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Mis-selling or mis-buying?

Keep the adviser on your side by compensating him well for his time, but keeping the commisions he gets on sales.

P.V. Subramanyam | Print Edition: June, 2010

Who is to blame if a financial product does not work for you because of certain features in its design? Is it the agent's fault for selling you something that did not suit your needs? Or should you share the blame for buying a product without understanding how it works or reading the fine print? I am more inclined to believe that the customer is to blame because he ought to have researched the product before parting with the cheque.

Last month, I met a retiree and his wife to review their investment portfolio. Apart from 32 mutual funds—most of them NFOs launched in the past 3-4 years—and a long list of equity shares, they had endowment policies, Ulips and a pension plan. It is improbable that the retired petroleum engineer and his homemaker wife understood the various charges and loads for these products before they bought them. These were sold to them by five relationship managers of three banks, a friendly neighbourhood independent financial adviser and a national distributor.

Why do people buy?
Insurance in India is not bought but sold. Some people buy to please a friend, neighbour or a relative even though neither the client nor the salesperson understands the product. Another reason is ego. The customer's ego does not allow him to admit that he does not understand the product. He convinces himself that if a big organisation is selling and the product has been approved by Sebi or Irda, it must be good. The third reason is that most big purchases are made without professional input as customers do not know whom to ask. So, a customer should not complain about mis-selling by an agent because he is also guilty of mis-buying.

The way out: Manufacturers of financial products have a bouquet of offerings, which suits the company, the distributor or the customer. Given the complexity of financial products and the vast choice before him, it is not easy for a customer to know which product best suits his needs. What the agent feeds you has to be decoded and this is where a financial planner comes in. He can help interpret the jargon hurled at you by salesmen and enable you to choose the right option. It is important that the buyer learns that he needs a financial planner.

Hopwever, the most important thing is to have the adviser on your side. It involves compensating the expert adequately for the time spent, but keeping the commissions that he gets by selling you the products.

P.V. Subramanyam is a Financial Trainer, Iris

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