I have maintained bank branches remain the worst places to seek financial advice. I have done a post on the same topic a few months back.
In this post, I will write about an incident when a client walked into branch of a leading private bank to open a PPF (Public Provident Fund) account.
If you have visited a bank branch recently, you will realize how difficult it is to open a fixed deposit at a bank branch. The bank staff just wouldn’t let you open a fixed deposit.
They will ask you to invest in all kinds of insurance plans (barring term life insurance), pension plans, retirement plans, mutual funds etc. Everything but a fixed deposit.
I thought they will limit these shameless sales pitches to fixed deposits only. However, this time, they went a step further.
Why do bank officials do that? Simple. Sales targets and hefty commission. Banks don’t make as much money when you open a fixed deposit or a PPF account. Moreover, commission is upfront in case of insurance plans.
My client is based in Bangalore. He had gone to Rajaji Nagar Branch of the bank. He was an existing customer of the bank. When he enquired about opening PPF, he was pushed a traditional life insurance plan.
I have withheld name of the bank and the product name just to avoid any legal hassles. I will refer to product as Suraksha Plus plan.
My client does not have any proof of what they did. However, if you want to recreate the entire scene again, you can simply go to any bank branch and tell them you want to open a fixed deposit of Rs 1 lacs. The drama will unfold automatically. By the way, public sector banks are no different. However, my limited experience tells me that this is more likely to happen at private sector banks.
What the bank official told my client?
- With PPF, your money is locked in for 15 years. With Suraksha Plus plan, your money is locked in for only 7 years.
- PPF offers only 8.1% p.a. PPF interest rate is going down. With Suraksha Plus plan, 9% is the minimum return.
- The return is guaranteed (just like PPF).
- You get Section 80C tax benefit under both PPF and Suraksha Plus plan.
- PPF is only about investment. Suraksha Plus Plan offers you insurance coverage too.
- There is no point investing in PPF when Suraksha Plus plan is better in terms of returns and liquidity.
What the bank official didn’t tell?
- I don’t care about you or your requirement. You can very well go to hell.
- My bank doesn’t make much money if you open plain vanilla PPF account.
- I am only concerned about my sales targets and bank’s commission.
- Suraksha Plus is a traditional life insurance plan. Traditional life insurance plans never give more than 4-6% p.a. returns.
What did my client do?
For a moment, he thought Suraksha Plus was a Government scheme. Prime Minister Modi has launched many well-intentioned schemes since he came to power. He thought, probably, the bank official was selling him one of those schemes.
Just when he was about to call me for decision, he happened to ask the bank official if this scheme was by the Government. The bank official replied in the negative and said it was from the bank’s insurance arm. After that, the picture was clear. He could see what was going on.
He politely declined to purchase the plan and insisted on finishing documentation for PPF.
Wouldn’t it be great if the other bank customers were as smart?
Around the same time, an NRI walked into the branch. He enquired about NRE fixed deposits. And they were at it again.
I maintain bank branches are the worst places to seek financial advice. Bank officials are either poorly trained or simply not concerned about your requirements. All they care about is their sales target and bank’s commission. And yes, banks get some serious commission on sale of such products.
I will be quite surprised if the bank’s top management is not aware of this. I am sure the respective banking, markets and insurance regulators are aware of such activities too. It seems they simply choose to pretend that they do not know. Shameful indeed.
The only defence you have is awareness and the power to say No.
Go to banks for core banking services only. Ignore everything else that the branch officials say.
Disclosure: I am a SEBI registered Investment Adviser and hence I may have vested interest in asking you not to seek financial advice from banks