Now if you have LIC, SBI, Hdfc, Icici, …each with a few ‘000 crores of stake in the insurance business and Mr Bhave on the other side, who thought that Mr. Bhave could win? Well I am not sure.

The media went to town saying ULIPs are bad, so many life insurance companies changed the name of the product to ‘Endowment Fantastic ‘ or something which dropped the unit linked. Simple.

Not sure about whether the amount raised by ULIP is 10, 100 or 300 times the amount raised from the RETAIL investor in mutual funds since the entry load was banned.

FRankly it does not matter what cnbc, ET tv, UTV bloomberg, or the other print media say, if a product is sold, it will sell. Afterall McDonalds, Coke, Pepsi and Lays can spread diabetes and ITC can spread cancer without any problems, can they not?

The government requires millions of rupees for divesting (by the way if we the people are the owners of the public sector, does it matter at what price the IPOs are given to us?) and this can come from LIC. Imagine the LIC chairman calling the FM and saying…’Maalik…Power Grid ka issue ke liye paisa nahi hain…ULIP is not collecting money..”. The FM had to bring this ordnance.

See the Direct Tax code. Only pension plans of the government are allowed a deduction under 80 C (or its equivalent)…OMG the govt’s greed sucks.

Sebi has many good things like cap on expenses, trustees, custodian, r&t agents registration, etc. It is time IRDA accepted that they do not know how to regulate ULIPs and does a ‘cut and paste’ of the Sebi rules and regulations for it s ULIPs. Limit on how much can be invested in one group, in one industry, the advertising norms, who can be a broker, broker’s registration, etc – many rules  should be as much applicable to the Ulips, so I hope the investors benefit…sebi or no sebi.

Reminds me of Rajagopalachari’s (Rajaji’s) statement when the PSUs were started …”Raja bane vyapari, praja bane bhikari”.

When the IRDA was formed, the rules were favoring LIC….now the government is favoring the money bags of the insurance companies.

Over to you Mr. Bhave, will you bring back the loads in the mutual funds?

L O L.

PS:  ‘we are committed to protect the small investor’ …ROFL, LOL, ROFFFLLLL

Fee based Investment counseling is the cure to all problems, so say the Learned Men. They ought to be correct, because all channels are also saying it.

Now I met a ‘Good Intentions’ – we will only do what is good for the client financial planning company. They wanted their ‘planners’ to be able to talk to trustees, fund managers, directors about equity returns, mean, variance, goal setting, …..and generally be seen to be far more competent (significantly more as the MD said) than the general relationship manager in the market. So far so good.

They had very little training budget but they had done a cut paste from a leading course on fund management and had done a good job at that.

They wanted to move the ’sales’ guy from selling to advising – they had enough ppt to prove to me how this will happen over the next 12-18 months. Voila they said “Our xxxx sales personnel will migrate to becoming an adviser”.

I said: “All nice to say things but in an industry where it is much easier to earn sales commissions why would you be in the fee business?”

He said: After some time we will also sell products like life insurance, P M S,….

I was stunned. Is the ‘Fee-only adviser’ dead or was he not born at all?

“Fee based advisory is the cure for all evil”. This brings us to the question – what is evil you all know who is now evil, do you not?!!

We have been going to a doctor (we choose a doctor whom we can afford) and paying him a ‘fee’ based on the time that he spends with us. Therefore there should be no worry about being sold a wrong solution. Correct? LOL.

For a fee based service to succeed (it is still not a success in any part of the world for the mass market) there have to be some pre-conditions. The fee based adviser is like a doctor, so he should wear a white coat – AND NOBODY else in the market should be allowed to wear a white coat. He should not be tied to any ‘house’ for any product. A doctor who is tied to a nursing home which has a chemist shop is a deadly combination.

Now if a fee based adviser decides that his wife will be an agent for all mutual fund and tie up with a broker for insurance….it would be a case of going to a quack who is operating from an authorized dispensary! During inspection you see the doctor, post inspection the doc goes away and the quack comes in.

Will this happen? Ask yourself whether it is already happening?

Ask a distributor, it is far more attractive to sell mutual funds than sell life insurance products if YOU ARE A OWNER of a distribution business. However if you are a manager who is judged on the quarterly commissions then the life insurance business is better. However to understand this you need to understand ‘compounding’ and trail commission calculation. If you are in the media you have to make your voice shrill and say ‘IRDA is a lobby not a regulator’ or ‘School boys cannot take on Cowboys’ – surely looks sexy .

For the past 55 years LIC paid 40% commissions to its agents. If it was so attractive a business why is it that no self respecting MBA becomes an agent to sell life insurance? After all if you can bring Rs. 1 crore as premium, you can take home Rs. 40 lakhs, correct. LOL. MBA students in ‘G’ grade schools HATE attending a sales interview even if it pays Rs. 5 lakhs. Difficult to reconcile all this data, correct.

