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| December 18, 2015 |
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Impact 
It’s been said that selling snow to an Eskimo and sand to an Arab is the skill of an astute salesperson, however (mis)selling insurance plans is child’s play for unscrupulous insurance agents. Most people who buy insurance policies are given to understand that they are investing in a mutual fund offering coupled with some insurance benefits. This is one of the many myths plaguing investors who genuinely want to secure the future of their loved ones and achieve their financial goals. Arabs and Eskimos may be sure of what they’ve bought; but a victim of mis-selling doesn’t have a clue of what’s been sold to him/her.
Many investors have shared their real-life stories with PersonalFN, and some have allowed us to share them with our readers on the condition of anonymity.
This article showcases the investment story of a doctor, Dr Amit Grover (name changed), who fell prey to the tall promises of his financial planner cum insurance agent. Read on… Here’s what happened:
The Case:
Amit, a 35 year-old surgeon, has little time to manage his finances. Every minute he spends at his hospital is very important to him. Since the hospital is a well-run hospital, founded by his father, he wasn’t very concerned about investing his surplus. However despite his busy schedule, he records his expenses and savings and Fixed Deposits formed most of his investment portfolio. Apart from that, he had taken a loan to buy a residential property recently. His financial planning exercise ends there.
Then, about a year ago he was blessed with a baby girl. As it happens with responsible parents, he began to take his financial matters very seriously. He decided to seek professional help to streamline his expenses and invest surplus funds in more rewarding avenues, other than fixed deposits.
One fine day, he received a telephone call from an unknown number and that’s how the tragedy started. The person on the line introduced himself as a representative of a financial planning company and requested for an appointment. When Dr. Grover enquired about the source the representative had acquired his number from, the answer he got implied that the good doctor had shared his details with some loan aggregator. Although Dr Grover was a bit annoyed in the beginning; he agreed to meet the financial planner the following week.
#Did you know that a loan aggregator has sold their clients’ data to many agencies in the past. A financial planning company was one among them.
Peep into the kaleidoscope of cold-blooded looting...
When Dr Grover met the financial planner Avinash Jain (name changed), he was impressed with Mr. Jain’s style of presentation and the manner in which he made his points. That day Dr Grover learned quite a few things about financial planning for the first time. Like most lay persons, he didn’t know how much insurance he needed. Mr. Jain gave him a ballpark figure. Initially, Dr Grover was hesitant to divulge personal information, but Mr. Jain’s friendly nature eventually made Dr Grover more comfortable sharing his financial goals.
As elaborated to Mr Jain, Dr. Grover had four main objectives:
- Saving for establishing another hospital
- Giving his daughter a world class education
- Buying a villa in plush locality in his town in next 10 years
- Saving for his retirement
Shrewd Avinash actively listened to Dr Grover with complete attention; but he knew what he was going to pitch irrespective of the Doctor’s goals. Mr. Jain was very sharp and to sound more realistic and honest; he explained his inability to help Dr. Grover build a corpus fund to establish another hospital. This impressed Dr Grover. By now he was convinced that Mr. Jain was a brilliant and a reliable financial planner.
Here’s what the unethical insurance agent sold Dr Grover:
- A pure insurance plan for taking care of insurance needs
- A childcare plan
- An endowment plan for generating secured and tax free long term income (earmarked for retirement)
- A retirement plan
How to read a dishonest agent’s mind?
This is what was very interesting (and sad too) about Mr. Jain’s product pitch. He sold a term insurance plan with an option of return of premium facility. If the insured doctor outlived the term of insurance, he would get all premiums back. Such plans are generally more expensive than those which don’t return your premiums, if you survive the tenure of the insurance policy. Pitching this plan was an easy task. He sealed the deal by empathizing that the Doctor should receive something in return, as he was most likely going to outlive the policy term. As soon as consent was acquired, the ticking meter on commissions started here.
Pay attention to this dear reader to understand exactly what mis-selling is and how it’s done.
Moving to the next goal of child education and her wedding, the agent recommended an expensive Unit Linked Insurance Plan (ULIP). While recommending an expensive ULIP, Avinash didn’t reveal it was a ULIP and sold it as a mutual fund. Can you believe this could happen to you? For those who have little information about ULIPs, these are investment cum insurance plans. Besides providing insurance cover, ULIPs give you different investing buckets (often known as funds); for example, fund “A” will have maximum exposure to equity; fund “B” have moderate exposure to equity and then there’s Fund “C”, “D”, so on. Please note these are NOT mutual funds schemes.
