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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1. Buy term insurance on the net: it is the cheapest way to buy term insurance. Let us say you are 27 years old and are trying to buy a pure term life insurance product. Chances are you will surf the net and find out that Aviva is the cheapest (it could be Religare, but this is just an example). So you decide to buy Aviva – you pay by card, upload the IT papers, Pan Card, etc. You get a medical appointment – medicals done, you get the policy. Sum assured Rs. 1 crore. Premium Rs. 2000 a quarter. Fantastic.

However many, many, many people are NOT as tech savvy. They walk into a BANK branch and say ‘I wish to buy Term insurance’. The bank OBVIOUSLY has a tie up with a life insurance company. The representative of the life insurance company sits in the bank branch itself. Organises the paperwork. Says ‘Sir here is the quote for a term insurance – the premium is Rs. 24,612 for sum assured Rs. 1 crore. However, Sir we have a ONE time premium of Rs. 254,000 for 30 years.

Can anybody say….which was/ is a better deal…and why?

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However, if you have people from other industries and those who are not EMPLOYED, life becomes far, far more difficult.

Look at the careers of the following people in the sports and entertainment industry – Sachin Tendulkar, Vinod Kambli, Ravi Shastri, Laxman Sivaramakrishnan, Sourav Ganguly, Irfan Pathan, Ajit Agarkar, Priyanka Chopra, Kareena Kapoor, Neha Dhupiea, Dipti Naval, Sarika, Amrita Rao, ….(this list was chosen with a little help from a film mag editor).

Obviously these people can be categorised in the following manner:

Early success and stayed there: Sachin, Sourav, Ravi, Priyanka, Kareena

Early success and then slipped: Vinod, Laxman, Ajit, Mohd. Kaif,

Slow success, but earned well: Neha

Reasonable success, earned modestly: Amrita, Dipti Naval, Sarika,

Fairly obviously there is no one formula that would have worked for all of them. It was easy to categorize them as “sports guys” or ‘film guys and film girls’…

For people like Sachin the income from the sport (main income) was itself so high that his investment income could have gone to build other sources of income. Same story for Sourav Ganguly also.

Now if you see people like Vinod Kambli (let us assume he comes from a lower middle class background) – he got too much of financial success. Now this success would have blinded him and he could have exhausted his money – too fast – and may not be now in a position to live on his passive income. Mohd. Kaif may now not play much for India – sounds cruel, but the reality seems to be that. So for Mohd Kaif his earnings from domestic cricket is an important source of income. The income that he earned from international cricket would not have been too great to create a corpus for his entire life.

Of course the cricketers were rescued by IPL (Indian Premier League) – so Mohd. Kaif, Ajit Agarkar, Pathan, have got a fantastic lease of life and they could be earning at least Rs. 2-4 crores per annum – which is a fantastic amount of money in any part of the world.

Remember sportsmen also have very high expenses – right from some personal coaching, travel, communication, etc. For e.g. if Irfan Pathan wants the services of a coach in South Africa, he will have to fly to SA, stay in a decent hotel and engage the services of a good coach. Similarly dietician, doctor, …etc. nothing comes free.

In case of women filmstars who do not marry or marry a bum who cannot handle money, their problems are also magnified. At some stage in life they have to take a call that they have to quit…When to take that call is really difficult to say! A 32 year old actress has to take a call whether to spend Rs. 15 lakhs on a gym, dietician, make up…..etc. etc. HOPING to get a call or should reduce such expenses.

It is not easy for a planner to help them…but they have to do it…

Man life is tough!

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He decided to cut the head – to save the expenses!

When it comes to philosophy or spiritual thoughts too – many people say ‘I am spiritual, not religious’ – sounds like a joke, really. I know ‘bhakts’ of Shankaracharya (of Kanchi) who would go there in grand silks (he was always against silkworms being destroyed), seeking his blessings for a wedding, and then asking for dowry. Selective acceptance of a guru’s advise is I think absolutely stupid.

This happens to many financial advisers too. Clients use half the advise and then make a mess of the what the adviser has told them. When I say do not take unit linked insurance. I am ALSO SCREAMING ‘take the cheapest term insurance that you can buy for your age, for a period you want, for an amount that is suitable for you’. If you just say ‘Subra says do not take insurance’ – bad luck to your nominee.

Sometimes it is easy to interpret what the adviser has told them. Sometimes it is not. I keep screaming that real estate is not a good investment over a long period of time (say 30 years). However it is true IF AND ONLY IF you keep the money in a good well performing equity portfolio (direct or mutual fund). If the money is lying in a bank fixed deposit – yuck you would have been far, far better off with buying the house.

