• He helps with filling up the form
• He knows what is happening in the industry and will be able to give some useful advice
• He will co-ordinate with the fund house or the insurance company – and most clients find that pretty painful.
• He will handle the claim if it comes to such a situation
• He is authorised and qualified so he must be adding some value in the transaction
• His services are FREE!! HA HA
• He might actually share his commission, will he not?
• He chases, comes home, does all the paper work, reminds…what more can I want? LOL

All this is perhaps true, but let us look at the risks:

• He might give a sub optimal product based on his limited understanding
• Most agents do not understand insurance – medical, life or even simple risks
• The agent may go out of business soon – and you will again be looking for a new guy/gal
• The agent may die before you do…:-)
• If the agent switches loyalty, he may not service the older products he has sold…
• He may fight with the main company – and put your product in a jeopardy!

so be careful in buying a financial product…

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Most general insurance (medical) decisions in corporate India is a finance and HR decisions. Rarely, if at all are they equipped to handle this decision. Let me give you an example.

One company was paying Rs. 40 lakhs as an annual premium to one of the government companies for a ‘group medical cover’. One year there were claims for Rs. 17 lakhs…and the insurance company decided to raise the premium by Rs. 10 lakhs – and the premium went up to Rs. 50 L

The CFO baulked..and asked for a reduced premium…then they agreed to Rs. 40L.

They had just changed one clause…the new people joining would not be covered for existing illness, and their spouses would not be covered. Simple stroke of the pen. Appearing in the exclusion statement…and the company continued to exist.

One small issue though…when the husband of one of the new employees had a problem….there were red faces!

Sadly life and medical insurance cannot be BOUGHT after the event is over…..so do not tell me I did not warn you.

Why people do not understand that there many things that are beyond their understanding….?

Ego or sheer foolishness or overconfidence?

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I am connected to many CXOs in the financial services industry and there is perhaps not one brokerage firm that has not offered its services to me. Among other accounts I have a broking account with Icici Direct. I have requested for a login password infinite number of times and have not got it.

Now take the case of buying a more complicated product like life insurance. There are many methods of buying it:

- Go online do some research and buy the cheapest Term insurance

-Go to a company of your choice leave your details on the net, the representative will come and sell you a Unit Linked Plan.

-Go to a bank and say insur….and the relationship manager will be in your house before you reach home

-Mention loudly the word insurance in a group of 5 people, there will be 6 people calling on you offering some ULIP promising you 36% returns. Are you wondering who is the 6th? He is your building’s security guard who asked those 5 people where they were going…and realised that there was a business opportunity!

Which method to choose…should be another post na?

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A finance ministry official says “If foreigners are allowed to invest directly in India, volatility will go down in Indian markets”. I am completely unable to understand this.

Like I cannot understand what is wrong with Intra day or Intra month volatility! Markets have always been volatile – the question is how volatile that is all. We should also stop this excessive ‘foreign’ syndrome. The hangover of the gora just refuses to go away.

Let us look at FDI in retail. We allowed FDI in banking – we now have ONLY foreign banks in India – other than the PSU banks that is. Has it helped in banking? We have had FDI in mutual funds – at least for the past 20 years – has it helped in penetrating the rural markets? We have FDI in life and general insurance….same answer is it not? L O L.

Then we thought we need FDI in retail (I guess this was a ploy to hold the real estate price high) – but somebody said it was to tackle the runaway valuation of the US $!!

Now imagine the foreigner wanting to invest in India. He will want data regarding say the last 10 year’s working (maybe in XBRL format), he will want some independent research reports (we do not have them at all), he will want to open a brokerage account (forget opening, I am unable to get Icici direct to activate my wife’s brokerage account for the past 12 months!)…OMG it requires some effort!

First increase the number of investors in India (I am not sure whether we have 100,000 investors or 1,000,000 investors – Sucheta Dalal vs Sebi!!) – whatever the figure, we need to double it a couple of times at least. Once we do that we can get the gora…

first let the Indians invest in India, then the gora can come…what is the hurry??

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was a call that I handled this week.

I said:

Gee, frankly I do not know. It takes a great mind to say “I will charge you Rs. 24k, but honestly there is not much to do. And if you do your Rs. 250,000 per month SIP with me under my code, I will rebate the commission for the first year from the fee that you pay me. Take term insurance from the cheapest source on the net. Take your medical insurance from a government run organisation (internationally Ergo and Alliance are great claims payers – but I have no clue how they will behave in India where medical records have no legal sanctity).

