Do own-brand products leave you worse off?
Do own-brand products leave you worse off?
In the market for a TV, I checked out all the vendors nearby. In the Sony and Samsung showrooms I got the Sony and Samsung TVs. In Croma, I got a variety of brands. On one TV it said Croma. That was the in-house brand which was cheaper than the other branded TVs. I find the same practice when I go to Shoppers Stop or Big Bazaar—own-brand retail is usually cheaper and is labelled clearly on the package. I know that it is cheaper because a quick check on the price tag tells me that. I can look at the picture quality, the specs of the TV or the style and cut of the clothes to compare with the other brands in the store. Can we say the same about buying financial products? Do consumers of financial products fully understand the impact of buying an own-brand product or do they allow themselves to be “advised” by their seller towards the product they end up buying?
The Amfi data for 2010-11 (you can see the data here http://bit.ly/A8NM6a) clearly shows that the top distributors in mutual funds are the banks. The Hongkong & Shanghai Banking Corporation (HSBC Bank) with an annual commission of Rs118 crore and HDFC Bank with Rs115 crore are the top two. Seven out of the top 10 distributors are banks, the other three are corporate distributors. So we now know for sure something that we could only conjecture—banks are the biggest distributors of financial products in terms of commissions paid. But that is just half the information. The second part is to establish that banks sell their own products. In a story published on 17 November 2011 in these pages (read the story here http://bit.ly/A3pH3I), my colleague Kayezad E. Adajania found that Axis AMC paid more than 60% of total commissions to Axis Bank and SBI AMC paid almost half the commission to State Bank of India. I’d like to conjecture that the data for most banks will be similar.
Were the investors informed about offering products that were tied to the parent company? Were the products sold the best fit for the investors need? Were the products sold “suitable” for the investors? Could they have been sold products with a worse track record and less performance due to tied-advice? While we grapple with these questions, another level of complexity is now getting added to the market with advisory firms backward integrating into manufacturing. Parag Parikh Financial Advisory Services (PPFAS) and ASK Group have announced plans to enter product manufacturing. The entry of the $11.5 billion Ameriprise Financial in India earlier this month moves the game to another level. The firm is here with its state-of-the-art financial planning service and some legal baggage that accuses the firm of preferring to sell own-brand products with higher costs and lesser track records than peers, to its advisory clients in the US. The firm currently does not have manufacturing licences but the future may see them backward integrating as well.
A healthy market will have various permutations and combinations—and I have no view on one model being better than the others. If we don’t want to be slapped by the invisible hand and allow markets to really work for all the entities in the game, the rules will have to be well constructed. The adviser regulations are now being written in India and we’d do well to look at the experience of some own-brand issues in the west and work out how we want to deal with it. We need regulatory handshakes across various turfs and an understanding of all the complexities that lie ahead as we mature our financial services industry so that the regulatory architecture we build today has nodes left open to fit in regulatory pieces as we grow.
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 Yale World Fellow 2011. She can be reached at expenseaccount@livemint.com
Also Read | Monika Halan’s earlier columns
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First Published:17 Jan 2012, 09:57 PM IST
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