I wonder why the Reserve Bank of India (RBI) has got its head buried in sand over the extent of lies that bankers tell their customers in their attempt to hit them with inappropriate financial products to earn their bonuses and meet their targets. And I wonder how banks can calmly tell angry customers who protest that the products recommended and promises made by their staff (relationship managers) are not the responsibility of the bank. “The person who sold this to you has moved from our bank, what can we do?” is the most commonly heard excuse to the customer. I recently met an artist at a do. As I tanked up about art, a subject I know nothing about, she reciprocated by asking me questions about financial products. Her story turned out to be the story that I hear over and over again. The average story goes like this: The trusted bank sends its “relationship manager” who knows how much money there is in the account. He usually comes with an insurance company guy. They both sell inappropriate products by lying about product features and what they will return. And when the customer complains some years later, the bank coolly talks about that person having moved on. “And can we sell what you bought and put you in something new now?” And hit the customer with another harmful product.
Also Read Monika Halan’s earlier columns
The artist’s story goes like this: She tells the relationship manager that she is an artist (a pretty famous one at that) and does not have regular income flows. Has a son she is funding through college. Needs cash in two years’ time. She wants a one-time bullet investment as she cannot make regular annual contributions. This was last year. Guess what is sold? Yup. A 20-year premium paying unit-linked insurance policy. He sold it saying it is a three-year product. That the Rs3 lakh put in over three years will become Rs5 lakh. When the policy reaches her and she sees it (yes finally found a person who looks at documents, she had actually orange-highlighted the premium paying term till 2029) and calls up the “relationship manager” to ask how he could sell her something that was so long-term, he says: “I am there. Don’t worry, you will not have to pay after three years.” Now, after the new rules post September 2010, he comes back and tells her that it is actually five years premium-paying term. And that he is there. Don’t worry. This is where she calls me and says “I’ve been cheated”. When I looked at the policy document, I see worse signs of the crime. He has put her in a conservative fund and had circled the 10% growth fund value to show what her return will be. Cheating at every step. She now recalls that he would carry away every bit of paper he wrote on to explain the product to her. She only has the notes she made.
The problem with this story is that it is not a story in isolation and rampant cheating by the banks continues. Why it is taking RBI so long to put in basic suitability guidelines is something that is beyond reason. What can you do till some rules come into the country? Do not trust what your bank relationship manager tells you. Do not buy products they recommend. The only recourse you have is to search for information and ask the right questions. Don’t have any other place to buy from? OK, do this: For every product that the banker suggests, get him to write the key features on a piece of paper and sign it. That should have details of: How long do I need to invest in this product for it to work for me? If I invest Rs100, how much of this will be invested? Each year, how much is taken out as costs? Am I investing in equity, debt or a balanced fund? If the banker refuses to do this, you know that he is lying about the product he wants to sell. Keep the money in a fixed deposit. Don’t buy the product he recommends.
End note: Another investor alert (if I blow any more whistles, my cheeks will explode, I think): Don’t buy medical insurance to soak up the Rs15,000 deduction. They’re selling it saying that there is a new tax break. There isn’t. We already get a Rs15,000 deduction on the premium paid on medical insurance, but we don’t use the entire limit because we don’t need to. A basic cover does not cost that much and a budget of about Rs10,000 a year is usually enough for a good medical cover. For a family of four (with dad at about age 40), a total cover of Rs5 lakh should cost you between Rs8,000 and Rs12,000. Don’t discontinue your old policies to buy new ones.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, and can be reached at email@example.com