regulation of financial products. He says it is is wrong to say fin products are different and cannot be regulated:

Before I deal with the subject of protection of the consumer of financial products let me discuss the popular notion that  financial products are fundamentally different from other  products and need a different set of rules. The usual arguments
include their being intangible, complex, difficult to value, having  payoffs in distant future and involving a huge amount of trust. I  don’t think that the argument is perfect. I find music and software  intangible, smart phones more complex, art more difficult to value and the payoffs of a car occurring over years. Regarding  trust, do we trust our surgeons any less? My argument would be  that at the very least, the consumer protection that is available to  the consumer of other physical product should be made available.

He says two fixes are needed:

The first pre-requisite in a sound consumer protection framework is to eliminate or at least minimize conflicts of interests faced by the sellers. Uniquely for the financial products,  the so called advisors who are supposed to help the client find the  product suitable to him get paid by way of commission from the  manufacturer. Two deep rooted conflicts arise. First is between  the consumer and the manufacturer. The advisor has avowedly  best interest of the consumer in mind when his loyalty lies with the manufacturer who pays him. The result is, ultimately the  advisor is only loyal to himself. This loyalty to oneself is shown more clearly in the second set of conflict that surfaces when the  advisor represents more than one manufacturer. He then  recommends the products of the manufacturer who pays him the  highest thus starting a race to the bottom. No country has yet  found an acceptable solution to the problem as high stakes are  involved all round. If we have to establish rule of law in financial sector, we have to strive to find a solution.

The second requirement of the framework has to be responsibilities that must be given to the manufacturers of the financial products. It would not be a bad idea to make them responsible for labeling their products for the ingredients. I mean that they should tell what the building blocks of the product are.  Secondly they must disclose the indications and contraindications. Perhaps a comprehensive label like A,UA or U should  be given. I am not giving a comprehensive scheme. I am only suggesting a point of departure from the accepted paradigm.

Interesting..Wondering how these movie ratings apply to  financial products?

  • Which will get a non-adults certificate? – Bank deposits, gold..
  • Which will get invested (viewed) with adults consent- Mutual funds??
  • Which are for adults only- mortgages, loans etc etc

What else..

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One Response to “Should financial products be given Censor-like ratings for movies – A,UA, U etc.”

  1. 10 Friday AM Reads | The Big Picture Says:

    [...] • Should financial products be given Censor-like ratings for movies? – A,UA, U etc. (Mostly Economics) • Watch what they do: CEOs actually fear higher taxes more than a recession (BreakingViews) see [...]

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