Letter to BS: Rampant mis-selling of financial products in Indian markets

“Rampant mis-selling of financial products’’ by Sanjay Kumar Singh (November 12) is a timely article.

One of the main reasons for mis-selling is the seller’s own lack of knowledge and understanding of the product for sale. The frontline staff, trying to sell the product, knows little about the comparative advantages of products offered by competition. Though it is mandated that persons selling financial products have to be certified, the rule is usually not followed. 

Some recommendations of the Bose Committee have been implemented -- such as, elimination of upfront commissions on mutual funds. Only trail commissions are now allowed which will accrue to the seller, only after a year. This has made selling of mutual funds less attractive as commission will flow in only after a year, if the money remains invested. 

The churning of portfolios, a cash cow for agents, will also be stalled. Now that income on a sale is deferred, attention will shift to insurance products. India is grossly under-insured. The primary objective of buying an insurance policy is to provide a safety umbrella for family members in the unfortunate event of the death of the bread winner.

Efforts should be made for the policy amount that will accrue to be large enough to enable the family to enjoy the same lifestyle they are used to when the policyholder was alive. But most policies that get sold will not provide such a safety net. A majority of the policies hawked today are premium guzzlers with only a paltry sum assured on death. Most agents do not profile customers properly but will push products they have been mandated to sell.

For more than a decade we have had the new generation private sector banks selling insurance. Horror stories of mis-selling have emerged based on complaints. Now the nationalised banks have also jumped on to the bandwagon of selling insurance. Most of the customers of the nationalised banks will be more gullible than that of the new generation private sector banks. The chances of mis-selling to these customers is all the more likely. Antidote to mis-selling has to be administered before it is too late.

K V Premraj, Mumbai

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