10 things which will save you from an unsuitable financial product

You probably have heard that people lose money on their investments when markets crash. In fact, more people have lost money by not following the 10 points below than due to any market crash.

1. Invest time before investing money

I know several people who spend enormous amount of time selecting a shirt, belt or a shoe. They don’t mind checking out store after store till they get the exact colour or fit which they had in mind. However, when they deal with their investment advisor, they suddenly become the busiest person in the world – “Dude, I don’t have time for this. Make it fast”.

A bad decision while selecting your shoe is not going to make a big difference in your life. But your selection of financial products can make or break it. By rushing your investment advisor, you are not helping him to help you.

Schedule the appointment at a time and place where you and the advisor can discuss undisturbed. Make him understand your financial situation and goals.

2. Don’t take personal decisions over financial matters

Whenever you hear somebody complaining that they lost money on a financial product not suitable to them, ask them from whom they bought it. 90% of the time, you will hear the below answers or a variation of these answers.

“My friend had a target to meet”.

“My neighbour’s son needed one last sale to get his job confirmation letter”.

“Well, the bank manager was a nice guy and helped me to get the loan. So, how can I say no when he requests to take this insurance”.

“My Relative is a LIC agent, he sold me the policies”.

I am not saying don’t buy from your friend, neighbour, relative or your bank manager. If he is able to explain to you clearly how the product can help you in your overall financial plan and if you are convinced of the same, buy it. But don’t buy a product just because a friend or relative needs a sale.

Rather, it will be better for you to clearly tell him that you will listen to their presentation but you will only buy if you are convinced of the suitability.

If you are having problem in choosing the appropriate investment product for yourself you can filter the product in these three filters:

  • Expected rate of return from that product
  • Current Inflation rate
  • Tax Bracket

After filtering your investment product in the above 3 filters you will get to know whether this product is suitable for you or not.

3. Ask questions

Human beings are natural at asking questions. And most people, even those with no financial background have the ability to ask the right questions regarding financial products. The problem is that they don’t ask them at the right time, i.e., before buying the product.

It’s better to act foolish and ask whatever comes to your mind than to act like a “know all” thus putting yourselves into a position from where you cannot ask basic questions and make yourself comfortable with financial advisor  Don’t use jargon which you don’t understand and don’t allow the advisor to use jargon which you don’t understand. If you don’t understand any jargon which your financial advisor uses ask him about the meaning of the jargon used or to simplify it.

A knowledgeable, professional advisor would always welcome questions because it gives him more opportunity to educate his customer. If you don’t know, it’s good enough reason to ask. It’s your money.

4. Encourage negative information

When you do all the questioning above, you are bound to learn the downsides of the product from your advisor. If he is ignoring your questions and not giving you the complete picture, it’s a clear indication to change the advisor or the executive.

Likewise, when someone gives you the cons of the product that he is selling, respect his professionalism and don’t use it as a reason to get rid of him unless those cons genuinely make the product unsuitable to you.

There are no good financial products and bad financial products in this world – There are only suitable financial products and unsuitable financial products with respect to specific goals of people & risk appetite of the person.

To decide whether a product is suitable for your purpose, you need to know both the positives and negatives of the product and then take a call as to whether the positives make a difference to you and whether the negatives really matter to you.

I repeat – There is no product, financial or otherwise, with only positives in this world.

5. Keep expectations realistic

A big reason why a lot of people lose money on their investments is because of their selective obsession with the “return on investment” while totally disregarding the “Risk” involved. They fail to realize that “Return” and “Risk” have direct relationship among them. one cannot exist without the other.

In their chase for finding the investment which gives the highest return, by the time they enter, the party is already over. Not knowing the risk appetite they buy the investment products with superior past performance and regret.

6. Never sign blank forms

People have seen their fixed deposit becoming mutual fund, single premium insurance policy becoming regular premium policy, stock broker buying and selling stocks on their account and a lot more. Thanks to this one habit. And still people do it.

A combination of points one and two above are the main reasons behind this.

You have put yourselves in a position of “Busy Ness” from where you cannot allow the advisor an extra 10 minutes to fill in the application. And the advisor becomes extra helpful and says “Sir, you just sign here. I will complete the details for you”.

If you have signed the form, you are bound by whatever has been written there and cannot claim that it was somebody else who filled and you only signed.

I am not hinting that all advisors are like that. In fact, only a minority resort to such practices. But you only need one such advisor to ruin you. Hence, make it a blanket practice not to sign unfilled forms or sign it after reading the whole document.

7. Never pay in Cash

Never pay for your product in cash to your advisor. Pay using account payee cheque, account transfer, pay on the company website using net banking, debit card, credit card etc – But never pay cash to the sales person. This is because advisor cannot issue receipts and in case of any issue even the concerned financial organization will not be able to help you since there is no proof of payment.

8. Check what happens next?

Clearly understand from the advisor as to the next step. Whether you will get any document such as acknowledgement receipt ? By when will you get it? Whether it will be hard copy or electronic? What to do in case you have any servicing requirements?

It is not just enough that you understand the above. If the committed document has not been received within the committed timeline, follow up with the advisor. This is because only once you get the document you can read what is written there and feel sure that everything is like what you have been told.

This is especially important on products like insurance policies which come with a mandatory “15 day return window” called Free look period wherein you can return the product within 15 days of you receiving it and your money will be returned. If you find the details of the product in the document different from what you have been sold by the advisor, you can use this option rather than getting stuck with an unsuitable product for long term.

9. Use company website, call centre, e-mail contact points

The fact that you are reading this blog proves that you are sufficiently tech-savvy to use these alternative communication channels effectively.

You can use company website to double check the information given by the advisor at the buying stage. Now a days, you will get details of all the products on the respective company websites.

Post buying the product there will be several instances where you have servicing requirements. Your advisor should help you with the same. However, in case you find him not responsive, use alternative channels like call centre and e-mail.

The advantage of Call centre and E-mail channels are that there is a clear record of your request or complaint in case you wish to take it up further. And the organization has to resolve your concern within a specified number of days.

10. Avoid Rebating

Rebating means the practice where an advisor offers a portion of the commission earned by him back to the customer in cash or in kind to induce the sale. Avoid such an advisor like plague.

First, it is illegal. Will you trust a person with your hard earned money who doesn’t hesitate to commit an illegal act?

Second – If an agent has to resort to rebating to make his sale, it is because he himself is not sure of how the product will be useful to you. The discount or kickback which he offers to you will be the only value which he will be providing during the entire tenure of the product. And when compared with the losses which you will be incurring from such an unsuitable product, you are better off not buying it in the first place.

Happy Investing..!!

Contributed by Mr. Hitesh Raheja from Moat Wealth Advisors



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