Investors, beware of advisors who ‘guarantee’ you high returns on insurance policies. Though the fancy returns may or may not happen on maturity, your advisor will certainly be a satisfied person.
Around three months back, I met a young lad at a call centre - he wanted to invest in mutual funds that would give him at least 40% returns per annum. For a brief moment, I was stunned. When I tried to explain to him that it’s impossible to guarantee such a return, he told me that he had just bought a product from an advisor (from a well-known private insurance firm) who had told him that if he invests Rs 30,000 p.a. he could redeem double the money (i.e. around Rs 2 lakh) after 3 years. He showed him some numbers to convince him and clinched the deal.
It’s not just the educated who get taken in by such advisors. Last week, I got a call from my father’s ex-driver who said that someone from a bank was with him, who was promising him Rs 1 lakh after 5 years, if he deposits Rs 10,000 per annum for 3 years. I was shocked that someone from a reputed bank (coincidentally, I bank with them) was actually trying to dupe poor people of their hard-earned money.
I wonder when all this will stop. Will advisors stoop to any level to earn a living? These advisors are trying to make a living by ‘mis-selling’ insurance products - by guaranteeing returns these policies just won’t fetch. And since there is ignorance at the buyers’ (and in most cases the seller’s, too) end, these agents are getting away with it (and with fat commissions to boot).
What happens at the time of maturity – which maybe anywhere between 10 to 25 years away? I am sure the agent would probably have retired, thanks to the commissions he made during his ‘selling’ days. The agency manager would have moved on. While the insurance company would exist, they’d probably tell you that you didn’t read the fine-print.
Our friendly neighborhood advisors are getting away with making false and unrealistic promises. Unfortunately, the “sab chalta hai” culture has trickled down to even the personal finance industry. But it’s your hard-earned money, after all. It’s only you who will pay the price for your ignorance and not anyone else.
Shouldn’t there be a minimum qualification in finance / financial products before one is allowed to advise on such products? And no, I am not talking about the IRDA certification. Because almost everyone (even your neighborhood aunty or your office receptionist is now selling insurance) who has tried his hand at ‘clearing’ this exam has managed to do so and is now an ‘advisor’.
3 comments:
MJ, you have a point. But aren't the insurance companies hand-in-glove? After all, they are luring these advisors to look for gullible people (who will buy policies that are, perhaps, not even meant for them) by doling the "higher commission" carrot! It's like a doctor recommending us a medicine where he/she earns some kickbacks from the pharma company. But we could do with a cheaper drug. Shouldn't we abolish the commission system and simply pay for advise? What are authorities like the IRDA doing about this?
Thanks for creating this awareness and making us conscious of our decisions... I am glad you decided to start a blog and share your views!!
Strong words, Anonymous.
But we must not forget that India is still at a nascent stage as far as private insurance is concerned. We are still quite at the lower of the learning curve. I am sure that with time IRDA will iron out the shortcomings in the system. Till then, buyers have to take care of themselves. There has been talk of rationalization of the high upfront fee structure, but that’s about it. There has been no concrete step as yet in this direction.
With more and more insurance companies setting up shop in India and a whole lot more in the pipeline, the consumer is bound to be bombarded with 'old wine in new bottle' kind of products. It is imperative that customers realize this and take well informed decisions when buying insurance products.
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