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It is unfortunate to hear the news from various noted magazines that financial institutions like banks are the biggest perpetrators of financial products mis-selling. One can observe that banks have continuously been moving away from their core banking activities, towards becoming financial behemoths selling an arry of investment products. So finally leading to giving up the actual interest of the bank account holder.
Day to day misselling by banks is becoming rampant and from the customer point of view Reserve bank of India do bring measures to check the menace. As per the data posted by Association of Mutual funds of India last year on Commission income of the top distributors operating in 20 or more locations, not only has the commission income on sale of mutual funds gone up for the top 10 players, eight entities in the top 10 were banks. It doesn’t mean there is an issue with banks raking in the moolah, this is the conduit through which sales have been rather dubious. This is evident from the alarming rise in the number of complaints against misselling by banks.
If one looks up for the data on the distribution channel, that accounts for sales of insurers, many banks have insurance subsidiaries in both the life & non-life space. Also the regulator has allowed non-bank promoted insurers to form tie-ups with banks to distribute insurance products under the bancassurance channel. The advantages of routing business through bank are obivious. The cost of sale is low for the insurers in case the business is routed through banks. On the other hand, it is an extension of existing business that earns banks additional income with comparatively less effort.
It sounds like this would solve the problems of underinsurance & low penetration of financial products like mutual funds and insurance. But the actual result is something else, thanks to the transaction based approach followed by banks compared with agent advisors and distributors. It is usually the agent who has little to defend himself and also take the flak for mis-selling.
Most of the bank account holders got mindset that their bank managers are well versed with all kinds of financial matters including personal finance management & this mindset avoids them to meet Financial planners to plan their finances properly. The fact is that personal finance management is totally a different & unique topic, that is addressed by Certified financial planners as well as experienced Individual financial advisors. There are rumors that financial products like mutual funds, insurance are convinced by extending over-draft facilities to the customers by banks. This rumor clearly shows that customer requirement doesn’t come into picture at all while selling the financial products.
It seems both customers and regulators like SEBI-IRDA-RBI have greater role in checking this problems. The regulators do bring measures & make respective financial institution like bank accountable for mis-selling the financial products. On the other hand, customers should approach Certified financial planners & other authorized financial advisors to plan their personal finance properly.
Disclaimer: The information given above are the result of personal readings of related genuine documents and personal understanding of the subject matter. This is written to make the customers understand, how importance to be aware of the mis-selling of the financial products & the impact of the mis-selling on them financially. . However, this blog is not responsible for any error or inaccuracy in the same.
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