Can you trust your bank’s advice?

The Insurance Regulatory and Development Authority of India (Irdai) wants banks that sell insurance products to be accountable for the advice given. We did the rounds of six banks to find out the utility value of their financial advice.
Typically, a bank’s advice appeared to be driven by the quantum of commissions earned rather than requirements of the customer.The modus operandi was almost uniform. While maintaining that they had an array of investment avenues on offer, the banks unfailingly promoted traditional endowment and money-back plans. In some cases they did not even mention, until asked, that what they were offering were insurance policies. The insurance was presented as an additional benefit. “If you invest in a taxsaving FD, it will be a one-time investment, but this product (insurance policy) will get you tax benefits every year,” was the refrain, glossing over the fact that insurance policies entail recurring premium payments.
The banks covered by us included two PSU banks, three private banks and one foreign bank. The foreign bank refused to offer any advice unless the customer opened an account with the bank.
The larger PSU bank’s officials wanted to know the products we needed, emphasising on the range of instruments on offer. The smaller PSU bank’s officials, who were asked to recommend products for a senior citizen, laid out three options—tax-free bonds, single premium endowment plan and an immediate annuity scheme. The single premium plan was billed the best.

At private banks, the scenario was skewed in favour of investment-cum-life policies. One bank’s relationship manager went on to enumerate the features and benefits of the money-back plan without specifying that it was an insurance policy. He also recommended Ulips over mutual funds.
At the second large private sector major, the official did not even mention other investment instruments. The emphasis was on Ulips. Traditional endowment plans were the second best bet according to him.
The adviser at the smaller private sector bank, when told that the objective was taxsaving, suggested a money-back plan. Pointing to tax-saving FD rates, he said they had come down substantially after RBI reduced the repo rate. Our experience shows customers need to be wary about the advice they receive from banks. Therefore, do your homework on products available, their features and your requirements, before you approach your branch.