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How to Find a Saint Amongst Sinners? - Outside View by PersonalFN

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How to Find a Saint Amongst Sinners?
Feb 1, 2016

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.

Take a courageous stand to counter this...

Insurance agents have sold as many as 25 insurance plans in such a way that, each of them matures every year, after the insured person reaches the age of 58. The insurance was to take care of retirement planning so the insurance maturity proceeds could be utilized as a yearly pension, which may not be the case. In fact, many of you would be embarrassed to read this as you too might have fallen prey to such practices.

How often does your bank relationship manager attempt to sell you insurance plans? Sometimes, the product is so hard-pushed that you may wonder whether he represents the bank or the insurance company. For many people who have dozens of policies; the concept of Human Life Value (HLV) is still Greek and Latin.

Why only point fingers at the insurance agents and insurance companies; their counterparts in asset management companies and brokerage houses are no different. If politicians try to buy votes with money; mutual funds try to buy the souls of their agents and distributors by showering them with high commissions. But as the Securities and Exchange Board of India (SEBI) has started controlling this flow, distributors have suddenly started losing interest in the mutual fund business. Those who are still sticking around, try to sell more New Fund Offers (NFOs) which still earn them reasonably high commissions.

And yes, let's not forget stock brokers. The more you churn your portfolio, the better it is for your stock broker. For this reason, stock brokers pass on short-term tips and keep you in the dark when it comes to long-term prospects of these companies. Didn't you invest in Reliance Power Initial Public Offer (IPO)? The scheme was to make you powerless. While people sold you a dream of you grabbing the world in your fist (kar lo duniya mutthi mae); you ended up clenching your fist with nothing to show.

No matter what qualifications banking relationship managers have, unless they are ethical, they will not think twice before mis-selling you products.

Malpractices have destroyed the potential expansion of the financial services industry in comparison to its population; thus, the spread of financial services still remains low in India. But there's no need to lose heart. All is not lost. There's still a way out. Appoint an ethical planner/advisor. The 'Big daddies' who survive merely on commissions have overshadowed them. Keep looking.

PersonalFN has been working on an initiative that will make a process of selection of a right advisor easier for you. You have more interesting things to do in life apart from investing. You need a planner, or an agent and a distributor who scores high on ethics - a guardian, in a way.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "How to Find a Saint Amongst Sinners?"

sanjay uwach

Feb 25, 2016

In an insurance plan it is worthwhile to look at assured returns, in the form of guaranteed returns and bonuses based on scheme profit, company profit which account for over 40% of total returns promised. In fact a policy was pushed on me, when the document came the fine print was shocking. I returned the policy under the 30 day cancellation window. Three big discussions were held by successively senior executives (read MBA Finance guys) to convince me to retain the policy. A simple argument worked, the assured returns is the risk of the company to pay me the sum but bonuses are my risk of may be not making the sum indicated. If one subtracts the the consumer risk from returns promised, the net returns of the policy are less than compound interest at 6%, which is a realistic assumption for a 10 year horizon. So all in all these schemes are daylight robberies.

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