The widespread problems of Indian customers will stop only when regulators put in place a formal process to redress investor grievances meaningfully by forcing companies indulging in mis-selling or fraudulent practices to compensate investors for their losses and impose exemplary damages for needless harassment.
Our regular readers know that Moneylife is proud of its pro-investor stand and has a string of successful interventions on behalf of ordinary savers. But are savers always right? Here are a few examples of other kinds of customers that we come across, albeit rarely (all names changed).
Customer1: Krishnan writes to Moneylife’s insurance helpline expressing shock that his insurer had rejected his mediclaim because he omitted to disclose an angioplasty that he went through before buying the policy. When we told him that the insurer was well within its rights to reject his policy, he quickly came back with a modified story. He now wanted to approach the insurance ombudsman claiming that “my agent has misled me and forged my signature on the form.” Where did this allegation come from? Isn’t this mischievous?
Customer2: Kumar is happy with the returns on a unit-linked insurance product. After three years, he buys it again, this time in his grandson’s name. But now, the market is not doing well and the ULIP’s net asset value is pathetic. Kumar claims he was mis-sold the second ULIP. How does one believe the claim?
Customer3: Mr Patel and his family have been trading in stocks and shares for over 30 years and had long-term investments in several depository accounts. Then a broker convinced them that they could speculate in the derivatives market with the core portfolio as a kind of margin/surety. He promised them a fat return with no further investment. They fell for it and signed a power of attorney empowering the broker to trade in their accounts.
Worse, they did not check their accounts regularly, nor enter into a written agreement to say that the core portfolio would remain untouched. The broker quickly ran up huge volumes in their books and a loss of Rs15 lakh in three accounts which he threatened to adjust against their core portfolio. Clearly, these are not financial illiterate investors but greed got the better of them.
Why else would they not document their transactions? Why would they believe that a broker would choose stocks and make money for them without a portfolio management fee? Tens of thousands of investors were cheated in this manner during the market mania that crashed in 2008. That it happened again in 2012 only shows that temptation gets the better of good sense.
Customer4: Cindy and her friends are all qualified professionals. One is a company secretary and another is a chartered accountant. They, too, like the Patels, entrusted their money to a sub-broker who offered to make handsome returns for them by speculating in the derivatives market. It so happened that this sub-broker was among the most reckless and dubious in the market.
During the crash of 2008, his terminals were shut down for overtrading. Subsequently, he has been expelled from the two exchanges and has dozens of regulatory and punitive orders against him; there are multiple arbitration awards he has not honoured and the debt recovery tribunal has ordered liquidation of the company.
Clearly, with no likelihood of getting anything from the brokers, Cindy and her friends hope to collect from the clearing member for giving ‘unlimited exposure’ and funding to their own dubious sub-broker by flouting various regulations. Can they make a case? It may require a long legal battle.
Customer5: In each of these cases, the individuals have suffered a loss. Now, consider this case. We received a letter from Dr Sheela Naik asking us to publish her experience with a “very, very reputed portfolio management company (PMC)” in which she had invested since 2003.
In 2011, she noticed investment in a loss-making company and began to ask the PMC for an explanation. She says that she did not receive an answer nor was the stock sold. Dr Naik alleges a ‘a staggering’ loss of Rs3 lakh or 30% over a two-year period from just one scrip. Consequently, she asked the company to close her portfolio account and demanded a compensation for the loss incurred.
We found this story shocking enough to write to the company. We were in for a surprise. The PMC chairman pointed out that the good doctor was meticulously calculating her losses, but not her profit. She had earned a return of 17.59% compounded annually between 2003 and 2010 when the Sensex had returned 11.77%.
In fact, while the doctor pointed out a ‘staggering’ loss of Rs3 lakh, she ignored a total profit of Rs32.95 lakh made over the few years. “I am a practising doctor and hence quite ignorant of the financial intricacies,” says the doctor, who is sharp enough to calculate her losses while ignoring her profit.
In fact, Dr Naik is one of the reasons why Moneylife Foundation invests so much of time on spreading financial awareness. Consumers who do not understand the returns that they can expect from equity investment over a long term and are blinded by the expectations created in a bull market are just as ignorant as those who do not understand markets.
Also, portfolio management, by its very definition, comprises a basket of securities of which some may give high returns and others may not. Even in the loss-making stocks that Dr Naik complained about, the PMC had an explanation for holding on—almost all of them offered a decent dividend yield and had the potential to appreciate over time. But, the doctor who does not understand portfolio management or ‘financial intricacies’ is quick to malign the service-provider—without knowing the pathetic performance of many other portfolio managers.
Moneylife has reported several stories about PMCs destroying the wealth of high net worth individuals. We have fought a long battle with Securities and Exchange Board of India (SEBI) culminating in ruling from the Central Information Commission (CIC) under the Right to Information Act directing the regulator to post the PMS performance of all companies on its website.
SEBI has now posted the data in a manner that is virtually impossible to access, leave alone compare. It is not clear who SEBI is shielding, but were this information available, the dissatisfied doctor could have been shown comparable data to cool unreasonable expectations.
Unfortunately, while we have a situation where large segments of the shadow financial economy remain outside supervision any or regulation—from real estate to chain-money schemes promising high returns, even in the regulated segments (banking, insurance or capital markets), customers get the short shrift. There is neither uniformity of regulations, systematic enforcement nor collaboration among regulators. Consequently, the incidence of brazen mis-selling, misrepresentation and downright cheating that Moneylife comes across is so high that when consumers occasionally try to pull a fast one on companies, our first reaction is to give them the benefit of doubt.
Frankly, it is not easy for a tiny media company like Moneylife to play this role of handling customer grievances. But the widespread problems of Indian customers will stop only when regulators put in place a formal process to redress investor grievances meaningfully by forcing companies indulging in mis-selling or fraudulent practices to compensate investors for their losses and impose exemplary damages for needless harassment.
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at firstname.lastname@example.org
As long as the justice delivery system remains slow and our courts refuse to order crippling monetary penalties, zero-tolerance of sexual harassment at the workplace will be discussed endlessly at HR seminars but never implemented.
High on IQ but low on common sense. That, in a nutshell, would sum up Phaneesh Murthy, the IT-whiz who turns out to be a serial sexual harasser. Will he get away again, with insurers and iGate paying the bill, allowing him to make a fresh start with orchestrated publicity? Already, many women are saying that the companies that employed Phaneesh Murthy initiated quick action only because it happened overseas, the women involved were foreigners and the information technology (IT) industry is particularly conscious about their reputation.
Other than Mr Murthy’s, there are barely three cases where sexual harassment charges have been quickly settled. This only goes to show how badly the decks are stacked against Indian women. One was when Coca Cola reportedly paid over Rs1.45 crore to former Miss Universe Shushmita Sen for charges brought against Shripad Nadkarni, its India head. The company claimed it was a contractual dispute but Mr Nadkarni quit soon thereafter. This happened in 2002-03 when the first Phaneesh Murthy episode was widely debated in the media. Coke would also have been conscious that Shushmita Sen’s super-celebrity status at that time would have damaged it considerably.
Another hush-hush episode involved a Tata group employee, Lenny Menezes, who was allegedly accused of sexual harassment by an overseas employee named Neena Helms. Here again, the matter was apparently settled with a $75,000 payout. Another major case was that of David Davidar who had to leave Penguin on charges of sexual harassment. For Indian women, the ‘better’ choice will always be to move on, rather that press charges. As long as the justice delivery system remains slow and our courts refuse to order crippling monetary penalties, zero-tolerance of sexual harassment at the workplace will be discussed endlessly at HR seminars but never implemented.