There are tons of such examples. It is necessary to understand the advise in full. Remember I too have ULIPs – but I bought it when it was cheap, and I did reverse engineering to find out how the cost will hit me over long periods of time. However I am still planning to surrender it, because of fund manager issues….:-)

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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 must be a life insurance agent

- this is not for the middle class…how can we pay thousands of rupees premium?

- if we put all our INVESTMENTS in life insurance, what will we eat?

- how can I pay Rs. 2.5L per year as premium?

…..and many such comments (even now if you search for ‘If you died tonight what will your family do?) you will find many of the comments.

Even now the myths have not changed much….recently one kid in the office wanted to buy life insurance. I said ‘Go to the net, and buy the cheapest life insurance that you trust’.

He found Aviva at 7200 and many from various prices from 7200 to 45,000 Rs. premium per annum!

What followed was even better…another girl came up and said ‘What is he buying?’

I said: ” term life insurance”

she said: What sum assured?

I said: Rs. 1 crore.

She: OMG that will be Rs. 150,000 premium! is it not too much?

I said: No it is Rs. 7293 ONLY

she said: per month?

I: No dear girl, PER ANNUM…

she said ‘but my uncle just sold me a LIC policy of a premium of Rs. 25,000 and sum assured of Rs. 15 lakhs…why is there so much of a difference?

I: hmmm that we will discuss separately…

My uncle (change it to whatever you want!) told me this is the best policy and he is doing it for me…..what can I do..I have already paid 2-3 premia

Well grin and bear it, girl. Or damn your uncle – just drop the plan!

Not sure what she has done…..

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I make it a point to watch ‘Comedy Circus’ and I guess it is an amazingly good program, and I love the creativity of the writing team and the actors too. Of course not every Sat and Sun I am able to…but I do make an attempt.

I try to watch the Hindi movie nostalgia on Times Now channel – on a Sunday at about 12 or thereabouts.

I watch Sukhishivam’s talk on Sat and Sun morning on Sun TV – but since it eats into the running time, I miss it. Sadly it is not repeated AT ALL.

I try catching some glimpses of cricket…but rarely in full.

I love watching Tom and Jerry…and if I find the zillionth repeat of a show, I still watch, laugh and NEVER change channels. Walt Disney the creative genius, salutations to you.

While watching these channels I do land up at Cnbc, Cnbc awaaz, ET, Bloomberg UTVi, …and since a few of the kids working there are known, I watch it if they are doing the show. Sometimes it is friends who are being interviewed..so I watch. Mostly for amusement or finding something to write on my blog.

Like yesterday I heard the following amusing things:

1. If you want safety over a long period of time put your money in Public Provident Fund.

My comment: Obviously this veteran had not heard of REAL return.

2. Do not buy insurance as an investment…blah blah blah.

My comment: The word TERM INSURANCE was not mentioned even ONCE.

3. Do not deal in direct equities – be in mutual funds and life insurance only.

My comment: Said by a banker – who does not have an equity target.

4. You must deal in direct equities.

My comment: Said by a broker – easy to guess it is not?

5. He has invested in too many mutual fund schemes

My comment on 3, 4 and 5:

NEVER TRUST A PERSON WHO EARNS A COMMISSION OR A SALARY – famous words of TALEB slightly modified.

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Many wealth oriented people are hoping that the clients will understand the need for Medical and Life cover insurance. Typically my suggestion is for people to buy Term insurance online. However many people (sadly including readers of this blog) go online – and the company sends over a rep. This rep is then able to convince them to buy a ULIP – and surprise, surprise fall for it!

There are agents who did not find the whole business lucrative, so they just dropped out. Then there are others who find selling mutual funds and E-brokerage accounts more remunerative, so they have dropped out. Many girls have dropped out because marriage has made them relocate. Many men have dropped out because they have changed jobs and are unable to find time to do this business – effort reward ratio has gone against them.

I know of some top agents (who would have been in the top 30 in any company from the years 2001 to 2008) who have completely dropped out of the radar. The ratio of Bank sales : Agent sales is now far far heavily favoring the banks – something like 70% even for non bank promoted life insurance companies (read Reliance, Max N Y Life, MetLife, Birla..). Even though technically Hdfc Life Insurance is promoted by Hdfc (and not by the bank) Hdfc bank is a very good sales channel and is responsible for a dominant share of the business done by the life insurance arm of the Hdfc group.

Of course there are agents who are benefitting by the dropping out of agents – those who are in the business and continue to be there will surely benefit.

