HSBC Suspending MF, Insurance Sales in India – Who is to Blame??

Who is to Blame??
No sooner had SEBI announced of its move to treat mis-selling as fraud, there were reverberations felt around the entire mutual fund industry. Coming close on its heels was the news of the london -based banking giant HSBC suspending MF, insurance sales in India amid allegations of mis-selling and certain “sharp practices.” Many other ‘big players’ were sufficiently ruffled.

Better late than never.

But this is neither the first nor a random instance.

Like HDFC Bank selling ULIPS by falsely projecting them as Fds, a Citi relationship manager embezzling clients money to the tune of Rs 400 crores, or Kotak Mahindra bank hustling its HNI clients to buy high-cost low-growth investments, or Aditya Birla Money incorrectly representing the risk associated with one of its products. These are some of the instances that dot the mis-selling Wall of Shame.

Mis-selling (as defined by investopedia) is the ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service. In an effort to make a sale to a potential customer, a financial products salesperson could leave out certain information or describe a financial product as something the investor urgently needs, even though sound financial judgment would come to the opposite conclusion.

I emphasize on the brilliant choice of words. ‘Sound financial judgment’. But as they (rightfully) say – common sense is an uncommon commodity. At least amongst us financial services consumers. Let me reiterate my point by using the following example.

Picture this. You go to a doctor – Dr Quack. In the consulting room, instead of diagnosing and finding out your medical history he has the cheek to prescribe you some latest drug a pharma company has just launched. “Take this. This is a best selling drug. I am sure that you too would benefit from it – just like the patient before you did. And did I tell you that I don’t charge a fee. I get a ‘commission’ from the pharma company.”

What would you do – run away? Will you trust your health (or life) in the hands of such a doctor?

But when it comes to our financial health it is ironical, we tend to do the exact opposite. The industry is a rampant breeding ground for such ‘financial quacks’. They come in many garbs and have fancy titles or come from different kinds of institutions (some large multinationals, banks, broking firms and agents /distributors). But at the end of the day, they are just that. Quacks!

However are they the only ones to be blamed? Don’t most of us behave like ‘quack consumers’? All the time?

We want everything free, want quick fixes, and are always chasing the next hot tip. Thus there is an ecosystem made up of quack advisors, and quack consumers but most of the times honest & trustworthy consumers bear the brunt of this system built solely on greed, greed and greed.

Nothing now can stop these advisors as it has now become deeply ingrained part of their characters. They will find a way to squiggle out of a loop hole and have hundreds of workarounds on any piece of legislation.

It is therefore up to us to lead this change. To decide to become financially literate – as our first line of self-defense. To never invest for quick returns or very high returns. To not chase the best performing product or the next hot stock. To not demand free advice but know all costs before buying a product. To understand the risk associated with investments. But also understand how a particular product is helping you reach a particular financial goal in your life.

The question therefore is – Are WE upto it?