In expression ‘Caveat Emptor’ usually finds a place in laws related to business. The phrase Caveat Emptor means “Let The Buyer Beware.” Once a buyer is satisfied with the product’s suitability, then he has no subsequent right to reject such a product.
The buyer purchases a product / service at his / her own risk after being assured of the quality of the product. They are required to use their own skill and judgment except in cases of FRAUD.
This phrase sets the onus of the purchase decision on the buyer. The buyer has to do his due diligence before concluding the purchase. But, as a buyer do you follow this in every decision? Or as a buyer do you consider reading the fine print in your investment decisions? As an investor of financial instruments, they are always on the trot to seek higher returns. Trying to oscillate between establishing their needs and understanding the financial jargon, a very meagre consideration is given to 'let the buyer be aware' by them while planning their investment portfolios. Most of the time, investors make decisions based on influence and the influence can occur in many ways.
1. Many products are offered through tele-callers based on our previous investments. Cross selling or Upselling happens because we are existing customers to the service providers. It is easy for them to offer to the existing customer database as they already have your data with them.
2. Some products are offered to make a core service more personalized. For e.g. a bank may offer a locker facility or a relationship manager in return for buying insurance or investments in mutual funds / fixed deposits (better personalized service to the investor for an already existing core banking service.)
3. Sometimes investors are offered a product from within our known circle, be it a friend / relative / colleague. At times, we can’t deny them and end up taking the product / service. While these products may be good, they may not suit our requirements. Generally, they approach us since we are in their network, and it is easy to approach us rather than an unknown.
In many cases, products are offered only for the sake of achieving a personal target / incentive via commissions.
1. Despite all products being designed for the benefit of customers, not all of them are suitable to all customers. With changes in age, financial goals, risk profile etc. the requirements vary from person to person.
2. In many cases, even though the product is good, it does not address an investor’s actual requirement and hence does not add much value to the overall financial health of that investor.
Most people get a similar offer to what they already have in their portfolio. May be the product is different, but the features are same and the contribution to the overall financial plan is same. For e.g., even if your insurance requirement is completely addressed, you may get offers of some insurance products with an attractive sales gimmick.
Recently, we came across such an incident where the family members got to know about a sizable investment done by the diseased person which was neither available with the financial advisor nor in his own files. Ten months after his death, it came to the notice just because the family members received an email about it.
In general, mis-selling happens in a direct sale since the service provider may not know your overall financial position, requirements, risk appetite etc. Unlike your financial advisor who knows all your financial aspects very well, in a direct sale, the primary objective is to sell a product rather than addressing your requirements through that product.
If you get into a direct sale of a financial instrument through a third party, your financial advisor must be made aware.
Based on your financial goals and requirements in your overall financial plan, your financial advisor will be the best person to assess the suitability of the product. Post that you can make an informed decision.
If the products are genuinely suitable for your portfolio and are aligned as per your risk appetite, there is no harm in taking those instruments, but as mentioned above – Your Advisor’s Approval Is A MUST.
1.Sales gimmick - Show a fairy-tale return with no disclosure of the risks.
These products come with added risks which may be unsuitable to the investor’s risk profile and/or asset allocation. These unsuitable instruments in your kitty make the portfolio inefficient and incomprehensive.
2.Trusting every unsolicited advice you get on your investment portfolio
Buying bits and pieces from various sources leads to a lack of tracking your overall portfolio. In case of any eventuality, your advisor/family member might not be able to know about all investments and it might go unnoticed/unclaimed.
Conclusion:
All financial instruments are designed for the benefit of the investors. However, not all the instruments make sense for all investors. Different investors have different requirements based on their age, risk appetite, financial goals etc. Thus, before investing in any of the financial instruments, the best way to nod for an offer is to reach out to your financial advisor who can assess the suitability of that product in your overall portfolio and make an informed decision.
Bibliography
Is your bank mis-selling? | Complaints related to mis-selling of financial products on the rise | How does Financial Planning work? | WILL Registration and Probate
