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Don’t Get Hosed When Buying Financial Products and Services

Here's how to protect your own interests.

Sarah Newcomb 26 November, 2019 | 16:25

Way back in another life, I worked in the mortgage department of a local bank running credit reports for mortgage preapprovals. I heard a lot of unfamiliar terms while working there, but the one that was the strangest and most puzzling to me was "financial product." The idea that a loan could be considered a product was completely foreign. The house was a product, clearly, but the mortgage? It made my head spin.

In the years since, I've come to understand how mortgages really are products. Each type of mortgage has different attributes and ways that it "works." In this way, a mortgage is just like any other product on a shelf. Each is devised to meet a certain need and has specific traits that you as a customer can use to distinguish between them and choose which best suits your purposes. But here's the thing: Many people I talk to don't know the difference between a financial product and a financial service, and that's a problem.

Products and services are regulated differently, and that can have a big impact on you as a customer. In countries like Singapore, for example, all financial products go through a deep vetting process where the regulating body determines if the terms and conditions are fair and meet a baseline standard of safety for the average investor. The process is slow, and it results in fewer options for customers, but it does provide a bit of protection for the uninitiated since there are few, if any, predatory products available. However, it requires a lot of resources to oversee this process, and one could argue it is too much regulation for a free market system.

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About Author

Sarah Newcomb

Sarah Newcomb  Sarah Newcomb is a behavioral economist with Morningstar.

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