So I asked him more details about the financial planner. He had promised to

monitor the portfolio on a regular basis (I am still wondering what this means since I heard it 30 years ago),

will anticipate the changes and do a portfolio shuffling on a YEARLY BASIS (to me this was suicide),

choose a Pension Plan and a Child Plan (to me this was amusing)

choose a term plan and a medical insurance plan (he was choosing the MOST complicated company)

do a cash flow (what if analysis for 30 years including what would happen if he lost a hand, leg, heart, life, etc.)

do a cash flow projection for him during retirement (this guy is now 32 years old)

do an annual review for a fee of Rs. 5000

be available for 3 hours during the year for any discussion

The client had a choice of where he bought mutual funds from (he would be doing a 1 year SIP and at the end of the year decide whether to continue based on the performance), BUT the life insurance had to be bought through the financial planner.

Frankly from the clients point of view this was NOT  a good deal, nor was the client capable of doing it himself — he was damn too lazy.

I had no alternatives to suggest….last I know his wife was tugging his shirt collar saying “Yeh sirf gyaan deta hai….WE NEED TO DO SOME THING..so what if it is wrong, we are smart enough to handle adversities, are we not”.

God bless.

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He tried his hand at fee based financial planning, but was not very happy with the experience, so has gone into a semi-retirement mode. I spoke to him, and though it was not exactly an interview some of the things he said hit home.

Vats – let us call him by that very name has an economic background which allows him to choose whether to be in the financial advisory business, has a good qualification and adds value to the family business too.  I thought some of the advisers who read this blog might benefit…so here is what he said:

- Too many people think my time is free and do not like to pay: this has been my experience too, so I can empathise. People call seek advice, and then decide to do what they want to do, but for Vats that is time spent. He spoke about a GM in a consumer durable company – married to a VP in a finance company. They spent an hour with him, spoke about the fees, made the changes and left. Then did not pay. Simple.

- ‘I will pay you if I use your advise client’: this is so funny. It is like going to a hotel and saying ‘I did not like the food, so I will not pay you’ or worse seeing a movie and saying ‘I did not like it’. And it is a cruel world – how the hell will the adviser know whether the advise is being used? He does not have an E-access to all your savings bank accounts, damn it!!

‘Subra, how do I charge for advise like making sure that the client does NOT invest Rs. 50 Lakhs in a hair brained scheme?’…I know that there is only downside. If the investment does well, the client will call up and say ‘see you told me not to invest’ however if somebody loses money, I may not even know…LOL

Vats also (like me) has a very small area of understanding – equities and a little bit o debt’. So largely our advise (fee paid or other wise) is restricted to equities and / or equity mutual funds. This means Vats too does not (cannot is also right) tell you what to do with your gold, real estate, other metals, trading in equities, etc. This is a caveat which he says up front, but people still ask him all these questions….

Well he had other things also…..I do not remember them all…

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1. A planner should plan, not pass value judgement on how the client should behave.

2. To me a guy attending to all temple functions and blowing money traveling to all the temples in India is just as stupid as the guy blowing it off gambling.

3. If you have a family, you have a responsibility – period.

4. He has no medical or life insurance – to me that sounded far more stupid.

5. Overall he was himself shocked when he saw his expenses so much for writing down…this guy had started to write only 2-3 months back.

6. He has a high end bike and a low end car – and he cannot control his usage.

7. His household expenses – there are people to whom this sounded too much – and I know people who spend 3-4 times this amount while staying in an own flat

more to follow…

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It is not easy being a layman today! The amount of ‘advise’ that is dumped on you is stunning. Advise on where to travel, when to travel, how to reduce weight, how to impress your girlfriend / wife / boss/ …, grow your hair, colour your hair….the list is endless.

However the guy who can really get all your ATTENTION is the banker. This is because he has all your money, though theoretically you think you have all the money. So here is a guy who has seen your life bare (RBI jokes once in a while saying this is illegal, but what the….). Let us see what he says:

1. Sir It is nice for you to keep all the transactions in one place: Complete bull. You pay a very heavy price for this so called convenience. The interest rates even on Fixed deposit made online is not as good as you think it should be! They also have some small boxes which say ‘renew automatically’ – which means for exactly the same period it will be renewed. Most times this is suboptimal.

2. We have the full range of products: Complete bull. All banks may not give you the full range of services that you need. Take the Indian example Axis bank sells Axis mutual funds, Icici bank sells Icici Prudential mutual fund, SBI, Hdfc,….and the story is the same! Life insurance is again a known story – THEY CANNOT SELL ANY insurance other than their own parent companies’ product!

