To begin with, as financial planners, we meet thousands of clients across several cities to help them realise their investment objectives. So being in the industry, we know first hand about the mis-selling that happens - how it is done, how facts are mis-represented and very basic information that is either not provided at all or provided grudgingly only on being asked.
From the feedback we have received, some agents/distributors have taken exception to the previous article. They maintain that there is no mis-selling in the industry and it's only become fashionable to talk about it.
Actually, mis-selling is so rampant that not just investors, even regulators have noticed it and have taken a series of steps to address it. That is why both Insurance Regulatory and Development Authority and Securities and Exchange Board of India have actively taken measures to avert mis-selling in unit linked insurance plans and mutual funds respectively.
To us, it appears that agents/distributors are upset with articles on mis-selling because it instinctively implies that they are the ones who are doing it. We would like to clear the air over here. Since Personalfn is also in the mutual fund distribution business, complaints of mis-selling also implicate us.
We don't think that agents/distributors who are not mis-selling have any reason to feel offended. Investors are upset only with the agents/distributors who mis-sell, not with those who conduct their business in an ethical and transparent manner. Agents/distributors who are ethical and transparent in their dealings have nothing to be upset about; rather we request them to join hands with Personalfn in making the industry ethical and transparent.
In the previous article, there were instances of mis-selling that were witnessed first hand by the author. From the feedback we received from investors (reporting even more instances of mis-selling) we have culled out some more cases.
Tax-planning season is at the fag end and expectedly, agents are going all out to sell tax-saving investments. Both the cases that we have reported in this note involve tax-saving investments.
The first instance is about a relatively aged investor with a low risk appetite. He reported that his NSC/PPF agent who had traditionally sold him only PPF and NSC, this year pitched for a tax-saving NFO (new fund offer). The agent's rationale was - why be satisfied with an 8% return from PPF when you can make at least double that amount and even get a tax benefit? Of course, the agent only emphasised on the higher returns and never even mentioned the higher risk involved in a tax-saving fund (when compared to a PPF/NSC).
We are not sure about that agent, but as mutual fund distributors, we found the idea of an aged, risk-averse investor being sold a tax-saving fund, that too an NFO (read no track record) without even making the investor aware of the higher risk involved, extremely unethical.
In another instance, an investor reported a common grievance. We have reported such cases in the past on the website; the only reason we are repeating it over here is because given the pressure applied on agents to meet sales targets, we expect even more cases and wish to alert our readers before it happens to them.
This visitor reported that he approached his insurance agent for a life insurance policy. He wished to opt for a life cover through an endowment plan. His agent however had other plans. The agent recommended that he invest in a ULIP instead. When the visitor asked the agent why a ULIP was the more preferable option, his agent's rationale was that unlike an endowment plan, which involved a longer premium commitment, the ULIP would entail paying premiums only for 3 years, after which the visitor could discontinue paying the premiums.
In other words, the policy will be in force even if premium payments are discontinued thereafter. But that's only part of the picture. The other relevant bit (that the agent conveniently chose not to inform the visitor) is that, though the policy will continue to be in force, mortality charges will be deducted from the ULIP's corpus in the future as well.
Put simply, the insurance company will continue to make necessary deductions from the policy's total accumulated corpus. Hence, the accumulated amount will continue to erode with each unpaid premium. Only the balance amount (net of mortality charges) will continue to be invested in the markets. Furthermore, when the ULIP's corpus is insufficient to service the mortality charges, the policy will cease, thereby depriving the investor of an insurance cover.
Like we mentioned, there were a lot more instances of mis-selling reported by visitors. We have short-listed the two instances that were most relevant from a tax-planning perspective. We urge investors to be even more diligent since the reported cases of mis-selling have increased manifold (the unreported cases are a multiple of the reported ones). To agents/distributors who are not mis-selling, we can only admire them for their resolve in the face of intense competition and tempting commissions.
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