Mis-selling of financial services was rampant a few years back, the regulators tried to strike back… but the implementation of these regulations has been tardy, and the reputation of advisors is now being tarnished
It might surprise you that I am a personal financial advisor, a species which is getting extinct fast. I was doing reasonably well in my BPO career, till I decided to move into personal finance, which has always been close to my heart.
It was not forced on me by circumstances. Like so many other souls, I too have been inspired by the wit and wisdom of Warren Buffett. I believe in his view that doing what one loves is the ultimate luxury and a person's standard of living is not equal to his cost of living.
In other professions, to survive, you need to sell your services. While in personal finance, you need to sell both your services and products.
Some years ago, mis-selling was rampant. People who sold certain products like ULIPs (unit-linked insurance plans) or close-ended NFOs (new fund offers) made more money in a month than what some one else of the same calibre would take atleast a year to earn through a salary.
The mis-selling was unethical although not illegal, because all these products were cleared by the regulatory authorities! Then, suddenly, a lot of action was taken to curb mis-selling. At best I can say that the intention was good, but the implementation was lousy.
Again, I wonder, why create a product structure, or environment, that creates mis-selling, and then go to the other extreme of making a livelihood through selling itself difficult. I think we like to swing between two extremes-mis-selling and no selling. Not only that, selling itself has suddenly become a bad word.
Selling is not a bad word. Mis-selling is. The whole world revolves around buying and selling. In the regulatory zeal to eliminate mis-selling, selling itself is being eliminated. This, however, is valid logic! There cannot be any mis-selling if we abolish selling altogether.
I come across many advisors who are ethical but are pushed to the point where they are now feeling guilty about the word 'sales'. The repeated emphasis we keep hearing from sections of the media is that selling financial products is bad. I'm curious. Like everyone else, the media too sell themselves, right? Then why this advisor-bashing, that advisors should not sell?
Without monetary incentives, why should someone take the pain to take the product to the customer and service him? If the expectation from regulators or sections of the media is that advisors should not look at financial incentives, then this profession can be left only to enlightened souls, if there are any, and if they are keen to take up this job.
Next to banks, in financial services, only Life Insurance Corporation of India (LIC) is able to penetrate across different geographies and income groups. Ignoring the fact for the moment, whether combining insurance and investment is wiser, this reach is made possible only because of LIC's sales force.
The irony is that despite this success, the life insurance penetration in India is barely 4%. It is reported that only 1% of Indians have medical insurance coverage. Around 1% of the population invests in capital markets, both through mutual funds and the direct equity route. The abysmal 1% again!
I read that equity as a percentage of household savings has actually come down in the last 15 years. If you remove the mark-to-market effect, I don't think the equity corpus of mutual funds have grown at all during the past decade.
This contradicts the claim that the National Stock Exchange (NSE) and National Securities Depository Ltd (NSDL) have made big inroads and achieved penetration. They are not able to reach with technological power what LIC has done with its human power.
Though I have a vested interest in saying this, human interface and long term relationship gives more comfort to people while dealing with their money. Technology can complement, but cannot substitute the human factor.
Now NSDL is campaigning that 'demat'ing the mutual fund units which are already in demat form is the next best thing that can happen to investors. I'm amused by this concept of demating a mere account statement. Extending the same logic, the demat statement issued by DPs (depository participants) also needs to be demated. Does this sound illogical? There is no difference between an account statement and a demat statement. Both merely indicate your holdings and are not the certificate of your holdings. NSDL can try doing something meaningful.
Our focus should now be to increase the reach of financial services and products. How to bring 350 million people into the system? The rest of the 850 million are simply forgotten ones and cease to exist except at the time of elections. I've to write a separate piece about them.
We should be giving as much focus to development as we give to regulation. Otherwise there would not be anything much left to regulate. Continuously trying to regulate without any efforts to develop would amuse even Mohammed Bin Thuglak.
Since so much is spoken about lack of employment opportunities in this country, why cannot we create around 1 million advisors who would take products and services across India to all income groups?
A proper incentive structure is a must. Incentive includes reward for good behaviour and a penalty for bad shows. An advisor should have confidence that he can make a living out of selling products and services. Otherwise no one would want to take up this profession.
