Is Your Bank really acted as a Financial Advisor?

We all trust our bankers blindly and always ride on bankers’ trust, apathy and ignorance.  It is a common practice that banks access the financial information from their customer’s bank balances, fixed deposits etc. to target very specific customers who have large amounts of money at saving account or bank fixed deposits. They offer a wide spectrum of flawed financial products that they would gain from by way of commissions or other incentives. Many gullible people, especially pensioners which are the most likely senior citizens have a terrible habit of asking, “Where should I invest?” and “which is the best product?” Banks generally target those lazy customers who are seeking quick solutions and sell their third party products like insurance and mutual funds which may not be suitable them. They are bound to sell their products under severe pressure from their superiors. They are not spared even gold loan borrowers, personal loan borrowers, and even retired people. After sale service, they have not been taking their any responsibility and hence, do not advise the customers accordingly. Actually the Banks have forgotten their real banking activities due to the pressure of selling these third party products. And this is also one of the reasons of today’s NPA menace that Banks are running after to recover. Worse, they are so persuasive to sell their ready-made products with the promise of several free frills and locking up the relationship through salary account, credit cards, loan installments, systematic investment plans and ECS for payment of dividends or utility bills.

Area of Expertise

As a bank financial advisor, all bank relationship managers are typically paid employees or sub-contractors to the bank and have access to the bank’s customers.  They always act in favor of their banks by way of earning high commission or incentive to meet the financial needs of the bank’s customers through the offer them a wide variety of investments as well as life insurance options. When considering the question of whether your bank relationship manager is reliable or not, several questions should be asked.

Understanding the individual advisor’s area of expertise in the area of financial planning and/or investment management, as well as their licensing, experience and education are important. A good financial advisor will listen to your goals, and understand the amount of risk you are willing to take and then be able to find products that match those goals. Additionally, s/he should be able to explain the risks and benefits of each investment option and explain the way that you should spread your investments out over several options and in different risk categories in order to protect yourself. If s/he cannot do this then you should susceptible on their advice. Asking questions of your advisor and seeking verification of their licensing and approach to planning will serve your interests and answer any concerns you may have about their level of expertise.

Banks just sell Convenience

Generally, gullible people choose to use their bank because they feel that their bank financial adviser is more trustworthy or because it simplifies the process to buy the products as ‘get it all in one place’. It is important to consider the way that the bank relationship manager is always paid. A person that is paid entirely on commission may be more likely to suggest flawed products that do not fall directly in line with your investment comfort level. As you look for a financial adviser, you need to consider all of your options and not just choose the one that is most convenient.

You need to continually ask yourself if the products and advice being offered will benefit your individual finances, whether you could get a better deal elsewhere and, if you have to pay for them, whether they represent good value for money. Although a bank relationship manager at a local bank may make sensible financial suggestions, they will only have access to the bank’s own products.

As a result you need to take a pragmatic approach to banking and drop any sense of bank being ‘your’ bank, even if you find the staff in branch polite and helpful. After all is this really worth compromising you finances for?

In Feb. 2015, NDTV published a survey conducted by the Consumer Unity and Trust Society:

“76.3 per cent bankers feel that there is a pressure on them to achieve sales targets set out by the bank”.

“67 per cent consumers of financial services feel that provision of incentives leads to bank staff providing wrong information or mis-selling of products”. Also Read: How Banks fooling Home Loan Customer?

RBI mandated Banks

In order to curb mis-selling of third party products by banks, RBI has just introduced sweeping changes in the way banks sell mutual funds and insurance schemes in its guidelines on investment advisory services of banks. Banks cannot offer investment advisory services at their existing branch offices; instead, they have to open a separate office to offer wealth management services. Many mis-selling cases are reported in which bank employees are directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products. RBI has now, mandated banks to register with SEBI under Registered Investment Advisor (RIA) norms to distribute third party products like mutual funds. Though it is a welcome step from RBI, it would be susceptible about its implementation by all banks as RBI has given banks a time-frame of three years to banks to comply with these norms. Since such a long-time frame, it may disappear after a while.

Making Choice for Financial Help

When you are looking for a financial advise, ask your friends and coworkers for recommendations, find out about the services offered through your bank, interview the planners and then make your decision. While you should not choose your financial adviser just because he works at your bank, you should not rule him out completely either. You should also interview several and make sure that your financial adviser can explain the investment options to you and then will let you make the choice.

If you have a question about managing your money, want to sound out ideas, or could do with a second opinion why not ask the Prudent Financial Planners in  who will be able to share their knowledge and experience with you.

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PS: This article got published in Hindi Dainik Bhaskar on 03-05-2016