As the financial services sector in India and competition gets tougher than ever a rush, by the private sector, the public sector and also the international players vie for a larger share of Indian savings. And, it is in this rat race to penetrate the markets here, one often sees the thin line between hard-selling and mis-selling being breached by agents.
By definition, mis-selling means selling a product by giving a wrong picture of a product, it may include, giving wrong information, giving unrealistic information, not giving full information about the product. It may even include the product by disclosing full information fully knowing that it does not fit with the client requirement.
?There would be umpteen times when you would have heard an investor, or even yourself, saying ? but this was not I wanted. And, your agent retorting, but then I did tell you all the details upfront, didn?t I?? says Rakesh Shah, a financial advisor and consumer courts advocate in Mumbai. And, you end up looking stupid with the duped feeling in your mind, he adds.
Now, while some might call this unjust, some immoral and some claim its just business and all a part of the game to get ahead of the curve. Some believing in the words of Thomas Tusser that, ?A fool and his money are soon parted? feel it?s only fair if they help the fool do so. While how does one look at mis-selling and justify it may vary, the unfortunate fact remains, that the only losers of such a transaction are unfortunately the investors.
Kishan Singh, a retired 61 year old pensioner, having met this insurance agent who was constantly calling and wanting an appointment, is told that he should invest his money into this fabulous unit-linked scheme which will give him a 30% return, way more than his current pension scheme was giving him. Trusting this man, Kishan withdraws Rs. 20 lakh from his pension fund, pays a penalty charge and gives the rest to the agent. The agent has made an excellent save, earning him commissions in the tune of 10% in year one, 7% the one after and 2% in every subsequent year the payments are made. These figures Kishan was unaware of, as well as the fact he had a 15% policy administration charge levied on him. To top this all, the market since then went on to correct themselves further and Kishan?s once safely growing Rs. 20 lakh was now reduced to barely Rs. 12 lakh, wiping out a chunk of this pensioners retirement money and life-savings. This is a frightening example rampant mis-selling, where even the educated fall into the trap.
While when one sees what some of the unscrupulous have done, the lack of concern shown by the industry and unnaturally slow reaction speeds of the regulators, one is so easily tempted to should out on top of their voices naming in a bid to ruin. However, that is rather pointless and as certified financial planner Gaurav Mashruwala, ?The blame for mis-selling running rampant throughout the country has to be shared by agents, companies, regulators and investors all equally, and only then can we hope to see some change.?
He goes on to explain why he feels people get so easily duped saying ?Products being sold which are not suitable to people is quite easy to accomplish since most people do not know their financial goals or where such a product will help them achieve them. If people do not analyse their goals and the products they are buying to be in tune with them, all they end up doing is help the agent achieve his/her goals and not yours. After all how many agents have you come across who would refuse to sell you a product unless you share your financial goals with them??
So the lesson here is that speak with experts who understand your needs fully and do not just try and lure you with product details. So when you hear a sales person say, ? I have a superb investment product for you without even understanding your needs, then there is something wrong there. How would you feel when you visit a doctor and he gives you medicine without even knowing what your ailments are. It is quite like that,? says Suresh Srinivasan, who is a sales expert. And, even here keep asking questions untill your curio
Another interesting fact that one should note is that these days? insurance agents or mutual fund salesman often have their designation printed as ?financial advisor?. This can be extremely mis-leading for these people are not in anyway your financial advisors but are more than happy to advice you to buy their products. On this point Mashruwala says, ?Such things should not happen, however, they are completely legal since there is no regulatory body that specifies requirements for one to be a financial advisor. An advisor should ideally be working for the investor on a fee and not for the companies on a commission. To give you an example of the situation in India, it is like a heart surgeon and a MBBS both earning the same amount of money and both being paid by none other than the pharmaceutical company!?
Hence, when a so called ?financial advisors? approaches you with their card, please ask for their certification. There are bodies like the Financial Planning Standards Board or FPSB that offer the Certified Financial Planner or CFP certification, and there are others being set-up as well. You need to ask them about the nature of their certification.
Mis-selling in insurance products is most commonly seen in unit linked plans or Ulips when people are told as to how they could expect high returns of between 12-20% easily when the Insurance Regulator and Development Authority (Irda) clearly stipulates that one may not sell an insurance scheme by enticing customers of returns beyond 6-10%. Also, in the mutual fund space mis-selling is seen as products are getting more and more complicated. The loads now wavered are only making fund houses re-route many of their products via the portfolio management platform only allowing them to charge even higher fees, charges and commissions. Many times high risk funds are sold to people who cannot afford to be in that bracket of investors. In fact a story in the Money Mail on August 4, 2009 about Barclays Bank in the UK which is fighting a case for mis-selling two high risk funds to the elderly, only goes to show that the rest of the world has woken up and is taking steps against such occurrences, and it is high time we do the same.