I was reading just the other day about a new product called a ‘binary option’. If an index closes above a certain number, you get $100. If it closes below, $0. Why does that sound to me like the Lakers-Celtics over/under? And what possible use does that serve?
The financial services industry is enormous, many trillions of dollars. Fidelity Investments and Merrill Lynch each manages over $1 trillion. What’s the line from Spiderman? “With great power comes great responsibility.” That responsibility is a place where the whole industry falls down. Examples:
- Mutual fund companies racing to create internet funds during the late 1990’s even though they knew they were bad investments.
- ‘No Transaction Fee’ mutual funds offered by brokers that almost always lead to higher costs for consumers despite the name.
- Confusing insurance and limited partnership products with 10% commissions never mentioned except in the phone book sized prospectus that is impossible for the average person to understand.
- etc., etc.
Somewhere in here the industry needs to put the client ahead of everything else. There is enough profit being made that this foolishness just isn’t necessary. As Dave Morton used to say “Don’t bite the foot that stomps your grapes”. The financial services industry needs to stop biting that foot.