Misselling or Misbuying?

Sunil was looking quite anxious in the investor awareness program conducted by me. He already had plenty of discussion in the tea break, but still wanted to meet personally in my office. Actually, he was asking for help in reviewing his investments & insurance portfolio.

He felt he was a victim of misselling and his main objective behind this review was to weed out the bad investments. He also wanted to know other alternatives, with a specific question – what is the best investment option these days?

He visited my office at a later date with 2 files full of papers. One was full of Unit linked Policies and other was full of mutual funds statements.

I already told him that without a financial plan it would be difficult for me to review the investments, but he insisted on my opinions on specific investments he had.

While going through the papers, I found one very unique similarity in his investments. All ULIPs were “Highest NAV” policies and all mutual funds were “Capital Protection oriented funds”. He had some SIPs too, all were just 1 year old and all in mid cap funds.

He told me that he is a risk averse investor and had always invested through his bank. He wanted to have a safe and secure investment option with good returns. So whenever such option came in the market, his bankers made him invest.

But now he feels that none of his investments are giving returns as expected. Stock markets are rising but he still is into single digit return. This is one of the reasons he believes that he was missold by his advisor.

On SIP investments he reasoned that now he has become an experienced investor and has started reading a lot, attending seminars, watching money channels, and what he learnt from this entire exercise was that SIP is the best investment which can never go down. So he asked his advisor to make him invest in some “Best SIPs”.

I patiently listened to his stories and explanations behind his portfolio, and concluded that the problem was not with investments. He has got what he has asked for. Problem was even not in the products but in his not having clarity on his requirements, due to which he asked wrong questions to wrong person, so he should not expect right advice.

Capital Protection funds or even highest NAV ULIP policies are structured to be the safe bet in their respective spaces, to generate comparatively safe returns to investor. Though the product structure can be debated on, but I guess these are designed to answer the safe investment requirement of the investors.

Now it would not be right to compare such structure with pure equity returns, and if we want to compare then it should be in falling market too.

Misselling is all about selling a product by not disclosing the conditions and costs attached and when that product does not fit into the profile and requirement of the buyer. It may be termed as something good for the seller and not for the buyer.

But what if buyer himself asks for such product? This is a kind of readymade sale for seller. Sunil asked for safe product with good return, and he got what he has asked for. Misselling would have happened if he was not given the product as per his demand. He can call it a Misbuy rather a Missell, and if he thinks that he should have been advised by the sales person, then he should have dealt with an adviser and not the seller.

Yes. You cannot expect right advice from a seller. Seller’s job is to sell you the product as per your demand, and he did his job. The questions like “WHY”, would only be asked by an adviser who needs to be paid by the seeker, to get the right advice.

I agree, that earlier it was difficult to differentiate between a product seller and adviser, both roles used to overlap each other. But now after coming up of SEBI Registered Investment advisers, it has become quite easy. Now, investors just need to decide that if they want the product, advice or both.

This is why when Sunil asked me about the best products to invest in these days, I found myself in a fix, as I cannot answer in one line. Unless Advisors are clear on client goals, they know the risk profile of the person, and there is properly written financial plan at place, it is very difficult to advice.

Had this question been asked to an agent, then answer was quite simple. “These days” leads to recent performance, and “best investment” leads to top performing. This was what Sunil did in case of his SIP investments. All were mid cap, as midcaps have performed quite well in recent market rally. He has got what he has asked for.

In Old investments his focus was purely on risks and in latest investments he focused only on returns and ignoring the potential risks.

This is not only the problem with Sunil, almost 90% of investor seek a direct solution, without giving a thought on their requirements. Every time I answer queries on media like Money control, readers are looking for Best Investments, safe product with decent returns, risk free products, Good SIP etc.

One thing that these investor awareness programs and money shows on TV have been successful in creating is, hype about SIP. People have started treating SIP as a product in it self, in fact a “Ram baan” to all their investment needs. They want to pre pay their loans, Buy house on down payment, sending children for foreign education etc. all by investing in SIP and that too for very short time frame. They lack the basic understanding on how investment assets actually work, but run after latest fad, and seek product solution.

Such behavior exposes them to misselling if they want to put blame on others, but I call it mis buying. But both are not good for your financial health. So to have a good investment portfolio and financial life you have to ask right questions to right persons (advisors or agents), with a clarity of your requirement.