by Noriyuki Morimoto
According to a principle set by the Financial Services Agency, financial institutions should “understand the customer’s asset status, experience of transactions, and knowledge, objective and needs of transactions, and/or recommend financial products and services suited to the customer.”
While this is indeed a sound principle, how exactly do financial institutions “understand the customer’s asset status, experience of transactions, and knowledge, objective and needs of transactions?” If this cannot be done, implementing the principle becomes impossible, however correct it may be.
Both the FSA and financial institutions seem to think that simply asking the customer will do, but assuming that asking will give them the right answers is a major mistake. The way of thinking in the financial world is such that there is the saying “common sense in finance but nonsense in the real world.” This becomes immediately clear when we go back to the general principles of commerce.
When customers want something, they ask a merchant, not the other way round. In other words, since demand comes first and commerce is about fulfilling demand, the merchant should simply respond to the demand without any fuss.
At restaurants, customers are asked for their orders. But even if they are not asked, customers will order what they want to eat. Customers who cannot decide for themselves will not enter the restaurant in the first place. Generally, in commerce, asking customers does not create any new demand; it merely confirms the customers’ demand that already exists. Merchants should simply respond appropriately to that demand without asking.
Financial institutions asking customers about their “asset status, experience of transactions, and knowledge, objective and needs” is the same as a restaurant asking customers about their health condition. Asking about health is probably done with the assumption that orders that are not good for the customer’s health will be refused. While this attitude is undoubtedly customer-centric, it also runs blatantly against the common sense of commerce.
To put it bluntly, the FSA’s principle is meddlesome, intrusive, and often rude. Financial institutions must first understand the essence of this principle that contradicts commercial common sense. Only then can they consider a customer-centric approach that aligns with commercial common sense.
[Category /Fiduciary Duty]
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.