Mr. Jain directly jumped to these options calling them “funds” (thus, giving a false impression that these were mutual funds). Doing this was very easy. The ULIP was from a financial institution that also has a presence in the mutual fund business and the doctor wasn’t aware of the difference.
Suppose, XYZ is a conglomerate and owns a life insurance business in the name of XYZ Life and also has a mutual fund business, XYZ Mutual Fund. Then, selling an investment fund provided by a ULIP of XYZ Life as a product of XYZ Mutual Fund is not very difficult for a scheming, dishonest agent. Mr. Jain did just that.
Similarly, Avinash recommended a conventional endowment insurance claiming that it would help Dr. Grover earn tax-free returns, superior to those earned on fixed deposits.
Mr. Avinash Jain is an insurance agent portraying himself as a financial planner. A financial planner is a professional who helps you design a portfolio in line with your financial goals and risk taking ability. He is a wolf in sheep’s clothing. There are countless Avinash Jains in the industry.
Dr. Grover received a rude shock soon after he learned the truth. His financial goals wouldn’t see the light of day. It was too late. He had already signed the documents (without reading them) and the “free-look” period (the time given by the insurance company to return the policy in the case of buyer’s remorse) had elapsed.
Today, he has no choice but to continue paying for these policies, at least for some more time.
PersonalFN has always taken a strong stand against greedy and unscrupulous financial planners, insurance agents, stock brokers, and mutual fund advisors. Going one step ahead, PersonalFN now wants to start a movement against the likes of these by gathering ethical persons on one platform.
Keep sharing your stories. Let’s take a pledge to root out mis-selling and other unethical practices from the entire gamut of financial advisory businesses. The worst consequence of mis-selling is your financial goals are not achieved.
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Impact
If you are planning to buy your dream home in the near future, you may have something to cheer for. Recently, the Union Cabinet of Modi Government okayed the Real Estate (Regulation and Development) Bill, 2015; clearing its way to parliament for approval.
The real estate bill has some important objectives to fulfil which includes:
- Protecting the interest of real estate buyers
- Encouraging fair play in real estate transactions
- Ensuring timely execution of projects
If the Bill is passed in its current form, it would provide a uniform regulatory environment serving the objective of speedy settlement of disputes and smoothen the growth of this sector. When the regulatory framework falls in place, the real estate sector may witness mega investments from both domestic and foreign investors. Eventually, this may help the Government achieve its objective of providing housing to all Indians’ by enhanced private participation.
The Bill ensures mandatory disclosure by promoters to the customers through registration of real estate projects as well as real estate agents with the Real Estate Regulatory Authority. The Bill aims at restoring confidence of consumers in the real estate sector by institutionalizing transparency and accountability in real estate and housing transactions, which will further enable the sector to access capital and financial markets. The Bill will promote orderly growth through efficient project execution, professionalism and standardization.
Let’s see some of the prominent features of the Bill:
- Along with residential properties, the commercial properties will also be covered.
- Developers would need to secure the consent from at least 2/3rd allotters for altering plans, structural designs, and specifications of the plot, apartment or building. Moreover, builders would have to rectify structural defects within two years.
- Buyers can now ask for a stage-wise completion schedule and claim possession on the day declared by the builder. If the builder fails to deliver on time; buyers are entitled to receive compensation with interest.
- Real estate agents too would fall under the preview of the regulator. They would be required to maintain books of accounts, records, and all related documents.
- More powers have been accorded to consumers. They can approach consumer courts as well as approach the regulator. Moreover, the regulator needs to clear the matters pending with it within 60 days.
- Those who fail to register projects may be jailed or fined.
PersonalFN is of the view that a powerful regulator can change the face of the real estate sector in times to come. PersonalFN believes that people buying properties should be aware of their rights. Buying real estate has to be a well-informed decision as the monies at stake is usually high. Well-informed buyers are most likely to take the right decisions and select the right finance options.
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Impact
The world is certainly abundant with talented people; however the ones who value ethics, honesty, and integrity are becoming increasingly rare. Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. Be it any business; a food joint, a retail shop, or even a financial advisory, the importance of ethics in life and business remains indelible.
