Beware of your bank representative

Beware of your bank representatives..!!!

It is seen, we Indian have very much trust with our banks. Fixed deposit in bank gives us peace of mind and a sense of greater safety. We give much importance to safety of our capital than real return. As we enter in bank branch, we totally surrender ourselves to the bank representative. A bank representative with skilled communication push to the other financial products like insurance, ULIP, endowment, money back policy and many more other products for complete their monthly target.  

I tell you here, a true event which happened today inside the bank branch which is very famous brand in banking industry. Although it is very common in our country but I still want to share it with you. I was in Axis Bank branch in the morning to make a demand draft. I have submitted the request for the same and waiting for collecting my DD. The process to make DD takes 10 - 15 minutes usually. A 25-26 year approximate age girl in the banking counter was explaining a fix deposit plan to a client. She was promising 24% fix return from a mutual fund scheme if he deposit money for 3 years and repeated it thrice with very confidant and smiling face. The surprising thing was that customer had got convinced from that girl who was representing the bank for invest in that scheme within 30 seconds. I was shocked that the customer had not asked any question about the risk associated with that scheme. When customer asked about the tax benefit in that scheme, she had smiled with moving her head and said “No, Mutual Funds me koi tax benefit nahi milta hai” (There are no tax benefit in mutual fund at all).

I was very shocked and surprised for that the witty communication by that bank representative. It was a clear example of mis-selling by that bank employee. In realty, a bank customer was cheated by that bank employee. A thousands and millions bank customer was cheated by such representatives of the banks. I am not against any bank or and bank representative but yea I am against their faulty communication with the bank customer. Anyway, I am giving you below some points which every investor should always keep in mind when they make an investment decision.

• In mutual fund, there is no assured and fixed return. The return is totally depends on many factors like market movement, interest rate, inflation rate GDP growth and many more.

• The promise of 24% is unrealistic return in such current economic condition when govt bond offer around 8%. I am not saying it is impossible but you cannot commit it to anyone.

• There are tax benefit exist in mutual funds scheme which I have written in my past articles. When you promise such a high return, you should also talk about risk associated with such schemes whether mutual fund or any other asset class.

• As an investor, it is also your responsibility before making any investment decision understand the risk and return properly.

• Do not believe on any agents, bank representative do your own research from many other sources. The agents are not your friends. They also have some sales target. So next time, beware from such agents and representatives.

 For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Banks Role in Insurance Distribution Business

Banks role in Insurance Distribution Business

As the financial year 2013-14 is approaching towards its end. People are rushing for tax saving investment options and for tax saving insurance product is very popular among the investors. However, in my personal opinion it becomes very toxic product if you mix your insurance need and investment. Insurance mainly sell by individual agents, brokers, direct selling and banks.  

Banks are the main contributor in the sells figures of private insurance companies products. In India, people have immense faith on banks. They still prefer bank FD even the net inflation adjusted post tax return is very poor. Due to this blind faith on banks, common investors become a victim of mis-selling of these products. I met a lot of cases almost in every investor meet of mis-selling by the banks. The complaints of mis-selling by banks are increasing. Due to this mis-selling complaints, bank regulator RBI has proposed the new guidelines for selling of insurance products. The main RBI proposal as given below:

• ·         A bank’s NPA should be less than 3%
• ·         It should have made profits for last 3 consecutive years
• ·         A bank’s net worth should be at least Rs 500 crore

The government is also planning to mandate multi insurance companies sales for bank. At present banks are selling only one company’s products. The insurance regulator IRDA has also capped a bank’s sale of joint venture partner’s products at 25% of the overall.

In fact the aim of insurance sales by bank is to increase the reach among the maximum people as banks have wider branch network across the country. The above mentioned proposal by RBI, IRDA and govt are not fully implement. We hope that after implementing these guidelines mis-selling would be stop to some extent. However, insurer would not allow implement these guidelines in very smooth manner.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com 

Beware…!!! Stop and think again before any investment

It is my 100^th blog. Thanks to all of you for your great support. Without you it was not possible to reach this figure. A lot of readers has given valuable suggestion and compliment. I have got lot of energy and material for thought during this journey. This journey is not only mine, in fact it is a “revolution of investor awareness” with the help of your participation.

Often, we rely on our friends and relatives for our investment decision. In most cases, these are bank agent, CAs, insurance agent, or so called advisors. For investment decision you don’t need only information, you should understand it better. You should plan for your financial plan yourself with the help of expert. Keep in mind, there is no investment product in the market which can guarantee for high return and zero risk. There is reciprocal relationship between in risk and return.

At the moment when you expect high return, you should also the analyze risk. If any product promises you for high return, then definitely there would be high risk. I request to all of you that never invest with close eye on the basis of trust. For sales agent commissions and targets are more important than you investment return. We often, trust our bank relationship manager and purchase the product on the basis of trust and brand name. After mis-sell the product which you had not required really, they earn huge commission and as the result your return get reduce.

I would like to share with you recent example. One of my clients have HDFC bank account. Client did not want any type of risk and wanted  to fix deposit for 1-2 year. Bank representative suggested him HDFC classic assurance plan for 20 year with insurance and promised 3% of sum assured bonus every year and after maturity there would be terminal bonus. According to the bank representative it was guaranteed benefit but when I had personally met the bank person and senior persons they were not able to show me any brochure about this promised guaranteed benefit. They were only showing me excel sheet on computer and only false oral promise.

