Sunday, November 26, 2006

Get screwed by Financial product companies

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We have a tendency to blame the agent and the tele marketer for all our financial mistakes. It is he/she who incessantly prodded us into taking that decisions which we are regretting now. Be it Insurance, Home finance, credit cards, Mutual Funds or any other financial product for that matter.

However in the process of "taking responsibility for myself" on financial decisions, I have come to the conclusion that the big institutions are behind all this mis selling by petty agents and advisers.

Remember a leading private Insurance player exhorting their agents to become "Jihadis" and with the single minded devotion and focus of Osama Bin Laden and "kill" as many prospects as possible! Yes, it actually happened in Kanpur a year back.

Yes, the Network marketeer and distributor is given training to smile at unsuspecting strangers only to lure them into buying dreams of better health and beauty at a very high cost. It has reached such alarming levels that now if you smile at a stranger, you are likely to be snickered back suspecting you to be a network marketeer.

With the entry of private players in the Indian life insurance market, consumers were expected to have better options of policies. But look at the product profile today. Almost 80% of insurance that is sold today is ULIP(Unit Linked Insurance Plan) which charges upto 15-20% as entry load apart from risk coverage charges. Compare that with 2-2.5% charged by Mutual Funds and you have a very costly proposition. Thousands of crores have been collected from uneducated consumers by these big insurance companies. And ofcourse they can afford to spend huge amount on advertising the product since they know they are able to fool the people through their agents.

And Mutual Funds have their own hidden agenda today. With SEBI allowing them to charge upto 6% as entry load in closed ended funds and the facility to amortise the expenses over the period of the fund, NFOs have become fashionable. They come backed by a huge ad spend and collect thousands of crores from unsuspecting consumers who don't know the difference between open ended and closed ended fund. They are blasted with financial jargon and a well researched advertisement on the print and visual media backed by the persistent agent into succumbing into signing the cheque.

Credit cards and housing finance companies have built an expertise in duping customers with clever calculations. Their IRR (Internal rate of return) is quite different from the publicised ROI (rate of interest).

To be fair to the big guns ( read mighty financial product companies), they indulge in all this because the consumer allows them to. And they have a loyal army of petty agents and advisor who are ready to spread the untruth around.

We are uncomfortable in asking them the right questions. Possible reasons for this is lack of knowledge and/ or lack of respect for your own money!! That is why "taking responsibility for oneself" is so imporatnt.
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