One committee has just announced a few steps to reduce mis-selling..I have not read the full report, but was amused by one statement:
The illegal practice of rebating should be punished harshly.
Rebating: In this context it means as an agent selling life insurance / mutual fund i pass back a part of the commission to the buyer. This is like an incentive to the buyer to buy the product / as a business practice.
Facts: In UK rebating is allowed, in the US, rebating is done.
Consider the facts.
As an Agent I walk into the house of a film star and convince him or her to buy a CLASSIC endowment life insurance. The premium amount is Rs. 2 crores per annum payable over the next 20 years. The film star is happy to have bought the product she signs the cheque and as I am about to leave, I TELL HER; ‘I make a commission of Rs. 1 crore on this policy, and I am happy to share Rs. 50,00,000 with you. She says “oh fine please give me a cheque for Rs. 50L in the name of a charity that I support”. I oblige.
On the way out her secretary wants to buy a life insurance policy and he agrees to pay a premium of Rs. 2 lakhs per annum. He pays the cheque and asks me..’will you share something with me?” – I tell him NO i do not share my commissions. However I have given you a product where my commission is only 8% – and I need to make Rs. 16000 for a transaction of this size. However as you have asked me let me give you this pen – it costs about Rs. 2000.
On the way out the driver of the star buys a pension mutual fund and makes a one time investment of Rs. 25000. I give him the plan and leave. We do not discuss about the commission. However, I tell him that this is a single premium product and I made only Rs. 500, however since he is a small guy I refund him Rs. 500.
See the drift? I THE AGENT CHOOSES what I want to do with MY COMMISSION, not the recommending authority. IT IS MY INCOME I CAN APPLY IT EXACTLY AS I WISH TO APPLY.
In the first case I rebated because I thought I was earning too much money for one afternoon’s work. THAT IS MY CALL. Not hers. She did not ask for a rebate. I OFFERED. She did not know.
Her secretary knew about the rebate, and he asked. I did not give, but gave him some token gift. Remember next time she wants to buy something, this guy has to remember me, preferably fondly. In case of the driver, out of charity I gave it back to him. It did not matter that I did not earn out of the driver.
Why should a committee decide how I use MY MONEY? and how will they prevent it? Why is the practice illegal?
ha that is another post..
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