One of the biggest problems for the IFA is the media. The media is full of ‘experts’ who have either a hidden agenda or self aggrandisement as the underlying aim of ‘writing’ a blog or an article in the pink papers. As the client does not understand the whole thing, and as the IFA too is intimidated by the ‘pink paper’ or ‘idiot box’ expert, he does not know what to do.
Lets take the following cases. In all the cases lets assume that the IFA is reasonably well educated to know what he is saying, and he is an agent, not a fee only financial planner. What happens?
Case 1: A client has a lot of ‘guaranteed return’ products from LIC with assured additions of 5-8% p.a. and have about 18 years to run – it has run 12 years. This is of course a classic endowment ‘participating’ plan.
IFA suggestion: Take a term insurance for a big amount, BUT KEEP THIS plan, because, this kinda addition is good.
Case 2: A client has ULIPs bought in 2004 from Hdfc life insurance, and has an amc charge of 0.80%, and has unlimited top ups.
IFA suggestion: Sir the fund has done well, and at such a low charge it is worth keeping.
Now let us say this client (or these clients) show the suggestions to a media person (I can see their faces in my mind, but I will obviously not name them).
The immediate reaction: He is an IFA no? obviously because of the commissions he will NEVER suggest term. Why is he asking you to keep this policy? You should surrender the policy.
In the second case: “See all these agents are like this – believe me all ulips are bad. Period.
Well, my explanation:
The IFA is right in both the cases. An assured addition policy is good in a country where we will see interest rates drop. Remember South Korea has seen 7% Gsec as well as 2% p.a. Gsec. So a guaranteed addition (by a company which is stable enough to do the additions for the next 30 years at least). Obviously media person does not understand that the commission goes to the old AGENT, and not to the agent. Ha, why bother about the truth?
All ulips are not bad. For example I have a ulip with zero risk charges – the sum assured is less than the amount accumulated. The fund manager is now good, and earlier it had a better manager. I used to pay a premium of X and the sum assured was/is 5X. I can top up 3X every year. I topped up massively in the first 3 years of its being in force and made the policy value greater than the sum assured. So here I am getting a good return, not paying risk charges and have no worry about corporate money coming and going out of the fund.
I KNOW THE MEDIA PERSON who said of all this, but not too keen to embarrass him…..
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