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Simple Financial Products Are Better. Period.

Daehong Kwon, CFP, KoreaBy Daehong Kwon, CFP

The more advanced financial markets become, the more complex financial products and services tend to get. In South Korea, the financial industry and capital markets have been making a lot of progress in the past few years. In the environment of low interest and growth rates, investors have a hard time finding palatable financial products.

The emergence of new and unfamiliar investment products (or niche products, to put them nicely) or complex ‘structured products’ made out of a combination of this-and-that is pushing financial consumers into a state of confusion. These complex or unfamiliar products require consumers to acquire of lot of financial knowledge so they can understand the products and not to be taken in unilaterally by financial companies. This situation increases the demand for financial planners, because one aspect of financial planning is to help clients understand complex and difficult financial products and systems with more ease.

Some say that if financial products are too simple, there will be nothing left for financial planners to do. I don’t agree with this at all! I believe simpler products are better and the role of financial planners would increase even more with simple products. There are 4 reasons why I feel this way.

The Power of Simplicity

An old Korean expression goes, “Old, experienced officials are good ones.” For example, if you look at Korean bank saving products or life insurance products from ten years ago, they were simple. They would offer fixed rates in the neighborhood of 7% or promise “to pay hundreds of millions of won unconditionally upon death.” At that time, their simplicity, made consumers skeptical, but in hindsight, they were genuinely good offers.

Simple Products Leave Time For More Important Discussions

The more complex a product is, the more time is needed to explain it. There are two problems that can occur because of this. The first is that important issues don’t get addressed because the explanation of the product takes up the majority of a client’s time. The second is that some clients will get overwhelmed with the complexity and just give up, subscribing to the product, and pretending like they understand. This may be one way that financial companies make money, but it is unfair to clients who are left feeling uncomfortable with their level of understanding.

Simplicity = Less Disputes

Complexity entails disputes. The products that come out to the markets, these days, have such complex descriptions that even financial planners cannot understand them easily. In Korea, a few years ago, many small and mid-size businesses fell apart as a result of their subscriptions to Yen loans or KiKo products, and a great number of individuals lost most of their money after investing in ELS’, CP’s, and subordinated security bonds. The many repeated cases of these examples demonstrated the lack of consumer understanding of the products and the ‘cheating’ of the financial companies.

Simplicity Makes Room for Creativity

Lastly, simple products have a lot of room for financial planners to add their own creativity. Products are similar to recipes, which can turn out different depending on how the chef makes it. Likewise, in the case of financial products, the consumer is the focus and the financial planning is designed around their values and lifestyle. To do this successfully, a financial planner must become a life designer and mold the simple products to fit each client.

While simplicity does not necessarily fix everything, it seems to have more positive effects from the financial designing perspective. Financial planners’ professionalism wouldn’t be recognized for their sheer ability to explain a complex product, but for their competence to work simple materials into a new creation, vested with an artistic soul.

1 comment to Simple Financial Products Are Better. Period.

  • Jerry De Courtney Odle

    Dear Mr. Kwon, I am very interested in doing business with Korean CFP’s. I have been in the financial services industry for over 30 years and i fundamentally agree with many of the comments you have made in your blog. Would it be possible for me to discuss with you the introduction of an offshore investment contract that meets many of the prerequisites you have mentioned in your Simple Financial Products Are Better. Period. article. I am traveling to Seoul the first week of March and shall be available to meet and chat over a coffee or tea.

    Kind regards

    Jerry De Courtney Odle
    Managing Director
    Sandor Management Limited

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