It's a bit hard to believe in these days of continuous hard selling, but getting financial services used to be a favour that someone bestowed on the customer. For instance, there was a time, well within the memory of many readers, when it used to be hard to get stockbrokers to do you the favour of executing your trade. That's right, it was a favour. This was the case till at least 1995 or so. If you were a new (or mere middle class) investor, you could come up with the greatest investment idea in the country but you just may not be able to find anyone willing to be your broker. This could be arranged only through some connections. And even then, the broker would almost definitely skim a big chunk of your money (over and above the commission) because you had absolutely no way of knowing at what price was your trade actually executed.
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I probably shouldn't single out brokers because most things worked that way back in the glorious days of socialism. Right from buying Bajaj scooters to railway tickets to even household supplies, the story wasn't very different. The only problem was that financial investments are not the same as buying other stuff. You would pay extra or need some contacts to get these other things but a scooter was still a scooter. But with investments, if someone skimmed off the cream, you would have negative returns instead of positive ones.
It has been a long journey from those days (when there wasn't even a market regulator) to today. The regulator, dematerialisation, computerised exchanges with a complete audit trail of all trades, online trading, real time linkages with the banking system - there are many things that have combined to create the markets of today. Each and every one of these things contribute to how people are investing today. We've reached a point when no one can falsify what is actually happening in the market. No intermediary can tell you a false story about what NAVs or stock prices you invested at. The trail of transactions is transparent and completely reliable.
Things have improved remarkably, but even then we have a long way to go. The battle has shifted to a different front. Unfortunately, the progress from here is going to be a lot more difficult. The reason is that systematic changes, which the government or a regulator or an institution can make, are mostly done. Despite the struggle and long time that it took, these were the low hanging fruits. In the present scenario if you don't want to be treated unfairly, you need to learn the tricks of the trade and equip yourself with the necessary knowledge and understanding of the market.
This bit about knowledge and understanding is not a general motherhood statement. There's a specific issue here - savers and investors need to understand how things work. Banking, insurance, stock markets and mutual funds look like black boxes to most of us. Therefore, we often don't recognise the motivations and goals of the people we are dealing with. Without a mental model of how things work, one can't deal with problems that arise. I read somewhere that when a car doesn't start on turning the key, most drivers turn the key harder, putting more pressure on it. Subconsciously, they feel that the turn of the key starts the engine, whereas, in reality, the key is just an electric switch. It's like pushing a light switch harder to make the bulb glow brighter. In the early days of email, a friend of a mine believed that if you reduced the font size in an email message, then the message would become smaller and therefore reach its destination quicker. It wasn't a completely flawed mental model, rather, it was the fax mental model being applied to email.
For most of us, forming a mental model of personal financial services is pretty difficult, certainly more difficult than buying cars. If we understand exactly how a service works, who is the provider, who is the seller, how they make money and how they try making more money, and specially where you fit into their scheme of things, only then you can make effective and smart decisions.