Banks have been in news recently for introducing charges for almost everything. There are charges to cash withdrawals from branches, charges for withdrawing from other ATMs and even charges for withdrawing from own ATMs.
Recently, HDFC Bank received a lot of flak for levying program management fee for high balanced accounts without seeking approval from the customers. Don’t think HDFC Bank has backed down as yet.
You may feel that these charges are unjustified and they are. However, you can still manage. You can use plastic money more or ask the bank to refund the charges or atleast not levy charges in the future.
The pain is nowhere as significant as losing a lifetime of savings in a bout of mis-selling by the bank relationship managers.
Yes, I am talking about senior citizens who fall prey to bank officials and end up compromising their savings and probably their lifestyle for the rest of their lives. Retirees have no way of recovering from such loss.
Why Senior Citizens are an easy target for Banks?
Senior Citizens are unsuspecting and easily trust the officials at the bank branch they have been visiting for decades. Many senior citizens shy away from internet or the usage of internet is typically limited to Facebook, Whatsapp and Youtube.
Therefore, there is huge information gap. For them, there is no easy way to research the product. They rely on what the bank RM tells them.
Bankers are aware of this weakness.
Moreover, people in their 70s and 80s may not have physical and mental strength to take the matter up with the bank or the insurance company. Bankers are willing to take that chance and perhaps feel this will never escalated.
All these factors make senior citizens a perfect prey for bank RMs.
Like the most merciless dictators and rulers of the past, bank RMs show no mercy either. Your financial requirements and investment purpose are ignored with the single minded determination of earning commissions and meeting sales targets.
Must Read: How Rs 3.2 lacs became Rs 11,000 in 6 years?
How it works?
Typically, elderly love to gift to their children and grand children. When they go to the only place they think can help them in making a choice i.e. their bank branch, they are misled into purchasing insurance cum investment plans.
You may have visited the branch for opening a fixed deposit, a recurring deposit or for initial contribution to PPF account or Sukanya Samriddhi account.
Does not matter.
You will be convinced to purchase an insurance and investment combo plan. It could be a ULIP or a traditional plan.
If you don’t trust me, walk into a bank branch and try to open a fixed deposit of Rs 1 lac. You will get to experience hawkish behavior yourself. From my experience, public banks are not as aggressive in this department as compared to private banks.
A client shared his experience when he walked into his bank branch to open a PPF account.
Senior Citizens may not need life insurance.
Suitability of the product is just not considered
Not by the bank and not by the insurance company. The person is a senior citizen and may have already accumulated enough for the rest of his life. Just the fact that he is talking about gifts suggests that he is in a comfortable financial position. He/she may not need Life insurance.
In ULIPs, a part goes towards providing life cover (mortality charges) and the remaining goes towards investment. Mortality charges increase with your age. At a higher age, mortality charges are quite high and there will be little left to invest. This leads to a significant drag on investment performance.
In case of traditional plans, the pricing is quite opaque but the same Sum Assured, the premium increases with age.
The net effect is that you return comes down drastically. It can be negative too. Consider this case of egregious mis-selling where an investment of s 3.2 lacs became Rs 11,678 in 6 years.
It does not end there
If you walk into a bank branch to open a fixed deposit, the closest parallel that should come to mind of Bank RM is a Single Premium Insurance plan. It is a lump sum investment and the investor may not be in a position to repeat investments of such size.
However, the problem with Single Premium life insurance plans (from the perspective of Bank RMs) is that the commission is capped at 2%. For multi-year policies, the commission can go to as high as 15%.
Hmmm. Now the bank RM has to figure out a way around this problem.
And it seems they have.
I read a brilliant piece in Money Life about how bankers are defrauding ingenuous senior citizens. Needless to say, the article was also an inspiration behind this post.
The article discusses three examples where investors in 70s and 80s were given the impression that they were investing in single premium plans while they were asked to sign papers for multi-year policies.
In one case, when the investor received the document for 10-year policy, he contacted the insurance company. Insurance company officials told him that this was an interim document and the final policy will have correct terms.
Of course, everything was on phone. No paper trail. No e-mail communication.
This was clearly a deliberate strategy by the insurance company to stop him from returning the policy during free-look period.
And when he filed a written complaint, free-look period was already over and his request was brushed aside.
Clearly, there is collusion between the banks and the insurance companies.
Show no mercy
The unfortunate part is it does end even there.
In another case, when the policy holder expressed inability to pay such high premiums (he thought it was a single premium plan), the policies were allowed to lapse (there is no other option).
However, the poor man didn’t get whatever was left in form of surrender amount. His signatures were forged and fake email id created to invest the proceeds in new insurance plans to meet next year targets.
And this, they did to a 86 year old man.
Where is the conscience?
Fortunately, for the gentleman, Money Life took up the case with the Managing Director of the Bank and got him the refund.
There are cases where agents/bank officials will ask you to invest in a new plan to help you recover amount from an earlier plan.
What a joke!!!
It seems nobody cares about you but the commissions.
It flows from the top
In my opinion, the entire blame does not fall upon the shoulders of your last mile contact.
Bank RMs see the ones who earn the highest amount of commissions for bank by hook or crook get rewarded year after year. They are the star performers.
And there you have the social proof. If the people who indulge in mis-selling are feted, there must be something right about it. After sometime, bank RMs may not even feel bad about it.
They know they wouldn’t be around with the same bank by the time mis-selling is caught. Even if they are with the same bank, they know not much will be done.
After all, everything flows from the top. Somebody has to make up for the bad loans banks bend over backwards to give to large corporates. Good money is thrown after bad. And it is not to show favour to any particular corporate house. It is merely to show lower NPA in quarterly results.
Even the CEO needs to withstand the pressure from shareholders and the board of directors.
In my opinion, the problem is not with employees. It is with the organization culture.
What should you do?
Get down to the basics.
If you are already retired, the chances are that you do not need life insurance in the first place.
As you go deeper into your retirement, the need for life cover, if any, will only go down.
And you shouldn’t purchase life insurance if you don’t need it.
Therefore, be alarmed if anyone tries to sell any product that has an element of life cover. You must turn the person away without further ado.
At an old age, a significant portion of your insurance premium will go towards mortality charges. Hence, there is little left to invest.
You purchased the plan as an investment but there is little to show for investment. Bulk of the premium goes towards life insurance that you do not need.
Bizarre, isn’t it?
If you have senior citizen parents or relative, offer them help. They may not be in a position (or have necessary skills) to make investment decisions. Operational work may scare them. They may need shortcuts to the mental and physical effort needed and that’s what bank relationship manager are always keen to offer.
Bank RMs are always ready to recommend products for their own benefit (and not investors).
By the way, kids managing their parents’ money has its own set of problems. You may tend to get cavalier with the money that you have not earned (but your parents have). You may feel that safe FDs and SCSS may be passé and aggressive equity funds are the way to go. A bad approach but atleast you care about your parents. Bankers don’t.
Ask them not to seek advice from product sellers.
If you can’t help them yourself, encourage them to seek professional advice. Cost of a poor financial product is much higher than the cost of professional investment advice.
Michael Thels, 2011. Original image and information about can be downloaded from Flickr
I am a SEBI Registered Investment Adviser and may have vested in showing bank RMs and insurance agents in poor light.
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