Beware of 'Miss-selling'

With a slew of new financial products being introduced in the market, the menace of miss-selling is rampant. Investors have a right to ask for the relevant information before taking a decision to buy a financial product. Lack of transparency on the part of sellers results in miss-selling to the client. Miss-selling tent amounts to cheating the client by hiding relevant information about the product sold. Miss-selling is often a result of the conflict of interest between the client and the seller. For example, the seller would be interested in pushing through a product where he derives the maximum commission, the relevance of the product for the client becomes secondary.

A case in point is Unit Linked Insurance Plan (ULIP). IRDA has directed life insurance companies to inform the policy holder about the annual charges deducted for 10 years from the commencement of the policy. In the initial years, costs like administration charge and investment management charge could add up to anywhere between 30-70% of the ULIP premium. Earlier, insurance companies only provided generic sales illustrations to their customers. The new illustrations will be specific to policy holders and will have to be signed by customers before the policy comes into force. Many companies have suffered huge losses on account of FOREX derivative products sold to them by some finance companies without outlining the consequences of these investments.

Investor education can play a vital role in avoiding the menace of Miss-selling. Sellers of financial products will have to keep in mind the interest of the client above his own interest, and ensure that the products sold to the clients are in harmony with the clients long term goals. Financial planning as a profession can plug this gap. Remember, a client who is a victim of miss-selling poses a more serious threat to the seller/ adviser's long term earning potential, rather than the short term gains pocketed through miss-selling. The client advisor relationship is built on faith. Investors are advised to be vigilant against miss-selling of financial products. Remedies are available to the investors to settle their grievances on miss-selling through lodging a complaint with the regulators like RBI, SEBI, IRDA.