Sunday, 10 January 2010

Improve Financial Capability - Simplify Products

The FSA says, "Financial Capability is about being able to manage money; keeping track of your finances; planning ahead; choosing financial products; and staying informed about financial matters."

The implication is that financial services don't have to change - you do. And the FSA provides a dazzling array of data to bamboozle you along the change curve.

This approach is doomed. Adult learning research has emphasised that the older you are, the less likely you are to learn. Of the 20-24 age group, 61% say they are learning now or have been recently. For the 55-64s, that statistic is 31%, and for the 65-74s, it is 18%. We have an ageing population and a ballooning pensions deficit.

So financial services must change, not you. Products must become simpler and cheaper, and it must be really easy for investors to develop fully diversified portfolios that produce sustainable returns.

Why can't I put suitable financial services in a shopping cart, like I can buy other stuff?

To make financial services simpler and more consumable for more people, providers and intermediaries must do much more to make it easy to find, compare, choose and buy products that contribute towards sustainable returns for the investor rather than scandalous profits for the provider. I'm not talking about the price comparison sites that simply list the same old stuff, by product type, by price. I'm talking about far more automated services that make the detail available to those who want it, but simply deliver diversification without the average person needing to understand more than the concept of not putting "all your eggs in one basket".

To support this, the clear objective of the financial regulatory regime should also be to deliver simple, low cost financial products that are accessible to us all. Currently, regulation funnels investment opportunities and funds into a zone in which relatively few firms are permitted to operate, enabling them to charge excessive fees and related compensation. In other words, regulation designed to protect the consumer is actually underwriting "fat banking". But what we need is a regime that fosters the growth of low cost 'facilitators' such as those who've allowed us to unbundle flights and hotels, music tracks and other one-size-fits-all products to create our own personalised, lower cost alternatives.

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