Over 57 per cent of bank relationship managers in India admitted to mis-selling financial products under extreme pressure to meet sales targets, according to a recent survey.
Around 85 per cent of relationship managers could not distinguish between direct and regular mutual funds. This is concerning since many of them are responsible for selling complex financial products, such as those related to insurance or mutual funds to retail customers. Here’s how customers can safeguard their interests
Over 57 per cent of bank relationship managers in India admitted to mis-selling financial products under extreme pressure to meet sales targets, according to a recent survey.
The survey covered 1,655 relationship managers across 20 scheduled commercial banks (SCBs), including public sector, private sector, and small finance banks. The report highlights a long-drawn concern and a troubling trend in India’s banking sector, where sales-driven pressure often takes precedence over customer needs.
“Targets are slit down our throats, and we’re told not to pass loans of customers who do not buy an insurance policy alongside the loan application even where they do not need it,” 1 Finance Magazine quoted a bank relationship Manager (RM) from a private sector bank as saying.
The report focuses on some significant gaps in the financial knowledge of bank relationship managers. This is a matter of grave concern since many of them are responsible for selling complex financial products, such as those related to insurance or mutual funds to retail customers.
Here are the findings of the survey.
1] Knowledge Gaps: An alarming 85 per cent of relationship managers could not distinguish between direct and regular mutual funds. Around 75 per cent were unaware of the tax benefits associated with equity-linked savings schemes (ELSS) and a concerning 98 per cent did not understand the difference between nominal and real rates of returns.
2] Sales Pressure: A huge 84.34 per cent relationship managers reported feeling pressured to meet sales targets, rating it at 3 or more on a scale of 0 to 5 (5 being the highest). This intense pressure often led to unethical practices, with over 58 per cent of relationship managers admitting to mis-selling products that may not be suitable for their clients.
According to the survey, most relationship managers feared loss of jobs as the primary reason for them resorting to mis-selling.
“Getting shouted at every morning in reviews and having to achieve unrealistic sales targets makes me want to quit my job daily,” the report quoted a relationship manager from a leading private-sector bank as saying.
More than half, 52 per cent of relationship managers expressed concerns about losing their jobs if they failed to meet sales quotas, indicating that the pressure to meet targets often overshadowed their ethical responsibility to advise clients appropriately.
For customers, the findings of this survey raise red flags about the integrity of the financial advice they receive from bank relationship managers. When relationship managers are driven by sales targets rather than a customer-centric approach, there is a higher risk of them pushing and selling products that do not align with the customer’s financial goals or risk appetite.
Certain products, such as insurance policies, mutual fund schemes, and loans are often bundled or mis-sold to customers who may not fully (or at all) understand what they are before signing up for. This could lead to financial losses or an inappropriate financial portfolio that puts their finances and hard-earned money at risk.
It is crucial for customers to be vigilant and take the necessary steps that will safeguard them from such mis-selling. Here’s how you can do that:
1] Educate Yourself: Before investing in any financial product it is always a healthy practice to do your own research. A simple search on the Internet can give you some basic idea of the product that you are planning to buy. The key things you should look for are the product’s features, risks, and benefits. It is best to not rely solely on the information provided by your bank relationship manager.
2] Ask Right Questions: When a relationship manager offers you a product, ask them why they are recommending it and how it will fit into your overall financial plan. It’s a red flag if the relationship manager seems focused on pushing a product without understanding your needs first.
3] Beware Of Bundled Products: You should be cautious if your relationship manager insists that you must purchase an additional product (for instance: an insurance plan) to avail of a loan or investment service. This is known to be a common tactic used to meet sales targets, and in many cases, these additional products may not even be necessary for you.
4] Review Documents Carefully: Review all documents carefully before signing on the dotted line. This is extremely important to understand the terms, charges, and implication of the product being sold to you. If you find it difficult to go through the document yourself, ask your relationship manager to break it down for you in simple terms or take extra help if needed.
According to Keval Bhanushali, co-founder and CEO at 1 Finance, bank relationship managers should have a basic understanding of the product before pitching it to a potential customer, adding that they must undergo the required training, rather than just be equipped with a sales training.
“It is essential for individual mutual fund distributors (MFDs) or registered investment advisors (RIAs) to possess a specific level of expertise and qualification regarding financial products before they can sell or advise customers. In contrast, a bank employee is often thrust into sales and advisory roles shortly after starting, and is equipped with only with a sales pitch,” said Bhanushali.
He added, “This represents a significant oversight by the Securities and Exchange Board of India (Sebi).”
According to the report, while not all relationship managers engage in mis-selling intentionally, it may also stem from inadequate training.
“Just as every employee in the brokerage industry must be NISM certified to work with clients, bank relationship managers should also undergo approved training before providing sales or advice,” Bhanushali added.
While the mis-selling of financial products is a common occurrence and problem for customers, a little precaution on your end will ensure that you do not end up with any product that disrupts your financial plans.