All carrot and no stick makes the market an unsafe place
Why is it so difficult for regulators to build an incentive structure that's fair to all?
What role do incentives play in directing the flow of financial products into household portfolios? One way to answer this question is to look at data on retail financial products that have seen incentives change over the past 10 years and look at the direction of the flow of money. We can do this for two sets of investment products—pure asset management products such as mutual funds, and insurance-embedded investment products in the form of life insurance policies. There are now several data points that we can map given that privatization in mutual funds is more than 20 years old and that in insurance is 15 years old, and there have been regulatory changes in incentive structures in both products over the past decade.