Indians love free advice. Trust me, I know. I have been an advisor and distributor myself. I was an MDRT level insurance agent and a successful mutual fund distributor. I din’t even work full time. I worked part-time during college days and was earning a handsome commission. I have interacted and observed many people during the time. You can watch the pure joy(or should we call it greed) that crosses an investor’s face when you say to them “Your money will double in 4 years” .
My personal experience as an advisor
I always had a penchant for finance and making money. Not to miss the fact that, I had a family which depended solely on my earnings. Just after college hours I would start to meet my clients almost everyday. I used to religiously call them, fix appointments and go out to meet them.
I would explain to them what my Sales Manager had explained to me. With all the charts and trying to capture the fancy of the client’s dreams. ULIPs were a craze back then and were moving like hot cakes. But what I did not know was that I was selling the wrong products. I am guilty of mis-selling certain products to some people. I did not do it willfully or knowingly though. I did not know finance indepth at that time nor how companies operated.
That is the state of many advisors you might meet today. The situation is slightly better now but a lot is yet to be improved. Most of the advisors you meet do not know what they are selling. They are solely motivated by the commissions they earn. Or even worse, they completely believe what their companies tell them. They do not have the necessary skills, qualification nor tools to analyze in-depth what they sell. This leads to mis-selling. Or some advisors just don’t care. That is why it is important to hire a fee-based financial planner who just provides advice and does not sell products.
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How the finance industry operates
The financial services industry is a pure volumes business. The more they sell, the more they earn. But isn’t that how every business operates? Yes, but there are some points unique to finance industry.
- Usually financial products are long term contracts– They tie your capital for the long term. Imagine purchasing an insurance policy and wanting to quit after 3 or 4 years. Chances are you won’t make much returns. Why? Because there is a huge commission in the initial years. ULIPs, Closed Ended mutual funds pay hefty commissions in the first year. And remember, these are paid from your money.
- Its a volume business – So there is no qualitative analysis. The more assets they manage, the more the fund house makes. If they manage Rs 1000 crores and charge 1% fund management fee, they make Rs10 crores. If they manage Rs2000 crores , they make Rs 20 crores. What would they prefer? You know the answer. Why do you think all the fund houses come up with new products every year. Don’t you think there are enough policies and mutual funds already? But instead of improvising existing ones, why always a new fund is launched? Because people’s memory is short. And you can sell to Indians a pack of air with few chips for Rs.10 with marketing
- There is no guarantee for performance – If it is a physical product, you can return it or replace it. But you cannot do that with a financial product. Well, at least with most of them. So even if it gives a dud performance, you have to accept the loss.
- The devil is in the details – You will be provided an offer document with all the terms and conditions and mostly it will be too long that you won’t read it. You are partly to blame for it though.
- Companies sell dreams to advisors who in turn sell it to you– Usually what happens is when a product is launched, the company convenes a meeting in a hotel. Provides a free meal and announces how much commission the advisor can make. Usually it also says the best performer will get another huge bumper. They are taught how to pitch the products to investors by highlighting the positives alone. How many times have you heard an advisor talk about their failed products?
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Why I quit selling products
I was witnessing that the products (insurance and mutual funds) were not delivering. Whatever we told at the time of selling, was not happening. Most of the time investors were losing money including me( I had also made investments. It was also 2008 which added to the worry). When I met my sales manager and asked, I was directed to the Branch manager. I got the reply.”What can we do? It’s not our problem. The fund manager is not good.We can’t control them. We are releasing a new product next month.Hope that does well”. Yes. The most important part is WE CAN’T CONTROL THEM. The accountable person is not within the investor’s reach. There is not much we can do.
Then why the heck they promised us in the first place. Why didn’t they care to mention these negatives very clearly when training the advisors. Well, it’s your guess. I always try to deliver what I promise. When I was not able to do that, I decided there was no use selling these crap. I QUIT!!. I also called up some of my investors. I apologized and asked them to dump if possible.Some of them still remain my clients (some are HNIs as well ). It took me 5 months to replace the income I had lost. I have never mis-sold a product in the last 8 years. Now, I always take care to mention all the negative possibilities of a product I recommend.
How to prevent mis-selling – Ask the tough questions to your advisor
When someone approaches you to sell a product, ask them right questions. To do that, first you need to be aware. That’s why I started this blog to deliver and share the knowledge the required knowledge. You may not become an expert by reading my blog but at least you would know what mistakes to avoid. Probe your advisor if they know what they are selling. You do not need to suffer for someone’s ignorance or greed. Think yourself and decide. There is no use pointing others. It is your money on the table. Be AWARE! YOU GET WHAT YOU NEGOTIATE OR KNOW, NOT WHAT YOU DESERVE.