Victims of Bad Financial Advises

Victims of Bad Financial Advises

 

Do you think both insurance/mutual fund agents and investment advisors have the same responsibility to act in your best interests? Would you be surprised to find out that there are two different principles that apply to the delivery of financial advice?.  The first principle is called “Suitability” and other principle is of a fiduciary nature.   These are just two principles only but the second one has presently got no relevance in India.  None of the brokers and agents has any fiduciary responsibility right now.  But we can expect this in future.  A fiduciary has the responsibility to make recommendations in your best interest in all aspects of the financial relationship.  

 

Presently, it is assumed that, insurance/mutual fund agents and share brokers are following the suitability principles while recommending financial products to their clients.  This means their recommendations must be suitable for you based on your age, risk tolerance and financial and other personal situation

If they have their choice of several products which are all suitable for your situation, they may recommend the one which pays them the most in fees and commissions. Keep in mind, this may not be the product that is best for your situation, but as long as it is suitable, that’s ok. They do not have an obligation to educate you about other choices you may have, it is your duty to disagree if you haurance distributing Banks/Institutions. He did not take the time to educate the client about risk and return and the benefits of a diversified portfolio. Instead, he put them into a product that met their expressed need. A few years later when they were not happy, he put them in to a different product. A few months later, once again, a new product. All of these products may or may not met the suitability principle.  Some unscrupulous advisers normally make money out of your investment by way of churning your portfolio several times in a year.   Each time they advise you to liquidate and re-invest, they earn good amount of commission at your expenses.  Some of these advisers are not bothered your financial wellbeing.  If they feel that, you are not bothered or you are not knowledgeable enough to understand the nitty-gritty of investments theory or the details of the financial products they recommended. As a result your adviser will earn more than what you are earning and finally you will be looser.

 

An investment advisor with a fiduciary obligation to the client would likely have taken the time to educate the client and direct them toward a more diversified approach, even though that was not initially what the client thought they. When searching for advice, a good rule of thumb to follow is simply to ask your advisor how they get paid. That will tell you where their loyalty lies.  

 

I myself was given trainings to thousands of Insurance and Mutual Fund agents especially on subjects related to mutual funds and insurance schemes.  I always advised them to be a good financial adviser rather than just a product selling commission agent and concentrate more on the financial well being of their clients.  This essentially motivated them to interact more professionally and gain the confidence of their clients.   I still believe that most of them followed my advice and become very successful in their field of work.   But in most of the cases the development offers and the marketing managers advice their agents to mobilize the maximum business at any cost to achieve their business targets.  Most of those people are not bothered about the financial wellbeing of their clients. These all I am writing from my personal experience.   

 

It is certainly worth a bit of extra time to research and interview several potential advisors. You always ask questions to these people even if you are not an expert and give them a feeling that, you are aware of the product which they are planning to sell to you and they can’t fool you.   After all, it’s your money and if you are like most people, you can’t afford the cost of bad advice.   A bad or biased advice may eat away your entire hard-earned money.  So be careful about unscrupulous agents, advisers or financial planners.  If you are little smart, you yourself can handle everything without the help of an intermediary.    Our technology is so advanced; you can buy all products like Mutual Funds, Insurance, Bank Term Deposits, Shares, other investment products etc online without anyone’s help.  These unscrupulous intermediaries must be eradicated from this earth (this is applicable only those agents or intermediaries acting against the interest or financial wellbeing of their clients – I am not against this category of people, but few among them spoilt the image of their counterparts and I am sure you are also one of the victims of a bad financial advice