According to an article HERE, the competition in UK financial services is not working. The article said that the UK financial services companies have not been able to win market share by focusing on customer service and good value products because consumers do not tend to switch from providers who treat them badly. The article state 4 reasons why consumers do not tend to switch providers:
- Consumers simply do not know they bought a wrong product. “Buy the wrong pension and you may not know for 35 years.”
- Significant informational asymmetries between providers and consumers and as a result consumers do not know they have been treated badly. This means consumers always buy the wrong financial product
- Confusion and complexity in “impenetrable jargon, pages of terms and conditions, bizarre exclusions in the reams of small print, products launched and withdrawn with often bewildering frequency”. So consumers always buy the wrong financial product.
- Poor financial literacy in the UK among consumers. That is why consumers always buy the wrong financial product.
Singapore has identical problems as UK. All the above applies to Singaporeans. Singapore’s financial practitioners could not gain market share by focusing on customer service and good products. In fact, it is widely known in Singapore that financial advisers who sells based on needs of clients going to be in need all the time. May I suggest the following remedy for Singapore residents:
- Engage a professional financial planner to check existing products bought on whether is it suitable or not. Do not wait 35 years later only to discover it was the wrong product purchased.
- The informational asymmetries can never be completely close simply because it is impossible for a layperson to have all the knowledge. Not only acquiring knowledge is required to bridge the gap, but having the experience is also important. However, if one would to stick with simple products, the informational gap may not be as wide as it seems. Therefore, avoid complex products.
- Improve one’s financial literacy. In Singapore, financial literacy is almost zero. This is so frustrating. Recently there was some complains on why NTUC Income’s Dependent Protection Scheme refuses to pay out despite the life assured becoming incapacitated from waist down. It appears that everybody thought DPS is disability income insurance Why? Because of very poor financial literacy. In fact, the insistence that DPS should pay may indicate that the life assured did not buy a disability income insurance (again an indication of poor financial literacy). Remember when Eldershield was just introduced? Large number of individuals opted out because they think it is too expensive and government was trying to cheat their money.
Regarding the financial literacy part, it appears there is very little done to help Singapore improve financial literacy. People who are officially involved in trying to improve financial literacy do not even have the experience in financial planning. Yet, those who are existing financial practitioners are discouraged to officially help improve the financial literacy in Singapore. It is as if those with practical experience are not creditable while those without experience are creditable. It is something like if an organization wants to educate people on how drive safety, only individuals without a driving license can teach.
End of the day, individuals who want to improve their financial literacy should do so on their own and not to rely or wait for others to provide the information. For me, I try my best to educate my existing clients through courses I conduct by giving them very large discount. One day, I will retire (I need to practice what I preach by retiring early!) and all my clients must be prepared to eventually be able to manage on their own without my help.
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