The financial service industry – including its regulators – believe that more disclosure is better. Sure, more disclosure is better. Having dealt with retail investors over a long period of time – 30+ to be precise, I am not so sure. Giving people more and more written information couched in legal jargon does not really help. Many of my investors – lets say all of them – would have shares of Hdfc Ltd, and Hdfc Bank. These are not very complicated balance sheets to read, but how many of them do really read it? NONE. Repeat none.

So giving them tons of information is good, may be great, but it is JUST not sufficient. The difference between a classic endowment plan and a Ulip is that a ulip discloses its portfolio to you – and YOU as the investor can decide when to be in equity and when to move into debt. You may also get out of the deal half way if you think that the fund performance is not good. I am sure that there are websites which will help you analyze the performance of the fund manager. Has it helped? Have people seen how their ULIP is performing and used THAT for getting out of ULIP? NO. The IFA or bank would have made them surrender the old ULIP and buy a new one. Completely useless an action from the investor’s point of view.

“Information consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.” – so well said by The Nobel Prize Winner Herbert Simon.

Giving information is good only if you can force people to read it, understand it, and use it EXACTLY the way it should be used. This is not simple – and there is no point in blaming the regulator. It is like blaming the RBI Governor for the rising NPA in the country.

So when a mutual fund discloses its exposure to certain companies or industries will the common man be able to react to that? No. It requires many people to read it and think it worthwhile to write about it in simpler non jargon language before people can start to use the information. It is amazing that for buying a mutual fund (a product with very little withdrawal costs) a huge prospectus running into about 100 pages is to be sent to the investor (again theory, the guy does not read it), but the insurance regulator has no such document for hawking a product very similar to a mutual fund, but far, far more complicated to understand. Very few people buying a ulip will even know that assumptions like the death rate in the country, ARE JUST ASSUMPTIONS, and a change in that can impact the returns. You need to be an actuary to know that. Similarly exposure of certain private sector banks to derivatives (yes the ones for which GS paid huge fines to SEC) are disclosed in the balance sheet. How many of us read that? We will worry ONLY when we see the earnings warning – Quarterly or Yearly. The day the disclosure is made, the share does not do anything. The day the earnings warnings come, there is an impact. Thus there seems to be a greater impact of the TV medium than the web medium.

When a lot of information is provided in the prospectus the potential investor says ” wow, the management is telling us everything, so there is nothing to worry’ and a very very few investors can translate that to “what impact each of this small info will have on my portfolio”. Sadly even for a journo it does not pay to be meticulous to read it with a fine comb – the journo is not qualified, trained or paid to do that. I daresay in the financial journo space today, there is NOBODY who is trained and compensated to keep a tab on the SEBI / IRDA websites. None.

If a prospectus puts “this company has not deposited Pf and tds on time with the authorities” do you think people will NOT put money into this company? My foot. They just turn around and say “my broker tells me…this Rs. 200 IPO will open at 300…lets sell…we are not going to marry this stock are we” and the ‘investor’ will oblige…

Regulators pushing for more information is good. Great as new companies which urge you to go and vote at EGMs emerge. I am sure that they will read, and help the investor decide, but one thing that the regulator can do or must do is to create a check list for the investor – of course anybody can design it. This question should ask a simple thing like “do you have adequate TERM LIFE insurance before you buy a ULIP”. So only a person who has a Rs. 20L term life insurance should be allowed to buy a Rs. 20L ULIP.

Will it help? Of course. An enterprising agent will tell the client..please buy a term plan, and immediately buy a ULIP. As soon as the Ulip policy is couriered to you, I will surrender the term plan. Wow. QED.

The only person who can help the investor, is the investor himself, and at most times he has to be protected from the investor himself.

Education, is the only protection.