Tuesday, September 25, 2012

BANKS ARE MISS SELLING…..BE CAREFUL FROM THEIR BETS


IT NEVER STOPPED
Miss selling the concept which cannot be eradicated form the financial market. Fulfillment of targets and stupendous pay packages married with death of ethics and business principles are the ways to grow the business and AUM of a financial market. When SEBI introduced the NIL Entry Load structure it was acclaimed that the step was taken to eliminate the miss selling concept and I remember very well that many financial papers were favoring the same implementation of the law. After 3 years we find that miss selling did not get stopped but got new modified miss sellers in the financial market who are one of the biggest resource holder as well as misuse.

Banks are the new leaders in miss selling of financial products. Even after IRDA reduced and capped the limits of commission for insurance products, volume based miss selling is being practiced judiciously. There are numerous cases where Banks are cheating the investors with an brave heart and even in majority of the cases we find that banks are exploiting the trust of the account holders. Miss- representation, powerful fake sales pitch and power packed ditching of trust of the bank account holders are being practiced by the banking staff. Well all are in the game of Targets which have been taken by the banks to earn some quick bucks followed with hefty perquisites from the various AMC and Insurance companies.

SELLING ULIP UNDER FIXED DEPOSIT

Banks are judiciously converting the funds from Fixed Deposit to ULIP, Traditional insurance product and Mutual Funds. Well one might deny all the above statement and only exclusively for them I have some facts to provide them from some genuine sources.

As per the data from AMFI as on July 2012 Commission income from sales of mutual funds have gone up considerably which comprised of top 10 players among which 8 Banks are the leaders. From the Insurance perspective Banc assurance model of the banks holds and average rate of contribution of 50% towards the insurance Industry. If one of my readers is bankers then they will feel proud about the stupendous growth being achieved by them in the financial market. But all these numbers are at the cost of the miss selling.RBI has been complaining that bank’s deposits are declining but we find they same decline is being pocketed into Mutual Fund and Insurance.

LOW PENETRATION ........JUST AN EXCUSE

Low penetration of Mutual Funds, insurance and financial inclusion are the few jargons well used by the Indian banking system to miss sell the products. Banks holds an very important role in the Indian economy and it has strong trust among the people. Banks are being taken as the safest option for parking hard earned money. Banks are now the leaders for breach of the trust built over the last 66 years of Indian independence. But why banks are converting the Fixed Deposits into Mutual Funds and Insurance. A Fixed Deposit gives earnings of 0.25% where as insurance gives 10%-15% where as mutual funds give 0.75 to even 4% (Hybrid Funds). Banks gives great illustrative presentation about the gains one can achieve through investments in ULIP compared to Fixed Deposit. RBI can easily crack the numbers of the banks to find the third party product sales volume corresponding to the growth in Fixed Deposit.

Banks are Not Financial Planners

Why the banks are being converted into a financial solution provider when they don’t know about the wealth management or financial planning. Banks cannot provide financial planning such type of solutions which an IFA or a financial planner can provide. Banks are just now turning to be street hawkers who simply dupe the consumer for their product sales. We knew that there were couples of banks who use to take advantage of the financial jargons and lack of proper disclosure to consumer earn quick money. Bankers are asking their sales force in many banks to forget financial planning and just focus on revenue planning. Individuals seeking financial advice about what to do when they get married, or how to plan for when they retire, or what to do if they want to start up a college fund for their children, will go to a financial advisor in order to get his/her assessment of their current financial position and recommendations for the best possible way to plan for the future.

Perhaps the most important thing a financial advisor can do - the thing that is hardest for an advisor to learn in any school - is condense and communicate their vast knowledge of finance and investment planning into layman's terms for the everyday fellow with a wife and kids. Since they do not work as often with cutthroat business types, it is important for financial advisors to be charming and eloquent so that everyday individuals trust them with their money. After all, many financial advisors are self-employed and make their connections by good word of mouth, so being well liked and well spoken is a must.

Banks have mostly targeted the ones within the age bracket of 45 to 60 since they have large corpus of savings and retirement benefits which is being used the bankers to dupe them and sale due investments. Children’s plans are the most lucrative product being used by the banks to sale to the consumers.

WHO DOES & HOW DOES?

I know that there are many new join’s into the banking space coming from closed distribution houses getting job into the banking space that are using various strategies well proven in their business practices into the banking practices. In West Bengal/Delhi/Bangalore/Hyderabad, one of the leading broking houses has winded up its various branches and many of the employees have taken job in various banks where duping of consumers is the main experience required for entry into the banking jobs. This is the story of every place in India. Distribution houses are closing up their business and the same man power is being absorbed into private banks.

Banks have wide resources in their hands through the KYC documents. KYC documents helps banks to crack on the investor wealth status which further helps them to decide category of product they will pitch. This categorization helps the banks to design the miss representation and lucrative sales pitch for miss selling products. Hence the strategy of banks to miss sell products is very much pre defined. Based upon the resources of the KYC, banks gives personal call to consumers to present the lucrative sales presentation. Well these are the common bets by banks to catch the clients under the trap of banks false presentation.

I welcome all my reader particularly the bankers who reading my article to express their severe strictures for this article.

1 comments:

Arjun Khanna

Hi Indraneel,

I dont think you are well informed enough to have written this piece. I see it as one sided and regressive in nature.

Some comments

a) Indian capital markets, MF's and Insurance sectors are in their evolution stage and for the markets to evolve maturely, there is some pain it goes through. I am not for once saying that miselling justified, I am just trying to put across that their are vices to each industry which come with their virtures as well

b) Miselling to my mind is a collusion between the customer and the sales rep. The sales rep wants to make a sale and the customer is led by different degrees of greed. Some may of returns, others of pass back, gifts, free holidays etc. Remember financial institutions are not NGO's

c) Is their a co-relation between instances of miselling and the bear market. Delve on this deeply and you will understand what I am saying

d) Your approach by making loose comments are regressive in nature. Don't you enjoy doing your transactions on the internet, or for that matter, accessing your money from any ATM. This has only been possible by setting the bar higher in competition and making more and more people aware about options

e) Will you ever part with your money without finding out what will happen to it. So to believe that a middle aged man who can vote for deciding the future of the country is unaware of the fate of the money in his pocket is a little hard to digest.

f) You are right about your observation about consolidation in distribution but unforturnately you have not understood the reason. Its not about miselling, let me assure you.

g) I have not yet one banker who's sole goal is to give sleepless nights to his bank CEO, the RBI governor etc. The general level of morals are far higher than most industrys....even struggling bloggers

The need of the hour is to educate the masses and more importantly be aware of the associated risks.

Dont you believe that you are mis-leading the massess by making assertive statements without qualifying them.

Lets see you publishing my comments in toto

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