Mis-selling financial products – what does it mean?

It is customary for industry bodies to time and again talk about “irresponsible” selling or mis-selling by “unethical” agents (by what ever name called). Let us look at what exactly constitutes mis-selling.

Mis-selling as understood by the common man means “selling a product which is inappropriate for the client”. However let us look at the manufacturer’s attitude.

If an agent sold a life insurance policy with a “life-cover” to a bachelor on whom no person is dependent, I would think this is mis-selling. The industry would not.

If an insurance policy is sold to a non-earning member (sorry to be gender biased but I mean the house wife) and the husband is the beneficiary, I would think it is mis-selling, the industry may not think so. Similarly in case of a child. I am at a complete loss to know who would be paying the premium in case the breadwinner is no longer around to take care of the premium.

If the agent is the spouse of Mr. X and Mr. X is a full time employee in a foreign bank, and nicely taps the data base of the bank, I would think this is in the realm of what is wrong, the industry may not think so.

What really constitutes mis-selling in the minds of a life insurance company? This is very difficult to say, but I do not know of any company which has a comprehensive “mis selling policy”. If it does exist, I do not know about it, my apologies for the same. So mis-selling is not defined, not communicated, not monitored, and thus not bothered about! If it is not measured, monitored or acted upon, I guess the industry pretends that there is no mis-selling. GOD BLESS THEM.

Let us start by saying that the following actions should be mis-selling:

  1. Selling a regular premium product as a single premium product: Very commonly done especially at quarter endings, last day for a scheme getting over, etc. In case you are wondering what is a “scheme”, it is a sales incentive to the agent and could be winning a top end car, a trip to Australia, 1 kg of gold, etc.
  2. Selling a pension plan as an insurance plan, and saying “your medicals have been waived”! This is too simple to explain, correct?
  3. Selling a term insurance plan as an endowment plan.
  4. Not mentioning the charges involved in a mutual fund or an insurance plan – upfront charges, asset management charges, entry load, exit load, bid-buy price, surrender charges, all this may sound like Latin, but if your agent does not know these words, beware.
  5. Saying “in the past 2 years we have achieved 80% return on equity…therefore
  6. “Our charges are the lowest” lie. Very few people outside the actuary industry can understand charges the way it is to be understood. So this lie is perpetuated by the sales team – they have heard it from their own acturial team!
  7. The guy/ gal who visits you is not the agent! It is the agent’s brother, sister, mother, husband, etc.! By a funny law – created by the big insurance companies to suit themselves – agents are “tied” to one company. Strictly speaking the agent should be the person who is “authorized” or “certified” by IRDA. However, knowingly all companies turn a blind eye. However Indians being Indians they have nicely overcome this “handicap” by making everybody in their house an agent! Simple is it not?!
  8. This is not exactly mis-selling but the guy who comes to you from one bank prospects for his “friend” who has a better product. Look no ones’ complaining!

There are of course millions of instances of mis-selling happening in the market, let us see what can you do as a prospective client to avoid some of these pitfalls:

  1. ask questions: its your money, you are allowed One million questions(and you will decide whether it is a stupid question or not)
  2. Learn more about the products you buy – on the net or in physical form
  3. say what you want clearly, firmly and Loudly.

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