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It is a common thing to hear these days that when you are looking for a suitable investment plan to fit in to your financial plan, not every time can you expect the correct advice from the financial advisors.

While discussing about investment with an advisor, many times you might come across incorrect guidance. It is at this time where one gets to how to handle things wisely and stay protected from such advices that might trap you in the end.

When we conducted a small survey, we found advisors (or the so-called relationship managers) misguiding the naive and easily trapped customers, and pushing them to unsuitable & high commission investments. This was clearly as a profitable situation for the distributor, and not the investor who is investing his hard-earned money.

Let us consider a few situations where these advisors can/may trick the investors, based on incorrect information given by the former.

Tax-saving fixed deposits or ULIPs or PPF:

The moment one seeks advice about investing in FDs, the advisors say that the returns from FDs, both principal and interest are taxable. They suggest the customers to invest into ULIPs (unit-linked insurance plan), which according to them gives tax-free returns. Many large private banks were inappropriately entrapping customers into this. However, what they showed was not actually the real picture. When researched upon what they suggested, we found that the advisors never explained that the returns from ULIPs are unsure, and rather linked to the market situations.

In case of FDs too, only the interest on it is taxable, while the principal amount is not. In no case, the advisor has suggested risk free and tax free PPF as a better alternative. PPF investments don’t get any commission to agents or advisors. Now I need not explain why they didn’t recommend PPF to investors.

Equity Mutual Funds and ELSS Funds:

Here too, when asked for investments into diversified equity funds, the advisors tried to sell us a ULIP. They even try to criticize mutual funds, just to make them appear unattractive to customers as compared to ULIPs. They even tell you that mutual funds are expensive compared to ULIPs.

However, the told story is not always the real one. In fact, mutual funds are the cheapest way to invest into stocks.

Monthly Income Plans:

The wealth managers, who are insistently marketing upon the capital protection oriented plans, never tell you about these being closed-ended and offering limited liquidity to the investors. The fact is the closed ended capital protection funds are more or less similar to the open ended Monthly Income Plans of Mutual Funds.

Closed ended funds pay more commission to agents or advisors and open ended funds pay less commission to agents. Now I need not explain why capital protection funds are sold more than the Monthly Income Plans.

Term Insurance Plans:

Many a times, you will find advisors telling you that term insurance plans (the best form of life cover), are a waste of money. It was actually ridiculous for them to say that the premium goes waste because the same does not have a maturity value. In fact, all investment plans (including the traditional ones and ULIPs) levy charges for mortality.

Low-cost ULIPs:

In such scenarios, the insurance agents tried pushing the traditional schemes over ULIPs, arguing that the former sell more than the plans that are market-linked. Even being far more customer-friendly, no advisor wants to sell low-cost ULIPs, because of the low commission that they offer.

Tax-free Bonds:

The advisors might tell you about the necessity of a demat account for investing in tax-free bonds. However, the truth remains that one can purchase these bonds in physical form as well, and can go for dematerialization at a later stage.

If you find yourself into any of the above scenarios, you need to keep an eye on whether or not your advisor is misleading you to a wrong investment advice. In such situations, you must have some warning signals to watch out.

Take time to think about the most appropriate option, as if it is your last:

Take your investment seriously, and do not make a hassled decision, influenced by whatever the advisor tells you. There is a probability of the advisor to give a wrong advice, too. So, take your time to think and research about the product, in order to find out how it fits into your financial strategy. Do not just make a decision in the first couple of meetings.

Avoid the products that do not fit into requirements:

A financial advisor must first understand his/her customer’s needs, to be able to offer the best investment product. If your advisor does not inquire about your basic things, how will he be able to benchmark your needs? One should try avoiding financial advisors offering such insurance policies.

Beware in case your advisor prevents you from considering other products:

If in case, your advisor offers something other than what you have asked for, it is time you open up your eyes. One thumb rule to remember is that ‘never invest into options you do not understand’. Do not believe anyone unless you are completely sure of the features and working of the product that you are look forward for investment.

Remember no market-linked product is completely risk-free:

The time you come across any advisor offering you any market-linked product and that too, risk-free, be sure of the advisor making a fool around you.

Take indications from the past:

Your past performance as an investor is always a good indicator of the future performance. However, there is never a guarantee of the same, subject to market risks. Therefore, look out for various things, before you actually make a decision to invest.

In the investment world, you are safe as long as you don’t make major mistakes. One such major mistake is to falling prey for misleading advice. If you could identify and stay away from tricky financial advisors, your money is definitely safe. One such way to be alert is to create a unique workable financial plan to achieve all your life financial goals. 

The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners​ (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at​ ramalingam@holisticinvestment.in


Published by

Ramalingam K
(Founder & Director - Holistic Investment Planners (P) Limited)
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