Let us get the facts. Is there any life insurance product with 40% commissions? Theoretically yes, but today it hardly sells. Does any media article tell you this? NO.

What is the lowest commission in selling a life insurance product? Assuming the worst in this are is Hdfc Standard life insurance, the minimum commission is (believe it or not) about 1%. Has any media article told you about this? NO.

Have life insurance companies paid settlement claims and kept many children in school, repaid many home loans (and kept families in houses), paid for weddings of children, etc. Has any media article told you about this? No.

Why do so many questions have NO as an answer? Simply because negative news sells far, far, far better than ordinary news or good news. How many people will be excited if a child is kept in school? Not many. How many people will be excited if a teacher beats a child? Maybe many.

After all North East West South is about excitement is it not?

Then one day Mr. Anil Ambani wanted out and the elder brother said ‘let us split’ . So they split. Mr. Mukesh Ambani had spent a lot of toil but gave up Communications and Finance.

Then the market capitalisation of Mr. Anil Ambani skyrocketed. Typically Reliance Capital, Reliance Communications and Reliance Power were the 3 companies of his ‘group’ which was giving him ‘market cap’. So big was the ADAG that its market capitalization was ahead of the Tatas, Birlas, ….and all such bigwigs. This meant other Indian companies said ‘We must enter financial services, retail, and communications’ . Simply cash-flows did not matter, it was only ‘Market Capitalisation’. Understandable. If you are a 3rd, 4th, 5th generation entrepreneur and your market cap being less than this start up was ….

So Birla, Tata, Religare, Future Group, …all of them entered financial services (have entered or will enter). This is normally good for the consumer if not for the industry (look at cars, aviation, etc.). However not much has happened, well as of now at least it has created copy cats that is all!

So if you think brokerage rates will come down, demat charges will go to an absolute (fixed per annum) charge, there will be a life insurance companies selling only term insurance, pigs will fly, quality of service will improve because of the competition, etc., stop dreaming, wake up quick!

In financial services more competition has meant more velocity of transactions – so the total brokerage will go, but the client need NOT make more money….that is the way Goldman Sachs  and other stalwarts have shown the way!

Journo: Subra do you not think the life insurance guys get pampered?

Subra: Why do you say so?

Journo: 40% of the contribution as a commission is too much, do you not think so?

Subra: What about products with 122% commission?

http://www.subramoney.com/book-written-by-me/

J: Not possible in the financial service industry…..at least not in India

S: In India, in financial services, existing product, ….dekhnewala chahiye that is all.

J: Which is the product?

S: Mutual fund….

J: Will you please explain…???

S: take an excel sheet calculate for an SIP of Rs. 10,000 per month for 30 years…fund growing at 12%..0.5% trail…see the commission from the 21st year to the 30th year…it ranges from 41% to 122%.

J: OMG! This cannot be true…why is the media not talking about it?

S: You are the media…why are you asking me. Just do your homework…use excel

J: what is the catch in what you have said….can I do a story.

S: First understand..then write. What is wrong is the Time value of money has not been considered, nor has tax been considered. However anything that you do…mutual fund commissions are better than life insurance business. The smart online distributors like (they did not want to be mentioned) know that..

J: Such a revelation sir….

S: Imagine you spent Rs. 7 lakhs on an MBA degree….

“I have a client who invests 5 a month in a mutual fund regularly. However I am under tremendous pressure to sell him a unit linked plan with a premium of at least 60 NOW. How do I handle this?” – if you are a unit manager, financial consultant, financial adviser, business development manager, sales manager, – generally anybody interested in life insurance sales you can indentify with this question. I have said 5 – you can add ‘000s as per your convenience!

My answer is simple: In this market if you have a client who is giving you a regular business on a monthly basis – surely he believes in (and has perhaps benefitted by) SIP as a process. You should be happy for him, for your organisation, and thank him. You should seek his blessings for your career and some leads for further business.

The participants are not happy – they grumble – and say (almost audibly) trainers do not have to sell, so it is all right for ‘you’ to say this. The more sensitive guys (and gals too) say “We know this, but our superiors force us to do this….”

I am normally amused – the fact that I can afford to be in training comes from my sales background!

It reminds me of a story – the Monkey and the crocodile.

On the banks of a river there is nice huge tree – with lovely mangoes and a lot of monkeys. In the river is a big crocodile – who befriends one of the monkeys. The monkey gives the crocodile one mango a day. The crocodile shares this mango with its wife and is very happy.

One day however Mrs. crocodile tells Mr. Crocodile “if the monkey eats this fruit every day, his stomach and liver must be really sweet, let us eat him”. Mr. Crocodile protests – and says the monkey is my friend – how can you even say this? However under tremendous pressure Mr. Crocodile relents and decides to get Mr. Monkey to the Croc house.

