Complexity as Extraction Tool
Financial product complexity is often deliberate — opacity is the product
Financial firms respond to consumer demand as it is, not as it should be — and because cognitive complexity is a barrier to comparison shopping, complexity is often profitable. Ramadorai documents multiple mechanisms: fee–rate trade-offs on mortgages that require a PhD-level calculation to evaluate; Indian bank MCLR pricing where each lender uses a different base and quotes 'MCLR + X'; post-regulation product proliferation in UK insurance that creates so many distinct products that the legal meaning of 'equivalent' ceases to apply.
The insight is structural: whenever a regulator tries to simplify, suppliers respond by proliferating products until complexity returns. This is not conspiracy but rational competitive response to incentives. Suppliers compete on who can exploit consumer confusion most efficiently, not on who can best serve consumer welfare.
The practical response at the individual level is to understand which comparisons are already standardised (index fund OCF charges in percentage terms) and which require re-engineering (mortgage total cost = rate × term + capitalised fee). For advocates, the policy lesson is that vague simplification mandates are insufficient — standardisation must be prescriptive and product-specific to be durable.
- Complexity that benefits the seller at the buyer's expense is a product feature, not an accident.
- Regulatory attempts to simplify without prescribing exact formats will be outrun by supplier product proliferation.
- A comparison that requires expert knowledge to make correctly is a comparison the average consumer cannot make — and suppliers know it.
- The fee–rate trade-off collapses to a simple calculation only if both quantities are expressed in comparable units over the same time horizon.
- When every provider uses a different base rate for pricing, headline comparisons are meaningless.
- Identify the comparison unitBefore evaluating any financial product, determine what the correct unit of comparison is. For mortgages: total cost over the fix period (payments + capitalised fees). For index funds: OCF as a percentage. For insurance: premium × years at a given excess level. Resist any comparison the provider presents in a different unit.Pro tipProviders frame the unit that favours their product. Reframe to the unit that favours the consumer: total cash out over a fixed time horizon.
- Normalise the base before comparing ratesWhen providers use different base rates (as with the Indian MCLR system), headline additive spreads are not comparable. Require or calculate the all-in rate in absolute percentage terms before comparison. In the UK, this means verifying that two 'LIBOR + X' quotes use the same LIBOR.WarningSwitching to a tracker that references a different rate than your existing deal means you are taking on basis risk — the spread between the two rates is not guaranteed to stay constant.
- Watch for product proliferation after regulationWhen a regulatory simplification has recently taken effect, check whether suppliers have responded by creating new product variants. If the number of SKUs has risen, the regulation may have been circumvented. This is the key lesson from the UK insurance price-walking ban.Pro tipAsk providers: 'How many distinct products do you offer in this category?' A very large number is a red flag.
- Demand the plain-vanilla equivalentIn any financial product category, ask whether a simpler version exists with no bells, whistles, or embedded options. Compare the headline economics of both. If the plain version is almost as good, it is often better once hidden costs are accounted for.Pro tipThe existence of a plain version usually implies the complex version earns the provider more margin — which tells you where the extraction is happening.
Indian banks quoted mortgage rates as 'MCLR + X', but each bank had a different MCLR. A consumer seeing 'MCLR + 1' vs 'MCLR + 2' would rationally choose the first — without realising the first bank's MCLR was 3 points higher.
After the FCA banned price walking — charging loyal customers more than new customers for equivalent policies — insurers responded by proliferating product variants. With fewer customers in any one 'equivalent' bucket, the ban's scope shrank and pricing power returned.
The host described being offered a 3% mortgage with a £5,000 fee and a 6% mortgage with no fee, finding it impossible to determine which was cheaper. This is a textbook dominated-choice trap.
Ramadorai developed this lens while doing policy work across multiple jurisdictions: India (MCLR mortgage quoting), Israel (opaque bundled mortgage products), and the UK (fee–rate trade-offs and post-price-walking-ban insurance proliferation). The pattern was identical in each case — regulatory simplification prompts supplier re-complexification at the margins.