Do I know agents? Well I know a few ’00s if not a few ’000s. Many of them have the clients good at heart, but I do not know of any agent who can really think of what is good for the client ONLY. That is not only tough, but also impossible to expect. Nor am I finding the end buyers taking the trouble to do enough research and know what to buy.

Dilemma…if your agent has disappeared…do not worry there is somebody who is consolidating, but he may not be as servile – he knows he is in a small club of skilful, valued agents! Good for him for sure…..

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Immediately they tell me the cost….paid Rs. 6L premium for 4 years, bought this house for 73 lakhs, …and now the value of the portfolio is Rs. 21L, ….etc.

To me the information I need to be able to take a decision are very different…let me see:

1. I actually do not care what is your cost! I need to know how this amount will be used in the future. If you are going to surrender a life insurance policy invested wholly in equities, take the money and keep it in a bank FD for 10 years, my suggestion would be to continue the life insurance policy. However if you are planning to surrender the Life policy and invest that money in an index fund for 10 years, it would be to surrender the plan.

2. The premium paid vs. the amount you will get: To me it does not matter – I would not say at all! For e.g. if you have paid for 2 years, the policy will lapse if you do not pay the 3rd premium, so my suggestion would be ..pay the 3rd premium.

3. If you are planning to sell the house in a lousy locality and buy in another (read better) locality, my suggestion would be a ‘sell the house’. If you are trying to rent the house, go abroad and ‘wait’ for the prices to improve, it would be NO. Sell it off immediately. Trying to rent something, because you cannot sell it – is poor strategy.

4. If you require life insurance, first take term insurance, then surrender / even think of surrendering the existing plan. That would be the most sensible way to go about surrendering life insurance plans.

5. If the cost structure is high – the recurring costs – makes sense to get rid of the policy. For example if you have a life insurance where you have paid 40% as commission and other one time charges staying longer does not change it. Such costs are called sunk costs, and it should not affect your staying on in the plan. If it is a shit plan, it is a shit plan, get out.

6. The mistake of BUYING a stupid policy happened long back, do not INCREASE your losses by staying on.

7. If you have invested in a well managed mutual fund, invest more, but CLEARLY if you do not have a 5-7 year view, do not be in equities. I am willing to change it to say 4 years, and change the scheme to a 70:30 balanced fund.

….there are more please take the trouble to understand ‘sunk cost’….most journalists will not mention this word in their ‘hold or surrender’ question. tsk, tsk….

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Let us look at it from the ‘investor’ or ‘client’ ‘s point of view.

When you are young (say age 24 to 34) you spend a lot of time LEARNING and build a base for future EARNING. At this stage you are much better off concentrating on your career. Of course you will earn – do the simple things like doing a SIP, take a term insurance, be careful while you borrow. In short keep it simple. Learning your craft, doing the extra courses, working late hours, having a good time with friends, and once in a while checking your mutual fund statements! That is how life should be. Ignoring investments is risky, and you want the power of compounding…so do your investing, but keep it simple.

When you are 34-45 – both you and your money should be working hard. Differentiate the wheat from the chaff. Jump up your SIPs. Take some big bets on equity, if you know how. Learn the rudiments of wealth creation.  Your investments are now bigger, so you have to be more careful. If you do not wish to invest in learning, just jump up your indexing. Start your PPF. Check out your pension requirements. Decide where you want to stay once you retire.

When you are 45-55: Your money has to work real hard now! you will be withdrawing for your needs like children’s education, children’s marriage, buying a second house, leisure travel etc. You will also be earning very well…It is the time when you consider quitting your job. Ascertain to see how prepared are you to quit your job. How rich you are is a function of how many months/ years can you live WITHOUT a pay packet. Get realistic about getting a new job if you lose your current job. YOU HAVE TO know everything about your money now – and make it work real hard.

I wrote this piece because I am finding a lot of people who concentrate on mutual funds, ulips, etc. but earning much below their potential! Please remember that when the corpus is small (when you are young) and extra 1-2% MAY NOT MATTER as much as it would matter when your age is more. That extra effort in finding a better job in a different location – city or country.

I hope people do not take this to mean ‘ignore your money’. NO. Just index and concentrate on your career.

Do not think that because your dad opened a PPF ACCOUNT for you when you were 4 years old (you were lucky, sure!) you will end up RICH. YOU WILL NOT. The final figure that you have in any account is a function of:

HOW MUCH MONEY YOU PUT (make no mistake, this is VITAL),

HOW SOON YOU PUT IT (earlier the better)

HOW LONG YOU LEFT IT UNTOUCHED (the best, do not keep removing to see how it is!)

Do not buy ULIPs….all those instruction stay as it is. CONCENTRATE MORE ON YOUR CAREER that is what it means.

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