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.
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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.
{ 25 comments… read them below or add one }
Good to see lot of guest posts by experts… Useful article.
Thanks Shrinidhi! I am glad my blog readers are appreciating these guest posts well
this is a nice one. i was expecting such a blog and happy you wrote about this.
keep posting
Thank you! Welcome to my blog.
My friend bought some highest NAV assured ULIP from Birla Sun life., when I searched on net for info on that ULIP what I came to know is the NAV prices are recorded on 15th of every month and on mature of the plan(or some mature date i.e some date in 2016 ) the highest between the higest of these recorded dates or the NAV at the mature time is given (which ever is highest). I can’t understand how they can do this??? Can we believe this product?? what if the market goes to all time high in 2015(there by NAV) and tumbles to half in 2016 (at maturity time)., how can they give the higest NAV then???
Is this plan an authentic plan or another gimmick???
I assume you are mentioning about Platinum Plus I. They changed the record dates to daily in the next two versions. Now they have launched Titanium Plus which is also good. There can be no gimmicks if some kind of guarantee is given by any company since all products which are launched and marketed are approved by IRDA. In Platinum Plus, they were giving highest NAV guarantee till 2015, post which that highest guaranteed NAV becomes the base, means you will get atleast that much. ULIPs are like taking chances, but typically equities have surpassed inflationary rates and 2008 like financial crash episodes occur once in a while.
All I can say is it is marketing strategy which hides some untold points i.e. we all must read the fine prints mentioned in “Conditions applied”.
Like in Titanium Plus, for the first 3 months our money is invested in money market which typically gives us lot of units with less returns, then after 3 months the money is diverted to equity market as per investment ratio chosen by us. This is what is guaranteed to us.
Ask your advisor lots of questions so that both of you get enlightenment. Personally, I feel that for the coming few months equity market would show a decline so I recommend all to invest in installments so that risk is reduced and spread across.
Thanks for you reply Jayant
see this
Informative! Thanks for sharing.
Thanks for sharing, Praveen. You have just given a point to ponder. Let me check with my friends in actuarial team and try to get an official response from the company itself. I will dig up the logic of guarantees to the core.
“Sir, Just don’t think too much about the product for now”.. LOL. So typically silly !!
I’m done with my Investments for this year after a lot of last minute running around , collecting certificates and annoying all the bank officials. Both dad & I are relieved we don’t have to go through with this for a year now. My mental peace is back.
I used to do exactly the same until I got too tied up in my work and could not muster the time required for all the colations and run ups. So I started investing right from April on monthly basis and found out that in this I had all the docs well in advance plus my investments were much well planned and prunned to such an extent that I was satisfied of buying the right products instead of last minute tax saving costly products.
I still repent the date when i bought an endowment product in which I am getting return of 3 % to save tax of say 10-15k then. Peanuts is what i am going to get in a bid to save tax. I would have earned more money than the tax saved by buying this product and would not have repented to let go the tax. Ofcourse, I had never thought of all this while I was doing last minute tax saving.
We learn from our experience. Obviously, you have learnt it the hard way. Now we have the benefit of making the best use of your experience
Thanks Jayant!
Great post….This only proved to me, how much I have gone wrong wit my last year’s investment…..:((((
awaiting for the next pot on this….
2nd post published
dear all,
regards ,welcome !!
kindly remember that any fund from any ULIP gives a guareentee, only on NAV not on the amout (annual premiums) you pay.
the fund managers are very very smart, they well know about equity markets volatility.
if we come back to birla or such policies your money is 90 % always PARKED in debt funds only, so that nav moments are less.
kindly check policy admn. charges once again.
pay 3 years , wait 7 years to complete the policy term of total 10 years.
not a good idea !
thanks for this service,keep the good work gooing.
That was an interesting piece of info. Makes sense to the core! thanks for bringing that up.
While there are courses and institutes offering programs to become Certified Financial Planners, is there any part time course for individuals to become better off at personal financial planning?
Sorry Yogesh, I don’t have any info on such crash courses!
Lets all contribute with our views and reviews on and on. What better course than self analysis and awareness. By the way, Mohan, how about starting a course on personal financial planning
Seeing your efforts, I am sure, you will manage it effortlessly.
Jayant, it is easy to kick off something… but to continue with full support in the long term needs a lot of thinking and affordable time. Let me think over if I could provide a platform where in people can cumulatively participate and benefit from each others experience.
Having said that, there already exists a DISCUSSION FORUM – http://mohanb.....com/forum/ Feel free to make the best use of it. It has been idle since it was started sometime back.
Mohan,
If you really launch a course, run it the way Robert Kiyosaki does .. giving all the genuine information in real terms and loads of it.
-Yogesh
Well, that needs a lot of experience in real financial world, for which I may not be qualified at this point of time.
Thanks for the suggestion though!
Hi Mohan,
Really Good Job to educate individual!!! Keep it up…
You are most welcome!