Businesspersons who employ under-handed shortcuts are often perceived as greedy and myopic. They grossly underestimate the value of dealing fairly with their customers.
Ethics are on sale in the financial services industry
The irony is, the businesses that require that ethics be observed in the strictest sense have become the playgrounds, much like their tactics, for professionals bury their integrity. Take the case of insurance agents.
Finding a family that speaks Hindi in Japan might be easier than finding an honest insurance agent. Insurance companies are equal culprits. The mis-selling in insurance is rampant. When insurance companies offered high commissions on Unit Linked Savings Plan (ULIPs); agents lured you with market-linked plans. When commissions on ULIPs were slashed, all insurance agents suddenly started finding equity markets risky and shifted you back to endowment plans from ULIPs.
To know more about this and PersonalFN’s views over it, please click here.
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Impact
If insurance companies sell you dreams with a pledge of accompanying you even after your death; mutual funds sell you stories. Whatever you do; no matter how hard you try to convince them for being fair and ethical; some manufacturers of financial products remain as crooked as dog’s hind leg.
The Securities and Exchange Board of India (SEBI) has warned mutual fund houses from time to time to merge similar schemes. It has discouraged industry players from launching New Fund Offers (NFOs) with features that resemble the existing ones. But as they say, “old habits die hard.”
If there was an award given for launching the maximum number of NFOs in the minimum period of time, there will be a close contest among 3-4 mutual fund houses. Tata Mutual Fund, ICICI Mutual Fund, Reliance Mutual Fund, and Sundaram Mutual Fund have launched 4-5 equity oriented funds each from April 01, 2015 till date.
If you rank all Tata Flagship companies in a descending order, Tata Mutual Fund may find a place at the bottom on ethical practices.
In all, Tata mutual fund has 15 equity oriented schemes at present, of which 8 are diversified in nature, 3 are Equity Linked Savings Schemes (ELSS) , and 4 are thematic funds. Still the fund house believes its product portfolio is inadequate to service investors and take exposure to all sectors and marketcap segments of Indian markets. The other possibility is that the fund house believes, investors are fools and they can be fooled repeatedly by selling them stories.
To read more about this news and our views, please click here.
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You may have read The Government’s initiative to curb the black money circulation in the economy. It’s been shouting it from rooftops, however, when it comes to taking a tough stand, the Government kneels down before the mighty lobbies.
The Government earlier had proposed that PAN details have to be provided for every sale and purchase transaction completed using cash of Rs 1 lakh and above. However, trade unions and other industry bodies fiercely opposed this, arguing that such provisions will severely affect their businesses. Moreover, the Government also received representations from the industry claiming such provisions will increase the cost of compliance.
Giving in to industry demands, the Government lately decided to soften its stance. As a result, now you may have to provide your PAN details only for cash transactions worth Rs 2 lakh and above. Similarly, the requirement of furnishing PAN details has been relaxed for a number of transaction heads.
You need to provide PAN details for a number of cash transactions, mentioned below:
| Transaction head |
Existing norm |
Newly introduced norms |
| Immovable property such as house |
Rs 5 lakh and above |
Rs 10 lakh and more |
| While opening a new bank account |
In case of all accounts |
Jan Dhan accounts are left out |
| New Cellphone / landline connections |
Any connection |
No longer required |
| For restaurant bills |
Exceeding Rs 25,000 |
Exceeding Rs 50,000 |
| Cash payment for any foreign trip |
Exceeding Rs 25,000 |
Exceeding Rs 50,000 |
(Source: Business Standard; PersonalFN Research)
PersonalFN is of the view that the relaxed limits may encourage trade unions and industrial bodies to lobby even harder. Unless the Government discourages cash transactions and tightens up surveillance, black money would continue to be circulated within the economy. The Government is trying to promote the Indian manufacturing sector. PersonalFN advocates disclosing all income, filing income tax returns regularly, and paying taxes on time.
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Free Look Period: A period where a new insurance policy owner is able to terminate the contract without penalties such as surrender charges. A free look period often lasts for 10 or more days (depending on the insurer), allowing the contract holder to decide whether or not to keep it; if he or she is not satisfied, the contract purchaser can receive a full refund for it.
(Source: Investopedia)
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Quote : "Money is like manure. You have to spread it around or it smells"
-J. Paul Getty
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