Power of Simplicity

Government and regulators have recently taken initiatives to make financial products simple. Why did they take so long to get started?

A few years ago, I came across a remarkable spectacle. While waiting for my flight call, I saw a 5-year-old dancing with an iPod clutched in his hand and earphones plugged into his ears. That image still brings a smile. But, what followed remains etched in my memory. After an animated conversation with his grandmother, he plugged the earphones to her ears and in a matter of a few minutes the 5-year-old along with the 70-year-old found the power of technology change their mood for the better. It’s a year since the world
lost Steve Jobs. He had a penchant for building simple, user-friendly gadgets that bridged the digital
divide and let several people fi nd the joy of using technology in a manner they would never have imagined.

The Indian financial services are slowly inching towards simplicity. In August, the Securities and Exchange Board of India (SEBI) made its announcements for changing the mutual fund industry with reference to allowing senior citizens, retired teachers and post offi ce agents to sell simple fi nancial products. I feel it is a great move that will have a cascading impact on those who have it in them to save and invest. Since then, the clamour to simplify has only become louder. Initiatives such as simple life insurance products and simple accounts that will maintain all financial products in dematerialized format have made news. All these measures have a common aim; to make financial products simple for consumers. I wonder why it took so long for the regulators and the finance ministry to realise the importance of simplicity. The rhetoric that financial products are sold and not bought is, perhaps, the biggest insult to the consumer. And it is high time financial wizards apologised for such naïve thoughts. If they think poor financial literacy is the reason for products not taking off, it is time they start looking outwards. Take for instance, McDonald’s. The burger maker sells more aloo tikki burgers than its global bestselling McChicken burger. It isn't as if Indians do not eat chicken; aloo tikki, actually, reaches a wider mass and is far simpler to associate with. However, companies in financial services think the more complex the product the more they can talk mumbo-jumbo to gullible buyers. Be it complex Ulips, or derivatives-backed mutual funds, or balloon EMIs, all of them found takers initially and several people wrote prose on the merits of such innovation. All these products managed to make headway, because they were sold to gullible investors who were told of only the advantages and not the fl ipside. The impact of such mass-scale sales led to the outcry of mis-selling and shifting of responsibility among the product manufacturers, distributors and consumers. Overall, all of this only fuelled cynicism among the public at large, for whom such complex products were created. Sadly, none of the insurers, banks or AMCs tried differentiating with simplicity; they all joined the bandwagon with the motto— 'The more complicated the product benefits, the better it is'. The regulators cannot be exempted from the role they played. After all, all products go through stringent clearance mechanism before being launched. But I would still credit them for realising the folly and making amends with the slew of measures they have announced keeping consumers' interests in mind. The power of simplicity is immense; it took a Mahatma to boot out the British. I won’t expect such a tall order in the financial world. But the idea of simple products is an effort that can change the way Indians save and invest, and make the future bright for crores of people with simple financial products instead of a maze of complex ones.