Finally, client has also realized and refused the suggested product by the bank. As he was in the higher tax bracket so I suggested him some bond mutual fund it would be beneficial him as a tax point of view as compare with bank fix deposit. At the end, bank representative have also agreed with me that debt fund is better than FD.

I had also mentioned in my past blogs that do not trust any oral promise by any agent, friend or relatives. They will first care their own incentive and not your investment return. It would be better to prepare a financial plan with the help of professional financial planner and then invest accordingly.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Dear Investors

I have got very interesting information through mail and I am forwarding the same as I got.

Insurance has been the most ab(used) word, thanks to the mis-selling done by most of the agents / Bank RMs. When earlier ULIPs was offering 40-50% commission, they were busy pushing ULIPs and now when ULIPs are a lot more better thanks to the cleaning work done by the regulator, the insurance companies and agents have shunned ULIPs and moved to selling endowment plans (plans which combines insurance and savings) as can be seen in the below chart which currently offers anywhere between 20-40% first year commission.



We would like to offer following suggestions so that you are not trapped in the game plan of the insurance mis-sellers.

1. The only insurance you should buy is a Term Plan. All other products like Endowment plans, ULIPs, Pension plans, Highest NAV plans are very expensive policies.
2. Never take insurance policies for investment purpose. The returns from endowment policies has been very dismal ranging from 5-7%. Mutual Funds or other avenues are much better vehicles for investments as they are very cost friendly.
3. Whenever an insurance agent or a Bank RM is pushing for a particular policy, ask him if he himself has purchased the same policy. You will know the truth and he will never trouble you next time.
4. Don't trust your agent blindly.
5. Don't take the advertisements at the face value. Most of the time they are mis-leading.
6. Read the fine print carefully ( “Nothing in fine print is ever good news.” ~ Andy Rooney)
7. Incase if you have been sold wrong policies in the last 1-5 years, its better to cut your losses and exit the policy rather then nursing the pain for another 15-20 years.

Pls read the below story on How Insurance Mis-sellers are fooling gullible investors carried out in ET Wealth (23rd July edition)

Warm Regards
Arvind Trivedi
Certified Financial Planner
arvind.trivedi79@gmail.com

Misselling of Financial product

Dear reader,

Now a days most of us  are victim of a misselling of financial product but few days back I was shocked when I had read  one article in Moneylife Magazine which is very popular magazine among investors for its true and honest view on all the financial product and services . Below is the same article which I read on the Moneylife site :

HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns :

Moneylife Digital Team

This can happen to you—bank customers beware. Lack of financial literacy can cost you big time as reputed banks target the gullible with money to spare. PMS, insurance, loans are pushed by relationship managers to make a killing, at your cost!

HSBC Bank took Ms Suchitra Krishnamoorthi, a well-known singer and actor, for a ride over a five year period by promising an extravagant assured return of 24% from mutual funds as well as insurance. Each time the customer complained about losses in her account, the standard reply was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good. The one-way road for the customer was downhill. If a well-known celebrity could be cheated with such impunity, it is surely happening routinely with others.

It is a case of systematic looting and exploitation of emotionally vulnerable who had got Rs3.6 crore as part of a settlement in September 2006. The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.

The modus operandi for HSBC in this case has been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting her on taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.

The end result after five years was Rs83 lakh—direct loss from investment, Rs29 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakhpenalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank.

When Suchitra wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.

Apart from the losses, the so-called customer service was pathetic after the relationship started getting sour. The bank was appallingly evasive and non cooperative even for basic requests such as furnishing of documents or revoking power of attorney for the investment portfolio. It took the bank four months and repeated requests to furnish inchoate standard forms that Suchitra had signed at the time of appointing HSBC as her portfolio manager. Moreover, the documentation was incomplete.

According to Suchitra, “It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/officers being on leave, etc.”

She adds, “While I was warned that the legal system in India is such that the matter will drag on forever probably causing me further expenditure and loss of peace of mind and reputation, I was determined to see this through. It is my moral responsibility and a warning to other vulnerable targets—small investors like me should not get conned by aggressive MBA's in suits who are preying on their customers like sharks in the big bad ocean. All the while getting richer and richer while making us smallgold fish go bust.”

Last year Moneylife Foundation had conducted a seminar with Ravi Subramanian, banker and author of three well-known books like “If God Was a Banker”, “I Bought the Monk’s Ferrari” and “Devil in Pinstripes”. According to him, “Banks and relationship managers often indulge in cross-selling to earn more revenues and therefore, the customer has to be more careful while dealing with them. Bankers become ‘bhayankar’ when they fail to deliver what they have promised and try to hard-sell products on which they earn more money to the gullible customers. A customer can protect himself from falling into the hands of mercenary bankers by being alert, vigilant and at the same time doing due diligence.”Link to the article - http://www.moneylife.in/article/hsbc-loots-suchitra-krishnamoorthi-after-big-promises-of-24-returns/24975.html#.T4laTfnc8_o.email

I would welcome your suggestion / comments if any or if you also have been a victim of such mis-selling then you can share with us.

Also, pls forward this email to as many friends / relatives as possible and hopefully they may also benefit out of it.

Regards ,

Arvind Trivedi

Certified Financial Planner