3. Our advisors are here to help you. Complete bull. A bank advisor has sales targets, not relationship targets. They have great ‘products’ meant for ‘prospects’ which are nicely couched as ‘solutions’ for ‘customers’. Actually their greatest benefit is when you keep a lot of money without doing ANYTHING in the SB or Current accounts! However nowadays (10 years) ULIP has made them more greedy.

4. Our Advisors will give you optimal solutions: Impossible. There are advisors who will make you invest your money in a ULIP and at the same time give you a loan against shares – even using the same money to pay the premium! Get the transaction reviewed by a friend, and you will realise that you are holding a lemon!

5. We are here to help :  Of course yes! Not sure help whom? well join the gang, I am also wondering. It is surely not me!!

6. We will give you the finest rates: Impossible.: Banks which talk less, have poor customer service (they are almost anti customer) have better rates. Banks which call you a dozen times, wish you on your birthday, wedding anniversary, dog’s birthday…are likely to charge you for all the calls in some form or the other! All rates, charges, services, are negotiable. The more you move around, the better off you are. Take a simple example if you issue a Hdfc bank cheque to your Icici bank credit care it will take 2 days for the debit..but if you issue a same back cheque the debit will be immediate..simple na? Thanks to technology, keeping all the money in one place is not necessary to get the best rates.

7. The Relationship Manager is your friend. I refuse to say anything further…..correct?

some more …later on!

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It is so foolish too say do not borrow. Most people are borrowing out of compulsion, not love for the bank!!

Nobody borrows if they can live without that expense. However people do borrow, and when I spoke to a few of the kids who had borrowed and a couple of bankers…here is what I got as the reasons for borrowing (and I am not including a boy who took a personal loan of Rs. 25000 for getting a tatoo done – I am happy, the tatoo shop owner is a friend!!).

1. For a major repair in their vehicle: Vehicle meets with an accident (worse, vehicle belongs to the boss!) so the P L goes towards repair costs.

2. For a medical emergency: actually could be any emergency, but 3 people said medical emergency. The medical emergency could happen to self, friend, parents, sibling,….does not matter.

3. To repay more pressing loans: if they have borrowed from some friend, relative or a money lender who can press them hard, then the bank P L becomes necessary to repay the original loan.

4. To meet expenses arising out of death: Some people spend a lot on death related ceremonies and have no clue from where to meet those expenses, so immediately it is a P L.

5. To buy a luxury item – could be a plasma tv, a vacation, a family trip to ‘native place’…literally anything.

6. For spending on a festival: Ganesh chathurthi for one! Or it could be to meet expenses related to marriage, child birth, …again anything! This need not be in their own house – it could be in a friends house too! Lots of trust!

I normally do not write about loans…but just read it a couple of times – do you see any NEED for a loan?

For things which you know, you do a SIP…for an emergency you insure. Tell me why do these people need to borrow?

JUST a little willingness to postpone consumption, a medical and life insurance, …..would actually mean,….no P L was necessary! Just a point of view….

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Let me enumerate (Ripley’s should not use it in their Believe it or Not, please)

1. Money invested for 80C benefit, but not mentioned in the Return of Income.

2. Money kept in a company fixed deposit, interest stopped coming (FD matured) not claimed FOR 3 YEARS. Of course company made no attempt for 2 and a half years, then sent one letter…so effectively after 32 months!!

3. Rs. 3 lakhs lying in the current account, Rs. 1500 credit card bill not paid for 2 years. Same bank. Obviously bank did not inform (accounts are connected, but current account is operated jointly and credit card is in the husband’s name )

4. Salary not credited to bank account for 3 months. DID NOT REALISE THAT SALARY WAS NOT CREDITED.

5. Bought life insurance paid 2 years premium, did not pay 3rd premium EVEN THOUGH SHE HAD ENOUGH MONEY in the bank, because she heard ULIPs are bad. Premium already paid Rs. 150,000.

6. Did business with brothers, invested with them, bought insurance with brother as nominee. Died at age 36. Wife and daughter penniless, being supported by HER father. Some chance that brothers will pay her something, but NOTHING BY RIGHT….maybe a pittance as a FAVOR….

can go on and on…

I have been stunned. If they get a financial planner who charged them Rs. 55,000/- p.a. but SAVED Rs. 300,000 in some simple mistakes being AVOIDED…should the client crib about 55K paid or be thrilled that he saved Rs. 245,000? L O L

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