A long time ago, in the late 1980s, the company I was then working for, besides doing bespoke software development, was also into manufacturing and sale of computer hardware. Users of computing technology in those days were exclusively large corporate houses and primary usage was running enterprise scale applications. Buying a new computer then was a long, drawn-out exercise. Even after having made all the strategic and funding decisions to acquire a new computer, just the act of selecting one from the available choices could take as much as 6 months or more! And that was not because there was a plethora of options to choose from.

The primary problem was that the ultimate users of computing technology could not relate to the parameters and attributes that we – the makers and sellers of those computers – used, to talk about our products. We talked about our products in terms of CPU clock speeds and DRAM latency and cycle times, main memory size, 16- or 32-bit CPUs, disk capacities and seek times etc. ALL these mattered, of course, because they dictated whether the computing system could solve the problems the users wanted solved within the time they needed to be solved.

BUT there was no easy way to connect these with the parameters and attributes which the users used to think about and define the problems they needed to solve – Inventory sizes, procurement time reduction, inventory carrying costs and so on. We could of course connect the two, but the buyer/users remained sceptical about our explanations – after all we were an interested party and could well have been taking them for a ride by talking in a language they did not understand!

Thus evolved a tribe of “trusted third party” consultants, who would plan a microscopic examination of the technical details of the computer systems being offered for sale. They would also design an elaborate program of simulated workloads (which were supposed to faithfully represent a typical workload the users were expecting the “to be bought” computer system to be capable of handling) which had to be shown to run within specified constraints.

Today, 4 decades later, that picture is very different. And that is so for many reasons. Firstly, the cost of computing capabilities has reduced so much that in case of any doubts or uncertainty, grossly over-provisioning computing capacity does not burn a hole in your pocket (Contrast that to the 1980s, a decision to buy an extra 300MB hard disk drive needed to go all the way up to the CFO or the CEO). And on the other hand, it has become possible to start by acquiring the smallest capacity that you think you need and incrementally increase it, if that is found inadequate. You don’t need to do big bang capital spending all at once.

Much more importantly, there is a much greater degree of standardization in how computing systems are described – making it far simpler to compare the products of different manufacturers in absolute terms (i.e., without reference to suitability for the intended end-use). And, for most purposes enough experience (albeit empirical and anecdotal) has built up to enable most users to standardize the description of their problems and needs to make it possible to connect the manufacturer’s description to the problem she wishes to solve.

The primary consideration in the purchase decision is still the same – Which out of the alternatives that are available to me best serves the SPECIFIC need I have?  The decision no longer requires very fine-grained, long drawn out (and expensive) examination of the alternatives because the technology has got sufficiently commoditized that just a handful of standard parameters are sufficient to show with a high degree of certainty whether the product under consideration will or will not meet the user’s needs (Barring very specialized use-cases)!

Such commoditization has always been the dream of every industry – whatever be the goods or services they sell, whether tangible or abstract, and the Financial Services Industry is no exception.

And commoditization, when it can be done correctly, is good for both – the sellers and the buyers. For the sellers, the manufacturing and the sales process becomes far more efficient because economies of scale can be exploited. The sales cycles become shorter because buyers can make decisions far more quickly. For the buyers, the standardization of the characterization of products with a small number of measurable parameters makes it easier to choose from the competing options and to connect the parameters with the attributes of the problems they want to address.

Mutual Fund manufacturers – the Asset Management Companies – have long been hoping to do exactly that, but do not seem to have understood that “dumbing down” of what is essentially a complex, abstract product that is not easy to understand for most people, is not “commoditization”. There is a difference between the two.

For example, you all must have seen an advertisement on TV recently which shows 3 children pooling their 3 differently coloured ice-creams with a message that essentially eating all three at the same time is better than having just one! And therefore, by implication a mutual fund that invests in 3 different asset classes is BETTER than a fund that invests in just one of them – always and for everybody!

Really?

What they seem to have overlooked is – Eating 3 scoops of ice creams is also likely to give you indigestion at best and at worst, give you a sugar overdose that, if you are a diabetic, can create serious health complications for you. So perhaps you are better off having only one or none!

And you see similar “dumbing down” of investment solutions across the spectrum of Mutual Fund advertising. The “SIP Karo” campaign is a prime example of a misleading advertising campaign because it too is essentially telling you, your actual problems and needs don’t matter. There is just one solution that will fit everybody! Or there was that Retirement solutions campaign by an asset manager, which played on the fears of uncertainty which every retiree harbours once his/her income stops, essentially saying don’t think about what your actual situation may be, just invest and your worries will be taken care of!

While some good moves have been made to standardize the descriptions of the mutual funds, yet there is no clear, measurable, and standard way to connect these descriptions with the problems the buyer (potential investors) wish to solve. Compare that with the insurance industry where far more commoditization has been achieved even though it too sells an intangible, abstract and difficult to understand product. An insurance product can be characterized by just a few parameters which are easy to connect with the buyer’s needs!

The difference is, in the insurance domain, the nebulous broad idea of a buyer’s primary problem – mitigating risk – has been successfully broken down into specific smaller problems, each of which can be characterized using a handful of standardized parameters. That is why it becomes possible to connect the descriptions of the products on offer and the problem to be solved and decide with a high degree of confidence whether the product will address the need.

No one has found a way to similarly standardize the problem statements of potential investors at least so far.

This is almost the same situation that prevailed in the 1980s for potential computer systems buyers!

There are then only two ways out for a potential investor – self-diagnosis – make the effort and invest the time that is necessary to unravel the mysteries of an intangible abstract product, learn the language in which they are described to understand what that really means, develop an appreciation of the vagaries of the financial markets i.e. the context in which these abstract products exist and thereby learn yourself to connect the products on offer with your real needs . This is not a trivial exercise (and connecting the dots will never be easy for us irrespective of who you are because money is one of the biggest blind spots for all of us).  OR as the potential computer buyers did in the 1980s, find a real financial professional who you can trust, who will first thoroughly diagnose you and then be able to show you how to connect the products available with the problems/needs/wants you wish to address!