One of the best ways to know if the person selling you a financial product or service is honest and skilled enough is to check what all is he asking before telling you where to invest and why. Here are 20 key questions across four financial products that brokers should be asking you:
| WHAT SHOULD YOU BE ASKED... | AND WHY... |
INSURANCE | |
| 1. What is your age, income and monthly household expenses? | The basic question, it defines how much insurance you can afford and need |
| 2. Does you spouse work? Does he/she have insurance? | To assess whether he/she also needs insurance cover or not |
| 3. What are your financial liabilities (dependents, outstanding loans)? | A crucial question, because it defines the level of insurance cover you need |
| 4. Do you own the house your family lives in? | To avoid getting over-insured. If you own the house, you may need a smaller cover |
| 5. How much insurance cover do you already have? | To rightsize your cover. Deduct existing cover from the required amount |
| 6. What are your existing investments? | If you have huge assets and savings, your insurance need goes down |
| 7. Do you have accidental death insurance? | You need it just as much as you need life insurance, and it's cheap |
MUTUAL FUNDS/ULIPS | |
| 1. How much risk are you comfortable with? | It decides what kind of fund would suit your risk profile |
| 2. What is the tenure of your investment? | It defines the asset class in which you invest — debt, equity or balanced |
| 3. Is this your first fund investment? Do you understand how they work? | First-time investors should keep it simple and stay clear of complex funds |
| 4. What is your income, expenses and savings per month? | To find out how much you can afford to invest per month |
| 5. Do you need to make tax investments under Section 80C? | To optimise the benefits from your mutual fund and Ulip investments |
STOCKS | |
| 1. Are you aware that equity trading can result in losses? | To know your ability to take risks and your knowledge of equity markets |
| 2. On what basis do you pick stocks? Do you have access to equity research reports? | To know your investing strategy and offer remedial advice if you are going wrong |
| 3. How often do you buy and sell stocks? | To find out if your mentality is that of an investor or a trader |
| 4. Are you aware of the tax implications of short-term capital gains from stock trading? | To explain you the benefits of long-term investing |
| 5. Can you monitor your investments on your own? | To know how much time you can afford to track your investments |
CREDIT CARDS | |
| 1. Do you understand how credit cards work and their fee structure? | To know if you are familiar with credit card basics |
| 2. Are you a compulsive spender? Do you find it difficult to repay debts? | To ascertain whether a credit card will help you or add to your troubles |
| 3. Do you know about credit card security and identity theft? | To know if you understand the risks of losing your credit card |
HOW MIS-SELLING AFFECTS YOU | ||
| MIS-SELLING TACTIC | INSTRUMENTS | DEGREE OF LOSS |
| Ignoring inflation when projecting returns from long-term products | Traditional life policies, low-yield FDs, bonds | Low to moderate |
| Not explaining features or limitations of a product | General and medical insurance, credit cards | Low to moderate |
| Pushing something which is not required | Money-back, endowment and pension plans | Moderate to high |
| Painting an optimistic picture without spelling out the risks | Ulips, mutual funds, equity shares | High |
| Selling in a way that it hurts investor's interests | Mutual funds, shares, derivatives | Very high |
Instruments and degree of loss mentioned are illustrative. Losses resulting from mis-selling of any instrument vary from investor to investor.
