Wednesday, 21 April, 2010

Idiot salesmen and financial crisis

Whenever there is a crash in any sector of the financial market, or the market as a whole, commentators rush out to condemn the big guys, the bosses with million-dollar salaries and billion-dollar bonuses.

Obviously, they are to blame. But blaming them doesn’t help at all because they are beyond the reach of any authority. They did as the liked and will do as they like, no matter how loudly the rest of us scream.

Perhaps a better target are the idiot salesmen who peddle these financial products to unsuspecting laymen. These salesmen have no idea of finance, probability or statistics and should not be allowed within miles of insurance policies or mutual funds.

Instead they are given nonsense scripts to convert into useless advise. Their real sales tool is their natural gregariousness, which they use unashamedly and perhaps unknowingly to play with people’s trust.

In recent years, some industry bodies (like the ones for insurance and mutual funds) have introduced qualifying tests. But companies take great pride in how they negate these. It’s either “Everyone passes” or “The ones that pass are not the ones that sell. The agent makes his wife give the test and get the certificate, then he goes out and sells. What you need is feet on the street. Why do you need any knowledge? It’s all theoretical (i.e., rubbish) anyway.”

So tests are no good.

Unless they are applied on-the-spot.  

Imagine something like this: An agent comes to see you for product A; you log on to a site that generates 10 random multiple-choice questions about products of that type; this agent has to answer those questions; his score comes up immediately; if it’s below, say, 5/10, you don’t talk.

It can actually work, if the tests are not administered by an industry (i.e., sellers’) body but by a (for-profit?) testing organisation.

Alternatively, such tests may be administered to everyone buying a financial product, i.e., either the buyer or his agent has to take the test. A low score won’t stop sale, but the buyer would know that he (or his agent) doesn’t know, and shouldn’t complain later.

Will people take these tests? No. Or they would have read something now, which they never do. But at least governments would have an excuse.

Also, these tests can be used on samples from time to time, and the scores published (like JDPower ratings), so as to put pressure on companies to pay attention on training.

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