Start thinking about product regulation: Mayhew
New Zealand’s investment market remains a disclosure based regime but it might want to start thinking about product regulation says the Commissioner for Financial Advisers David Mayhew.
Friday, September 17th 2010, 6:53AM 
2 Comments
by Jenha White
He says the current theory is that regulating disclosure of information will deal with the asymmetry of knowledge for a purchaser of financial products.
However, he says there is concern that disclosure leads to information overload with 100 page documents.
"No matter how much effort is put into investor literacy, we all glaze over the details of financial products.
"Should we be thinking about product regulation, relying on brand reputation of the manufacturers and distributors of products?"
Mayhew asks why financial products should be treated differently to other complex products and practices.
He quoted John Kay, a Professor of the London school of economics who said:
"Many people who deplore public ignorance in financial service matters, would hesitate to lift the bonnet of their car or distinguish their larynx from their thoryx.
"The consumer is confident in purchasing products such as automobiles or medical services of which he or she knows little, as a result of the efforts of producers in developing good reputations with their customers. Also because users are able to access the skills of trusted intermediaries.
"Product regulation and reliable intermediation are the mechanisms through which markets handle information asymmetry," says Kay.
He believes if there is a problem in financial services it is that producers have had little regard to their long run reputation and because intermediaries have not deserved the trust of consumers.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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