Agent: Sir this is the best plan for you - it will give you good returns as well as proper risk cover. The premium is also cheap, just Rs. 35000/- p.a. The insurance cover is Rs.5 lakhs. After every five years, you will get 20% of this insurance cover back. At the end of the 20th year you get the remaining 40% of insurance cover with all accumulated bonus. As you are just 28 years old, this plan is well suited for you.

Client: OK. I know this plan very well. Another agent had explained this plan to me. When I asked him how much premium he was willing to pay on my behalf, he said he could pay 2 months’ premium. If you can pay more than that, I will purchase this plan from you.

Agent: No problem, sir! I want to complete my sales target for this year; I can pay 3 months’ premium for you. You should know that I am paying more than the commission I am receiving.

The sale is made.

…This is the Indian financial market…

Nobody is bothered about:

• Financial needs analysis
• Risk measurement and management
• Rate of return from investment
• Capital appreciation

The effect:

• Mismatched asset allocation
• Huge uncovered risk
• Poor rate of return
• Capital eradication due to inflation
• Non-achievement of financial goals

Who is responsible for this? The part-time agent, who sells the products without any financial knowledge and just wants to complete his/her sale target? Or the buyer who is just concerned about the illegal premium rebate?

The agent paying the premium amount on the buyer’s behalf is very much like a bribe received for purchasing a product. For small gains in the short term, the buyer is actually opting for huge losses in the long term - losses that are not quantifiable at the time of sale.

Why does this happen? Here are some reasons that might give you a clue:

• Competition among agents and financial organizations
• Lack of a professional approach to financial planning
• Perception of financial consultancies as a part-time profession
• Lack of innovative financial products from financial organizations
• Lack of selling and communication skills
• Lack of trust and confidence in the customer’s mind about their financial planner
• Lack of back-up for the so-called financial planners – no proper knowledge, proper office with staff, no technological assistance
• Low standard of entry into financial consultancy – HSC pass plus a few elementary examinations is all that is required to start off as a financial consultancy
• Huge market requiring huge number of financial planners, resulting in financial organizations recruiting any half-decent Johnny as a financial planner

Rebates in the Times of Nationalization
Before 2000, financial sectors like insurance and banking were nationalized. Public sector organizations never bothered about their agents’ knowledge and skills or how they were procuring the business. They didn’t need to as there was no competition. The only competition was among the agents to grab maximum business. This would result in them offering part of their own commission to the buyer as rebates. They were also known to offer some extra incentives in cash or kind to complete a sale. These practices continue to this day.

Although these offers are unethical and illegal, they nevertheless took deep roots in the insurance fraternity. As a result, the customer began to consider a premium rebate in the light of his/her right. He/she did not have any qualms in accepting a rebate or a gift.

Rebates in the Open Market
As the market was thrown open after 2000, various private companies entered the fray increasing customer awareness about maintaining their financial health.

They offered various new products and public sector players were forced to increases their product portfolio as well as services.

With this influx of new companies and products, insurers needed staff to sell them to the public. Enter fresh graduates, call centre executives and banking employees, who started selling financial products with the same elementary knowledge and wrong information as their predecessors in the public sector entities. Result? The rebating habit caught hold here too.

Rebates vs. Discounts
For selling any tangible product, sellers offer discounts. Discounting is used as marketing tool to attract the consumer. Consumers are offered some schemes or free gifts for buying particular products during particular time-periods. Sellers use stock clearance sales as a tool for moving dated products from their stores.
But, in no case do they ever sell a product below its cost. They always try to manage the pre-decided profit margin while selling such products - i.e., they reduce their profit margin to the bare minimum by reducing the sale price.

Generally, prices are first increased and then reduced by giving discounts, giving the customer the feeling that he/she is winning the bargain battle. And this feeling urges the customer to buy more, thus increasing sales.

Discounts are ultimately healthy for the customer because even with the discount, he/she receives the benefit of the product without losing the quality of the product as a result of the discount.

But the same strategy cannot applicable to intangible financial products or services.

Benefits in the case of financial products come in the future and they depends on external factors such as the world economy and market conditions. Regular reviews and proper follow-ups are necessary for a financial product to achieve the desired benefits or goals. The impact of wrong financial decisions can be verified only in the future, by which time they are irreversible.

Purchasing financial products is like cultivating a farm. Timely water, fertilizers, pesticides, and insecticides are necessary for the farm to thrive. It requires years of such care to bear fruit, literally.

Ditto with financial products. They are not one-time affairs. It requires nurturing and caring for decades, regular review of your financial position, changing plans according to changing needs, and regular follow-up to ensure the product’s success.

When a customer demands a rebate he/she is risking not getting future follow-ups, regular reviews, and proper attention to maintaining his/her financial health. In other words, discounted service always leads to discounted quality. If any financial consultant agrees to provide service on rebate, the customers must think twice before taking the consultant’s advice and doing business with him/her. Why is the consultant doing this? Is he/she a proper knowledgeable person in the finance field? What is his/her experience? Will he/she be available for providing follow-ups and after-sales service? Does he/she just want to complete his/her sales target? Ultimately, is this sale transaction going to be a one-time affair or an instance of life-time parenting?

Demand for Rebates – Call for Losses
Customers demand for rebates due to two reasons:

• They are totally ignorant about their financial requirements and do not know about the financial consultant’s ability to change their financial health by proper service and advice. Customers then buy into the regular short-sighted practice of demanding rebates.
• Customers might think that they are fully knowledgeable in the field of the finance and thus do not require any advice or service any time in future. Their main concern at the moment might be that they do not have the right channel to buy financial products without interference from intermediaries such as brokers. Buying financial products from financial consultants is an easy way out, especially with the promise of rebates.

I would like to ask just one question to both of the above-mentioned types of customers: Would you dare to ask a rebate from your doctor for his services? How reassured would you then be that he/she is giving you the absolutely best quality attention to your medical problems?

To maintain good financial health, take the best of the best services from professional financial planners and avoid all agents or so-called financial planners whose interest in this profession is at best half-hearted.

Quality always comes with a price, even if the quality is not visible to the naked eye. Remember, brass and gold don’t have same price.

Key Qualities of a Financial Planner - Knowledge and Integrity
A financial planner needs to assess customers’ present positions, prioritize their needs and goals as per their risk appetites, and then suggest the proper financial product (s) that will fulfill those goals.

This requires proper knowledge of various faculties of finance like insurance planning, risk management, retirement planning, investment planning, portfolio management, estate planning, plus various laws such as the Income Tax Act, Gratuity Act, Companies Act etc., and so on. Armed with this knowledge, the planner now needs to compare the various products on the market, weigh the pros and cons of each, and then suggest the suitable product to the customers.

Another quality is integrity. Integrity to the customer as well as to the organization that he/she represents. This quality is the basic need to develop the finance industry in India today.

When financial planners are ready to offer rebates, it means that they are ready to adjust their integrity. It also means that they have no qualms in suppressing or misrepresenting valuable information to earn extra commission. You have the right to always expect the highest level of integrity from your financial planner - he or she is, after all, the trustee and caretaker of your finances and your guru in all matters financial.