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Here's How Banks Capitalize On Your Trust And Deceive You - Outside View by PersonalFN

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Here's How Banks Capitalize On Your Trust And Deceive You
Sep 22, 2017

Mr. Sharma (name changed) a client with us at PFN for personal financial advisory services, shared the conversation he recently had with his bank's relationship manager at the local branch.

"I was at the bank the other day, waiting for my turn to deposit some cash. In the meantime, a gentleman walked up to me and asked -

Sir, are you looking to invest some money for appealing returns?

Given my curiosity and being an avid investor, I replied - Yes.

Do you invest in equity? He asked. Once again, I replied in the affirmative.

Great! Then I have the best investment plan for you, he said.

I was pretty inquisitive to know what the offer was...

So, I asked him to give me a few minutes until I had deposited the cash. To my luck, the queue moved quickly and soon, seated on the couch, we began our conversation.

Sir, we have an ideal product where you could kill two birds in one shot; this means taking care of your investment and insurance needs. And the best part is, it is a short term plan; so you don't have to deploy funds for too long. All you have to do is invest Rs 1 lakh for 3 years, and after 10-15 years your money will have given excellent returns, he said.

For a moment, I was mystified and asked him, How?

I didn't get a very satisfactory answer, and all he said was that the money would be invested in equities. He was unable to explain the investment strategy to substantiate those tall claims of excellent returns, and the incidental charges weren't brought up.

While I'm an avid investor, I endeavour to invest most of my money based on my investment objectives and financial goals. He kept on harping on tall claims, but didn't bother to ask me what my investment objectives are while wanting to invest.

So, I decided to stand up, politely say a thank you and left. I was looking at a more holistic approach for managing my money prudently".

Mr Sharma was prudent enough to see through this relationship manager's yarn. However, let's face it that many are swayed by the fabulous sales pitch of insurance advisors / agents / mutual fund distributors / relationship managers and fall prey to them, having disastrous implications on their financial wellbeing.

Mis-selling is not uncommon when selling products in the retail market. Though insurance advisors / agents / relationship manager makes tall claims about products providing excellent returns, but many investors/policyholders don't bothered to read the devil in the fine print and are left feeling disappointed with the returns.

While investors/policyholders are duped, insurance advisors / agents / relationship managers get richer through the attractive commissions they earn.

Most relationship managers and insurance advisors and agents intentionally or unintentionally end up cheating investors/policyholders off their hard-earned money. While the core aim of such advisors may be to drive up business and earn incentives, the client's faith is often evinced on the brand value of the company rather than on:

  • Understanding the attitude and rationalisation;
  • Asking valid questions;
  • Ascertaining the track record;
  • Recognising the claim settlement history; and
  • Understanding Terms & conditions

It is vital to note that buying an insurance policy or any other financial product document is more than signing on the dotted line and going by what your insurance advisor says.

There are many advisors who are, in fact, 'wealth stealers' not 'wealth creators'. Hence, you ought to adopt enough caution and read all documents thoroughly before you follow any investment advice.

In these unscrupulous times, even banks can't be trusted for unbiased investment advice.

The recent spate of news about banks mis-managing their customers' money is rather bone-chilling. Relationship Managers (RMs) have taken their clients for a ride. These incidents have left customers with a bitter taste and cautionary tale.

Clearly, there's an unmitigated compromise on ethics at banks/institutions, and a questionable morality of the RMs they retain. Far from managing your relationship with the highest care and dedication, keeping your interests at heart; some RMs appear to be working for themselves instead.

Primarily, it's because of the way their salaries are structured into fixed + variable pay. They earn more through incentives when their sales targets are met, and so do banks through commissions. The real culprits are the institutions with business models that lean the unethical way in the pursuit to garner more Assets Under Advice.

The story at offices of individual agent and distributors of financial products isn't any different. Although they call themselves investment advisors, they don't put their clients' interest first, because they depend on commissions instead of fee-based income. There is the element of human bias; often financial products are pushed to prospective investors/clients, rather than being advised on the foundation of investment objectives, risk profile, and long term financial goals.

To Sum-up...

Amid the mis-selling practice in the financial services industry, what investors are looking for is an advisor who can serve as a 'Financial Guardian'. One who can understand their clients' outlook towards money, and guide them in a manner that helps them achieve their financial goals, keeping their best interest in mind.

If financial advisors act as 'Financial Guardians', with ethics as their compass and handle the hard-earned money of investors with enough care, prudence, sense of responsibility, and intelligence, they can earn the trust, respect, and loyalty of several investors.

So, what is the best way to find such advisors or planners?

Is there an online platform/resource where you can associate and compare financial advisors?

Well, there is...

We invite you to explore www.certifiedfinancialguardian.com

Here all the Certified Financial Guardians (as they are called) are listed on the website. They have gone through an intensive program emphasising not only on the different areas of personal finance, but also on the importance and essence of developing a financial planning advisory based on the principles of ethics and integrity. Connect for the right advice.

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


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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