This is a guest post by Jayant Bhat. He has over 7 years experience in life insurance and reinsurance field as a senior financial underwriter and risk analyst. Jayant has been writing guest articles on this blog and you can read his previous article called “Are you investing in the right way?“. You can know more about Jayant and his Sarthak Money here.
The last 15 years have shown the world what India means to them. The world has seen the hidden talent of Indian citizens when it comes to purchase and spending power. The era of liberalization has brought in huge opportunities for individuals to grab some extra income without having to spend much energy on gaining knowledge or expertise. The sudden boom in the financial sector gave birth to the so called “financial advisers”.
In the west, the concept of financial planners and advisers is very much required because the investors don’t have the time and expertise to manage their investments at the right time. Similarly, we Indians are in extreme needs of financial planners rather than only agents. The booming markets of India brought the word “Financial Adviser” in many ways but we forgot to imbibe the culture of apt financial planning or financial advisory. We have been typically groomed to get investment products without paying any extra consultancy fees. The common belief is that the adviser/agent gets his commission for selling the product then why make extra payment for the planner.
This belief has led to (mis)selling of product mix by the agents who typically sell the products which are more beneficial to themselves rather than the customer himself. Typically the customer invests to save tax without understanding the liability that he is creating for himself by way of not planning for the right investment plan. He tends to lose a lot of potential advantage by investing in the wrong portfolio.
Most of the advisers talk of returns rather than checking about the taxation, long term, mid term and short goals. Most of the clients get carried away by past performance and trust the adviser’s false promises of great returns ignoring the fact that in the current scenario, wherein most products are equity market driven and there can be no guarantees unless the company gives something in writing. Here are few points to ponder on how not to chose an adviser Or should I say, what are the signs of the bad adviser/agent:
|• “Sir, this X product has given exceptional returns in all market conditions and you would not get anything less than x% return.”||• The adviser does not ask about your short term, mid-term and long term goals and needs.
• First and foremost the adviser must sit with you and discuss about your tentative actionable from the money you would get.
• They just talk of the product that they are aware without actually pondering over the product type knowledge.
|• “Since you have one lac Rupees tax exemption limit, I would recommend that you invest complete one lac Rs. in X product”||• No prudent adviser would recommend you to invest entire money in one type of product. It’s a universal fact of warning which forbids putting all eggs in one basket.
• Diversifying investments help to reduce the risk as not all sectors would decline or rise at the same time.
• Warning – Over diversifying would mess up the whole investment plan.
|• “Sir, Whatever I am telling is written in the prospectus/product brochure. You can trust me and nothing is committed outside the plan”||• Never trust anybody’s words other than the documented proof. Go through the brochures and check for the returns if they are matching with those committed by the adviser. Check the quotation and/or illustrations properly.
• I have seen number of customers who have been sold regular premium products stating that these are onetime payment.
|• Sir, Just don’t think too much about the product. If you don’t do it now, you might lose a lot of returns”||• Typical Sales tactics. Nobody should pressurize you to buy any product and the date to buy the product.
• Buy it only when you are thoroughly convinced about the investment plan.
• Ideally, the adviser should understand your risk appetite, how and why you want to invest. Then he should prepare a financial report and finally suggest the product.
• There is no predictable right or wrong time for investments. Whenever you have money, catch hold of an investment adviser/expert and invest your money once you are thoroughly convinced.
|• Me- “I intend to save money for next 2-3 years and use it for buying a house.”
• Adviser – “I recommend X ULIP plan wherein you invest for 3 years and then depending on your needs, you can withdraw your money”
|• A cent percent goal mismatch of your set goal V/s adviser target goal – You want to invest for short term, adviser recommends a product which has to be invested for typically mid to long term.
• More so, this is a risky investment hence you need to check, how much money you will get in hand when you want to buy new house. Can you afford if the markets go down at the time of withdrawal.
• Are you going to get complete investment amount with returns if you withdraw money after three years? NO. Check product details thoroughly. IF you are net savvy, check IRDA guidelines on ULIPs.
Part 2 of this article will be published next. Hope the readers appreciate this topic and make a good decision while choosing the products suggested by financial planners.