Initially the monkey is also sceptical – and gives the normal excuses. “I cant swim”, “We are natural enemies, are we not” …but Mr. Croc who has been trained in “How to make a No to a Yes” and “Persuasion skills” and other ‘communication skills’ convinces Mr. Monkey to sit on Mr. Crocs back and is planning to take Mr. Monkey to his house.

On the way Mr. Croc (perhaps over ridden by guilt) tells Mr. Monkey – the real purpose of the visit. Mr. Monkey (usually true) who is much smarter than Mr. Croc says “I have not brought my kidney and stomach – I left it on the tree” (people say cheque book, Pan card, photograph…) – so the croc brings him back to the tree – to collect the stomach and liver. Mr. Monkey goes up the tree and thumbs his nose at Mr. Croc.

In real life however many monkeys end up in Croc stomachs.

Please remember even though we live in a democracy real incidents can only be written as stories. Like Shankar Sharma found out – we live in a political democracy and in an economic dictatorship. Like they say when in the water, you do not cross swords with a croc! Best of luck Shankar Sharma, if Mayawati becomes Prime Minister you will surely benefit!

Financial planner: supposed to know everything about you PERSONALLY so actually called ‘personal financial planner’ who helps you with YOUR GOALS and the steps to achieve them. He tells you your asset allocation – say 70% equity and 30% Debt.

Portfolio Manager: He chooses in which shares and which mutual funds should your money be invested.

Broker: Executes transactions on the basis of the Portfolio Manager’s advise.

Demat provider: Keeps safe custody of shares, bonds, and now even mutual funds

Insurance BROKER: buys you the TERM life policy based on financial stability of the provider and the least cost basis.

Clerk: Enters all this in www.valueresearchonline.com, myiris.com or www.moneycontrol.com to keep track of all these transactions

CA: Files your tax return on the basis of the details provided by the clerk.

To add to all this you can have another financial planner who will whet the process and tell you things are fine (just joking? think again!)

Banker: Claims he can do all of the above.

Investor: Gets a 24% gross return..pays fees to all the above and then is left with a 7.9% return. May have actually been happier in a PPF

http://www.bookzone.in/newtopsellers10.asp?qs=30 feels good to be the bestseller of the month at a leading book store in Mumbai

So when a small distributor of mutual fund (or life insurance) compares himself to a big distributor, it is unfair. If a small distributor (let us say he mobilizes Rs.0.2 million a year) for one fund house) thinks he should be treated the same way as a bank which mobilizes Rs. 1000 million a year he is being foolish.

If the regulator thinks that by one piece of legislation he can change the market from a ‘commission’ market to a ‘fee’ market, well the regulator is being naive.

Things do not change because there is somebody sitting in Delhi (with no knowledge of the markets) wants there to be some change.

Change happens when the industry and the players want to change. A mutual fund is allowed to charge ‘bank charges’, ‘custodial charges’, ‘advertising charges’ ….etc. to the scheme (yes not to its own p&L). All it has to tell a banker is ‘If you collect Rs. 1000 million for us in one year, we will pay you slightly higher bank charges’ – is it a commission? I do not know. Even better, if the banker is told – Please collect our cheques ‘At par’ from all our customers in all your branches and remit it to us in a week’s time….till then you can enjoy the float.

How many regulators or auditors are sniffing out such ’soft rupee’ commissions (of income foregone) from the mutual fund to the bank – who provides banking services, custodial services, distribution services, ….etc.?

Sadly, but Frankly, none.

However if my money has to be invested I prefer Hdfc. Look at the recent Ntpc FPO. Personally I do not like to invest in psu shares – the only 3 exceptions were companies which had built up scale. These companies were Ntpc, Ongc, and SBI. However a Goldman Sachs report says how the government took away $ 20 billion to subsidise the downstream units. Similarly when Narasimha Rao’s son cheated SBI – by an amount of Rs. 130 crores, the matter was hushed up.

Now the NTPC FPO. Personally the shares were attractively priced. However the market did not think so, and rejected it. Companies, merchant bankers, investors, speculators, traders, all have to respect the market. Pranab Mukherjee need not respect the market. LIC and SBI were forced to buy the shares. In the longer run LIC and SBI may make money, but now neither did SBI ask its shareholders nor did LIC ask its policyholders! So once again the shareholders of SBI have funded Mr. Pranab Mukherjee’s deficit.

So if you are worried about ‘directed’ investments, stay away from PSU shares and PSU ‘money managers’. Like it or lump it LIC, SBI, NTPC, BSNL, WILL all be governed by managers who bow to the ‘babu’ and do what he / she says is. Look at the BSNL employee union. They are asking for a good top management that will not bow to the babu and the ministers, the government is not too pleased with this request. Subir Raha stood up to the babus when he ran ONGC….but such stories are rare. So if you want to buy a term plan go to google..and you will find Religare ageon plan on the net. For managing money there is always Hdfc top 200, Hdfc prudence…