The Kiss of Simplicity

Imagine a world in which you had very easy-to-understand financial products. I'll detail a few below.

Simple Life Insurance: You pay us non-refundable premium every year. If you die we pay your family money. This much money. If you live, your family is happier. Over and out.
Simple Mutual Funds: They come in three varieties:
a) Simple Equity Funds: We invest in the stock market. Forget Large cap or mid cap, forget this sector or that. We know what to buy, and we'll give you the fund manager's resume and past performance. We benchmark to the NSE Nifty. We don't pay dividends. We don't give bonuses. If you want to sell, you sell.
b) Simple Debt Funds: We buy debt. We know we can buy short term, long term, gilt, corporate, CDs, CPs and all that. But we decide what to buy. You just park your money with us. We are risky.
c) Simple liquid funds: We're better than fixed deposits for tax treatment. We only invest in bank CDs which are like fixed deposits except they pay us more than they'll pay you. We don't tell you how much interest you will get, because we don't know.
Simple Fixed Deposits: You pay us today. We pay you back tomorrow with interest. If you withdraw early, we charge you a penalty that's written right here based on when you exit. Your interest is taxable.
Simple Stock Markets: This product should not be allowed to exist. There is no such thing as a simple stock market. The market is complicated. People who made money without knowing anything are just lucky. It's full of information assymetry, unfair advantages, money power and other difficult concepts that are in no way simple.
Every Mutual Fund house or insurance company should have only one product in each of the above called "Simple". The costs should be regulated. There should be no entry load or exit load of any sort. Annual Management fees should be a max per product type and no other fees should be leviable.
Everything else is complex, so they are labelled "Complicated and Risky". So you have a sectoral fund? It's Complicated and Risky Technology Sector Fund. You want a Gilt fund? It's a Complicated and Risky Government Securities Fund. Similarly, a Complicated and Risky Balanced Fund. Even if you have an "ultra short term" fund to do some tax arbitrage, you should have to name it Complicated and Risky, because anyone in this industry knows that this stuff *is* risky and complicated.
Some will complain that this is needless regulation. I think this is worth thinking about. The problem in financial products is misinformation, misselling and complexity. When you label something as "Complicated and Risky" it will be much easier to say no, and to go for the "Simple" products. The Simple products could of course be missold but it's tough to missell a plain vanilla product that offers next to no commissions. Sure, the Complicated and Risky products could be missold but at one level there is a warning right out there in the name! And the misselling isn't any worse than is happening today.
Others will say we should do more: make people go through a test to prove financial intelligence before they buy a "Complicated and Risky" product. I think that's overreaching and unnecessary; it only ensures another layer of corruption in this "proving financial intelligence" procedure. (If it's a test, your agent will do the test for you, as an example of corruption)
How then do distributors get paid? They charge the end users, or get paid trail fees. With simple products there are no loads so they have to wait a year to make money. With complex products they can earn more, and it's their job to placate investors scared of "complicated and risky" - here, people will realize that complicated products aren't for the faint hearted.
But there's always the problem that some people want to portray that they know way more than they really do. So you don't buy a "simple" product because you want to show off that you know your stuff and therefore need to have a "Complicated and Risky" item in your portfolio. This is classic sucker material and such a person and his money should soon part, so let us not disturb evolution from taking its course.
Simplicity also means less legalese. An application form should ask just for a single Know-Your-Customer (which every investor should have in a common format) and provide strong but consise details; for example a "simple" mutual fund should only show the photo of the fund manager, his resume and a comparison with the benchmark and other "simple" mutual funds.
All requests for complexity must be thrown out. No dividends in simple mutual funds. If you want dividends, buy a complex fund. No Simple Endowment Policies. No Simple Index Funds. No "options" to check in a simple product. Simplicity is the absolute base; everything else is a separate complex product.
When regulators blame a lack of investor education for the rampant misselling in vogue, they must realize that a big reason investors buy into complexity is that there is no clearly earmarked simple option. You find complex fixed deposits, like those from which you can partially withdraw, like those that are linked to loans and so on. But still, the plain vanilla fixed deposit sells, because it is plain and vanilla and everyone knows it exists.
The KISS Principle that applies well here. Keep It Simple and Straightforward.