AIN'T THE BEST ET did a round of banks only to find out that the advice wasn't reliable

 

In the past five years, the Insurance Regulatory and Development Authority of India (Irdai) has taken a number of steps to curb the menace of mis-selling. After showing the door to Ulips with high charges, the regulator has now trained its sights on banks. It wants banks that sell insurance products to be accountable for the advice given. ET did the rounds of six banks to find out the utility value of their financial advice, and this is what we found.

UNBANKABLE ADVICE?

Typically a bank's advice appears to be driven by the quantum of commissions earned rather than requirements of the customer. The modus operandi was almost uniform across banks. While maintaining that they had an array of investment avenues on offer, the banks unfailingly promoted traditional endowment and money-back plans. In some cases they did not even mention, until asked, that what they were offering were insurance policies. The insurance was presented as an additional benefit. "If you invest in a tax-saving FD, it will be a one-time investment, but this product (insurance policy) will get you tax benefits every year," was the refrain, glossing over the fact that insurance policies entail recurring premium payments.

The banks covered by us included two PSU banks, three private banks and one foreign bank. The foreign bank refused to offer any advice unless the customer opened an account with the bank.

The larger PSU bank's officials wanted to know the products we needed, emphasising on the wide range of instruments on offer. The smaller PSU bank's officials, who were asked to recommend products for a senior citizen, laid out three options--tax-free bonds, single premium endowment plan and an immediate annuity scheme. The single premium plan was billed as the one offering best returns.

At private banks, the scenario was skewed in favour of investment-cumlife insurance policies. One private bank's relationship manager went to enumerate the features and benefits of the money-back plan without mentioning that it was an insurance policy . The product was termed ideal for a goal with a seven-year horizon, as it would start "returning" the money after eight years. Upon enquiring about mutual funds, the adviser merely listed out the categories of funds, instead of naming the schemes. He also recommended Ulips over mutual funds.

At the second large private sector major, the official did not even mention other investment instruments. The emphasis was on Ulips, with invest ment in equity fund options as they will help "make more money in a short period of time". Also, the stock markets were doing well ensuring that there would be no threat to capital.Traditional endowment plans were the second best bet, according to him.

The adviser at the smaller private sector bank, when told that the objective was tax-saving, suggested a money-back plan. Pointing to tax-saving FD rates, he said they had come down after RBI reduced the repo rate. "It will offer you around 8%, but this (insurance) product will yield 1012%," he said. Worryingly, he claimed the money could be withdrawn after five years. While this is indeed the lock-in period, surrendering the policy in such a short span of time is not a viable option due to low returns (5-7%) and high charges. Ulips and traditional plans typically yield returns only over 8-10 years.

ET's experience shows that customers must be wary about the advice hey receive from their banks. It is un ikely that banks will offer you any hing other than insurance policies if you are uninformed. Therefore, do your homework on products, their eatures and your requirements, be ore you approach your branch.