Quote of The Day
"Even if you are on the right track, you will get run over if you just sit there."~ Will Rogers
Can You Trust Your Bank Anymore?--
I know what you may be thinking after reading the title of the article. First thing that might have come to your mind is recent Citibank fraud or should I say a fraud masterminded by one of Citi bank’s staff to be precise. Well, that is really sad event for sure and reminds us the dangers of having blind trust again as far as our money is concerned. But this article is not about Citi bank event. This article is, in fact, speaks about another bigger issue or should I say fraud which happens frequently with the innocent and gullible bank customers but we hardly get to hear about it in the media. This article is about the mis-selling of commission based products like insurance which is done by the bank staff or “Relationship Managers’ so to speak. I was in selling job myself for ten years. But I am proud of the fact that I have never ever done any mis-selling in my entire career. For me mis-selling is equivalent to cheating. somebody. No matter whether I was able to meet my target or not, I was very clear about one thing that I would never resort to mis-selling.
Banking system is an integral part of any economy. And so is banking of our lives. We cannot think of our financial life without banks. In fact, banking is the most basic and primary need as far as our money is concerned. You keep your hard earned money in your bank savings account. As a matter of fact most employees get their salaries transferred directly to their savings or salary accounts these days. The trust for banks comes out naturally as we know these are highly regulated institutions and government banks even give us the peace of mind as they have the backing of the government.
Being a part of our life, banks saw this as an opportunity to increase their profits and have started selling not only their own products but also of the third party like insurance and mutual funds on commission basis. And if you have even little bit of idea of sales, you may know how the sales targets are set and then poor sales people have to achieve it. Let me share with you a true story of my uncle’s in Delhi. He went to bank to make fixed deposit or FD three years back. And he ended up with an ULIP policy at the age of 50+ sold by one of bank staff. The reason given was that it was a better product that a boring FD. (I, myself, am not a huge fan of FDs though conditions apply). And if you are little bit updated, or yourself a victim of this product, you will have a real good idea of how horrible this product was. It was sold by all the people involved whether banks, brokers or individual insurance agents aggressively as they were making handsome commissions. And you, the customer lost hell lot of your money. Clearly the motive was and is to make a killing out of you, to earn big fat commissions not your wellbeing. Coming back to my uncle, he paid roughly Rs. 81000 and today if he surrenders that policy, he is able to get roughly around Rs. 38000. And that’s what happens when you go for investments blindly trusting either your so called “Relationship Manager/RM” at your trusted bank or insurance agent without understanding its implications, risks involved or even putting any effort to understand in the first place. I know for fact that most of you reading this article have most of your investments, if any, either in insurance policies or PPF or NSCs or FDs. How Do I know that? Because I know the reason the most of the average salaried class people do the investments. For tax saving and safety trying to avoid risk. (And as far as risk is concerned, there is no investment with zero risk. I will discuss on this topic in another article) That’s about it. If there were no tax incentive today for these instruments, I bet almost everybody will stop buying insurance or stop investing in PPF and NSCs and so on. Because we don’t buy insurance for protection. We are sold (wrong) insurance product for tax saving. Read the last line again carefully. We don’t buy insurance but are sold or should I say mis-sold. Sad. But true.
Sometime back an interview of the head of Insurance Regulatory Authority of India (IRDA) was published in a magazine. He said the insurance industry made a mistake of selling insurance as an investment product. The immediate thought that came to my mind after reading this was who allowed them to do all this in the first place.
The other day I received a call from one of my clients enquiring how much commission an agent gets normally for a money back policy. He didn’t ask me whether this policy was good or not for him. Whether he needed it or not in the first place. As I could make it from the call, the reason he was curious to know about the commission part was so that he could negotiate with his agent some kickback (his share) out of that commission. No wonder, we deserve to be cheated, I mean mis-sold. If that is the attitude people have towards their hard earned money when it comes to taking good care of it, what kind of financial future one can expect. So you the customer is also responsible to some extent. You allow yourself to be cheated by not asking the right questions or thinking whether you are doing the right thing before signing the cheque.
Anyway, coming back to banks. I have many similar stories where people were sold ULIP through banks and they got their fingers burnt badly, really badly. So the next time you visit you bank and you are approached by the smiling ‘RM’, give it a thought, “Can You Ever Trust Your Bank Anymore The Way You Did?”
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Satinder.
Satinder.
Founder & Chief Financial Planner
CERTIFIED FINANCIAL PLANNERCM
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"The saddest words in life are I could have."
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