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