Last week, I came across a proposal to allow insurers to cross-sell different financial products like loans, fixed deposits and mutual funds. While this could open a new revenue stream for insurers, I do not think it will be in the best interest of consumers.
For decades, investment-linked insurance schemes have been the most mis-sold financial products in India. With abysmal returns, which have not beaten inflation, these schemes have certainly not grown wealth for investors. Little has been done to curb the misrepresentation by agents of these products. Under such circumstances, allowing the same stakeholders to cross-sell other products means more mis-advice for investors.
Beyond selling products, how much are insurance agents aware of how to plan for emergency cash or which type of equity fund to choose or what sort of asset allocation to maintain? Agents typically push insurance products by only focusing on expected returns.
For long, investors have relied on insurance agents and or chartered accounts (CA) to provide financial advice. However, neither of them is really equipped to do so as they are not certified or have deep knowledge of various markets. CAs are tax experts whose guidance needs to be taken only for tax-related matters. A CA does not know how to evaluate a fund or how to create a financial plan.
A financial planner can give a deeper perspective and exact calculations on insurance needs, retirement corpus and investment planning. Just like the CA’s role doesn’t end by just filing taxes, a financial advisor’s role is to handhold investors through various market cycles, especially during downturns.
In this time of too much information, investors turn to various sources to find quick answers. But figuring out the good from bad in these times of low attention spans and social media influencers depends upon the investors’ level of financial literacy. A financial planner can be greatly helpful in navigating such situations.
Another advantage of financial planners is their focus on goal-based plans and not on specific products, unlike agents who would push the latest product or CAs who can give opinions on a product but do not really know if it is a fit in your portfolio. Financial planners can also tailor investment strategies based on customer needs.
So the next time you want to take financial advice other than related to your taxes, connect with a financial planner who works on fees. This will be in your best interest as you will get conflict-free advice.
To the government, it is my humble submission that a lot more transparency be brought on the insurance schemes like in mutual funds. Investors are totally unaware of the commission costs they bear and agents tend to inflate returns. The move to get insurance intermediaries to sell other products is welcome but investors would benefit much more if this could be done through the financial planning route. As a country, we need more financial planners than product sellers.