If you read personal finance section of business newspapers or personal finance magazines, you will realize the mis-selling is rampant in Indian financial services sector. Product suitability is conveniently sacrificed to earn high commissions.
Poorly structured upfront incentive structure is one of the foremost reasons behind mis-selling. Sales target or income pressure is another. What about the lack of knowledge on the part of the salesperson and the buyer? Can that be a reason too? In my opinion, it is.
Let’s delve deeper into this subject.
Sales people are themselves not aware
How many sales persons (especially in bank branches) are aware how ULIPs work? How old age can affect returns from a Unit Linked Insurance plan?
How many are aware of taxation of pension plans and single premium insurance plans?
How many can assess the true impact of bonus being paid at maturity (and not when announced)on return in case of a traditional life insurance plan?
I am quite sure there are not many.
Therefore, what we might construe as mis-selling may actually be a result of ignorance.
Many of them are rote and emotional selling machines. They are merely trained to show you “Before” and “After” scenario. They are trained to bully you into making an emotional purchase. They will carry printouts which will flaunt past returns and performance.
“Sir, you invest X amount per year for Y years, you will get 10X after Y years, just in time for your daughter’s college education”
The notion of uncertainty about investment returns never comes up during the presentation.
And they are trained never to leave behind any sheets with the prospects. Why?
Their reply: Company policy.
The actual reason: IRDA does not permit projections using rosy return assumptions. It allows return assumption of 4% and 8% p.a. only. Nobody will purchase plans at 4% and 8% returns.
By the way, it is not a question of ability. It is more about priorities. We don’t know if the bank or any financial institution train them well on such aspects before they are sent to the field.
Their target is to sell and sell at any cost. Under tremendous sales pressure, morality and customer first approach can take a backseat.
Your lack of awareness makes you a sitting duck
You can’t push the entire blame on to the seller. After all, you signed the dotted line.
You have got to take some share of the blame.
Salespersons can’t put a gun to your head to make you sign the document. You do that out of your own will.
You must have the willingness to learn more about a product that you plan to purchase.
There are crooks around. Incentives are mis-aligned.
Not every type of mis-selling is a result of ignorance. There are many crooks around.
It is unlikely that the salesperson can’t differentiate a single premium payment policy from a regular premium payment policy and sells such a plan to a retired person. Such sales are result of devious plans.
I have discussed such cases in many of my posts before. I will provide links to two of those posts (Post 1, Post 2). There are umpteen examples of deliberate mis-selling just to earn commissions.
By the way, it is not that mis-selling happens only through institutions. Individual salespersons mis-sell too.
Oral communication has its problems
What do you do?
When we have to make a query, we call up customer care or visit a bank branch or office.
In fact, many times, when I drop an email to seek clarification about anything, I get a call and clarification is given over phone.
Why?
Firstly, it is easier to explain over the phone than through written communication.
Secondly, over the phone call, there is little track record (at least you can’t access those records).
Many times, when pampered with questions, they reply anything that comes to their mind. They are aware that there is no accountability. How will you ever prove what was said?
Even though there is now a clear redressal system to raise such cases of mis-selling (of even third party products) against banks, I doubt this will be effective because it is so difficult to prove anything.
With written reply, everything goes on record.Therefore, they think twice before replying. It has happened to me that when I have insisted on an e-mail response, their responses have changed.
How written communication helps?
- Since there is a written record, they think twice before answering your question. My preferred mode of communication is through e-mail.
- It is easier to escalate if you do not receive a satisfactory response or if you were given wrong information to begin with. Your case will be much stronger if something goes wrong later because you have a written proof.
- Believe me, escalation to the top management/grievance cell is a sure shot way to get a swift response.
Here is what you should do.
Before purchasing a product
- Do not make instant decisions. Take at least a week before making a choice.
- Research about the product and how it works. If you can’t do on your own, seek advice from friends or a professional. Read about taxation of the product.
- Ask the salespeople to send everything and all the supporting documents over e-mail from his/her official id. If there is nothing to hide, the concerned salesperson will happily do it.
- If there is a lot of reluctance, you have your answer.
- Forward that e-mail to customer care of the bank or the financial institution and seek confirmation about the material shared.
A few weeks back, I shared a case where Apollo Munich tele-service officers duped a client by not recording a pre-existing illness. Fortunately, the issue was unearthed quite quickly when my client dropped an e-mail to record the issue. This case is a good learning for all of us.
After purchasing the product (and if you have a grievance)
- Read the product/policy document to understand if it is in line with what you thought you had purchased.
- If it is not, you can return the product.
- You can visit office/branch and raise the issue. Try to get an acknowledgement of your complaint (with date). Simply submitting your complaint/grievance on a paper/application won’t help much.
- The branch officials won’t be so willing to sign any document that may put them in trouble later on. This is where an e-mail helps. Almost all companies have auto-acknowledgement system.
- Always drop an email to customer care to record the issue. And keep dropping reminders. Escalate to grievance cell and senior management after a few days.
- Many times, the branch officials may ask to wait for a few days so that they can rectify the issue. Quite possible that the request is genuine. However, many times, they might just be buying time so that free-look period gets lapsed. You can’t do much after that. Read about a similar case in Mint
- Irrespective of what you do above, if your issue is not resolved before the free-look period expires, exercise your right to return the policy within the free-look period.
Point to Note
After going through the post, it may feel that I am writing about mis-selling in insurance plans. You are right. That’s what I had in my mind.
However, that does not mean mis-selling does not happen in other products. I have discussed instances where mis-selling (in my opinion) has happened in mutual funds too. There is no concept of free-look period in case of mutual funds. Therefore, you need to be extra cautious with mutual funds.
However, there are no excessive penalties or lock-in case of mutual funds. Moreover, in my opinion, mutual funds are not as hard-sold as insurance plans. The incentive structure in mutual funds is more about long term relationship. Not the case with insurance plans, where incentives are front-loaded.