There is a line of argument-"why not make advisory a fee-only profession?" A noble thought indeed. If practical, this is a better way to service customers so that there is no suspicion of conflict of interest. However noble intentions ought to be checked with ground reality.
People like you, who read personal finance portals, informed investors, NRIs, HNIs-who are willing to pay for the value received, are an insignificant portion of the current investible population, which itself, as seen above, is next to nothing.
The huge segment of population which needs to be brought inside, does not belong to the above category and is not confined to the financial hub like Mumbai or other metros and Tier I cities. They are spread across innumerable cities and towns.
My opinion is that the general Indian mindset is to prefer inbuilt pricing rather than paying separately. Even in the case of mutual funds, inbuilt transparent pricing which encourages long-term investments is far better than re-introduction of entry load or variable load. Relationship managers at institutions, by the very nature of their job profile which focuses on short-term targets and performances, may be tempted to misuse this.
Insurance products and small savings have always had inbuilt pricing models. There is no such thing as a separate load or advisor charges. Of course, insurance companies need to work a lot more on bringing in transparency related to pricing.
People who talk about replicating a US model in India should compare the financial awareness and product penetration levels between both the countries.
Simply aping the west without considering local realities would ensure that the growth remains stunted.
Someone may argue, aren't people paying doctors? People consider the medical profession as essential or critical. Do people consider personal financial advisory as essential as medical advice? I leave it to Moneylife readers to decide.
Another profession which is cited as an example is that of an auditor. Speaking about chartered accountants, it has been made legally mandatory on various fronts to avail their services. It is not so for a personal financial advisor. So the comparison is not appropriate.
Like any other profession, grey areas exist even in medical practice and the auditing profession. Not that every one there may be making money purely through professional advice.
I'm not against regulations. Only an ignorant man would expect people to act perfectly without any checks and balances in place. As I said earlier, let us also give at least equal importance to development.
The motto for every advisor should be, in the words of Warren Buffett: 'I don't want to be on the other side of the table from the customer. I never was selling anything I didn't believe in myself or own myself'.
(The author is a Chennai-based Certified Financial Planner)
MCX has launched futures trading contracts in 10 commodities that would expiry in May and June
Leading commodity bourse MCX has launched futures trading contracts in 10 commodities that would expiry in May and June.
The exchange has made available futures trading contracts in gold guinea, aluminium, lead, tin, zinc, nickel, menthol, melted menthol flakes and kapasia khalli with effect from today, MCX said in a circular.
The contracts of the above mentioned nine commodities will mature in May and June, while the almond contract will expire in September, it added. The contract specification of these commodities would remain unchanged, the circular said.
Presently, MCX has the largest market share of 83% in the commodity futures market. The exchange made a business of Rs86.97 trillion in 2010 and expects to touch Rs100 trillion in the current calendar year.
LIC Mutual Fund Trustee Company and LIC Mutual Fund Asset Management Company have entered a joint venture with Nomura Asset Management Company Ltd
LIC Mutual Fund and Nomura have launched LIC Nomura Mutual Fund. LIC Mutual Fund Trustee Company Pvt Ltd and LIC Mutual Fund Asset Management Company Ltd (LIC MF) have entered a joint venture with Nomura Asset Management Company Ltd.
This is pursuant to Nomura having acquired 35% of the fully paid-up equity share capital of both LIC MF and the Trustee Company. LIC Mutual Fund Trustee has now been renamed LIC Nomura Mutual Fund Trustee, while LIC Mutual Fund Asset Management Company will now be known as LIC Nomura Mutual Fund Asset Management Company.
"This partnership will help the investors in our mutual fund as they will get the benefit of the expertise and global experience of Nomura along with the well established trustworthiness of the LIC name," said TS Vijayan, chairman, LIC Nomura Mutual Fund Asset Management Company.
Nomura will also provide and gain for LIC Nomura MF AMC its expertise on matters such as structuring the nature and standards of operations for risk management, equity/debt/investment research, information technology operations, compliance and distribution of LIC Nomura MF products.