The most important person in a financial transaction is the agent. No wonder, financial firms pay him/her a premium, in terms of brokerage or commission to promote their products.
This agent also needs to be a qualified person, and more importantly, discerning. If a product is providing returns like 30-50 per cent plus annually, he should know that it is unsustainable. But the companies make it too lucrative for him to ignore. So, when things fall apart, they either escape or find themselves in deep trouble – two agents of Saradha have already tried to commit suicide.
There are many kinds of mis-selling that are continuing for years. A few years back, a family friend was approached by her ‘friendly neighbourhood agent’ to buy a policy because he needed the commission money to get his daughter married. While she could have just gifted the money without buying the policy, she was convinced into buying it as the agent said that he would ‘rather earn the money’.
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As a result, she ended up with a policy that would pay the agent 50 per cent commission in the first year, another 20-30 per cent in the next year and so on. It’s not just insurance policies. Over the years, mutual funds have also been mis-sold, with a single investor being piled with 150-180 schemes.
Few years back, the stock market regulator, the Securities and Exchange Board of India, made life difficult for distributors by banning entry load in mutual funds. One year later, Irda went after unit-linked policies and cleaned up the system to some extent. Now, it’s time to make selling endowment and money back policies difficult.
But it is time for the Reserve Bank of India to step in. Bank relationship managers, for quite some time now, have been mis-selling insurance and mutual funds. They even bundle loans with insurance products, something that is not allowed by the regulator, by making customers sign a no-objection certificate. Similarly, for auto loans, there are default documents which a customer is made to sign even before he has defaulted. As Cobrapost investigation has shown, bank managers were proposing to use lapsed policies and others’ bank accounts to launder money.
Though the apex bank keeps on insisting that there isn’t any systematic failure, what more evidence does it need? As Moneylife has recently reported, a 79-year old account holder was conned into withdrawing his life’s savings from a fixed deposit and investing in a mutual fund. When the customer sought redressal from the ombudsman, he lost because he had signed the documents.
Was the ombudsman unable to realise that an 80-year old person may not have even understood the product being sold? If the apex bank continues to just go by documents and signatures, banks will continue to cheat customers. There are many such sordid stories.
What is the difference between a Saradha agent and a bank relationship manager? Both con the customers. Both dangle the proposal of high returns. Both hide the exclusions and stringent terms and conditions. The only difference: one goes door-to-door or has a small office whereas the other sits in cabins and travels in air-conditioned cars.
