Are you being mis-sold financial products?
It is the harsh truth that most financial advisors (even your trusted bank) often resort to mis-selling you financial products you don’t need or not suitable for you. The reason is obvious – commissions. More often than not, their focus is on earning higher commissions so they pitch you products that yield that higher commission, irrespective of the suitability of the product for you as an investor.
Here are some red flags to watch out for before you decide the product for investment {or insurance}.
If the adviser resorts to these tactics, he is definitely mis-selling.
1. YOUR LAST CHANCE TO INVEST
Investment is serious business and one should take one’s time to decide where to invest. If your financial adviser tells you to make a quick decision, he is probably trying to mis-sell a product. Insurance agents aggressively missold traditional plans before they were withdrawn on 31 December 2013. Don’t agree to buy in the first couple of meetings with a broker. Ask for 7-10 days for comparing the plan with other products. Research the product well—the returns offered, the alternatives and how it fits in with your financial strategy.
2. PRODUCT FIRST, REQUIREMENT LATER
Any investment product is supposed to fulfil a certain need. To be able to offer the best investment product, the adviser must first understand the needs of the investor. If your adviser has not asked you basic questions about income level, number of dependants, existing insurance and your current savings, how can he gauge your needs? Avoid an adviser who offers an insurance policy without understanding your requirements.
3. DON’T BUY THAT, BUY THIS
Alarm bells should also ring if the adviser pushes you to buy something else other than the product you asked for. If you want a fixed deposit, why should you buy a single premium plan that works just like a fixed deposit? The rule is not to invest in options you don’t understand. Don’t believe a relationship manager till you are very sure that you understand the features and the working of the product you are investing in.
4. RISK-FREE OPTION WITH GUARANTEED RETURNS
No market-linked product is devoid of risk. Only fixed income options, and only those backed by sovereign guarantee, are risk-free. Even a bank fixed deposit carries some risk, however minimal. So, the next time you hear the words riskfree in the context of a market-linked investment, be sure that you are being taken for a ride. Some products, such as pension plans, do offer guaranteed returns, but the guarantee is very low at 3-4%.
5. INVESTORS MADE MONEY IN THE PAST
The past performance of a scheme or investment plan is a good indicator of how it is expected to perform in the future. However, AMCs are required to state in their ads, mutual fund investments are subject to market risk and there is no guarantee that the past performance will be sustained in the future. The long-term performance of some mutual funds is looking very good but the 5-year performance has not been so spectacular. So, watch your step before you invest.
(This article is sourced from The Economic Times Wealth, 10-16 March 2014 edition)
