I dislike dealing with ‘individual’ agents who offer advice. There is no guarantee of getting continuing service. Always deal with an institutional agent—especially if you know what you want

R Balakrishnan

Of late, I have noticed a marked animosity from self-styled independent financial advisors (IFAs) in response to my writings about them. Let me put the record straight. I am against anyone who calls himself an IFA and is a seller of a product, whether it is a mutual fund or an insurance policy. Advice and selling are two distinct activities, totally unrelated. An IFA can sell mutual funds, but there is no excuse for an IFA being an insurance peddler. In the case of mutual funds, the IFA at least hawks competing products.

In general, however, the IFA, who is a seller of products, cannot be objective. When selling mutual funds, he is going to avoid some funds on grounds other than performance. The moment subjectivity comes in, the IFA ceases to be ‘independent’. If it is insurance, the ridiculously high commission forces the IFA to sell investment products which are inferior to mutual fund investments.

I have yet to come across an investment product that is superior to a combination of a pure term policy and a mutual fund investment. So, if an IFA becomes an agent of an insurance company, he ceases to be an ‘independent’ advisor.

The other thing I dislike is dealing with ‘individual’ agents who offer advice. There is no guarantee that I can get continuing service.

In my early working days, an LIC (Life Insurance Corporation of India) agent sold me an endowment policy on the basis of the tax deductions available. After the second year, he lost interest in me, since I did not want to buy anything else from him. I had to do everything myself.

If the LIC reminder reached me, I was lucky. Changing houses, cities, etc, I lost track somewhere. Then, after a stage in life when I had time on hand, I had to go to LIC myself, work out the economics and revive the policy. The bloody agent was untraceable.

In 2001, I bought a policy from MetLife India. The first two years, the agent came home to collect the premium cheque. After that, I had no option but to do it myself.

I wrote to MetLife to appoint another agent or, at least, give me back the amount that the agent was being paid on an annual basis as ‘trail’ commission. MetLife did not respond.

I marked a copy to the regulator. Same fate: no reply. So, if you buy a policy from an agent, there is no guarantee of continuing service. On the other hand, I make some investments through my banker. Over the past few years, the ‘relationship’ manager has changed several times. However, service from the bank has never suffered. Whoever is in place has picked up the threads and continues to give me service. Hence, always deal with an institutional agent, especially if you know what you want and you want continuity in service.

For the advice alone, it is worth going to good IFAs. However, the customer has to learn to pay for it. It is strange that we never negotiate or think twice about paying a doctor or a lawyer for advice. So, we should be ready to pay the IFA or an advisor for advice on managing money. But the buying should be done elsewhere. This will ensure that the quality of advice is not diluted. Since you have denied the agent any other avenue for making money, he will be focused on doing the best for you.
|
Often, we let ourselves in for a ride by not planning out the entire spectrum, but looking at each thing discretely as and when we feel like. Now, it is likely that, in a few months, with a new Securities and Exchange Board of India (SEBI) chief, who has been a part of the mutual fund industry for some time, things will change.

Maybe, entry-load for investments through agents or brokers would be restored. Maybe, the manager of a portfolio management scheme (PMS) would be subjected to full disclosures. But none of this is going to impact what an IFA can—or cannot—deliver. An investor is still faced with the same dilemma.