A peer friend of mine had written an article sometime back on why a chartered accountant cannot be a financial planner. The truth hit me home hard when a prospective client came in through my door with a question – “I cannot pay the premiums of my insurance policies”.
I dug into the case and was alarmed to see that it wasn’t just life insurance agents who were front running for commissions, it was even chartered accountants !
The case
Chartered accountants often act as financial planners. Their mode of working as a financial planner is something like this. They will promise to spend some 2-3 hours with you at your home doing your financial planning.
But more often than not, they only look at your Form 16 or income tax returns to assess how much you earn and how much money you can therefore park in products through them.
The CA in this story does not make a trip to your house if you do not invest through him. His ask is that you have to keep a cheque ready for investments and then only will he come to your house. The total investments cannot be lesser than some amount, if it is, he does not take the trip to your home !
In my client’s case, Suman (name changed) had just returned from the US and was sitting on a pile of money. Someone told him about this CA and the fact that he could help with planning. Suman had some systematic investment planning of mutual funds running for some years now. He used to invest in them each month. He never knew about the importance of SIPs but stuck to them after being advised by some friend.
Anyways, coming to the point of this whole discussion. Our protagonist, the CA, had a look at these investments and advised that the investments in MFs be stopped immediately. He made a plan of products where the money could be channeled.
The products were as follows :
- ICICI Pru Life Stage Wealth II Saver with a premium of Rs 50,000 per annum and sum assured of Rs 5 lakhs.
- ICICI Pru Life Stage Wealth II Saver with a premium of Rs 100,000 per annum and sum assured of Rs 20 lakhs.
- Aviva Young Scholar Advantage with a premium of Rs 50,000 and sum assured of Rs 7.85 lakhs.
- Aviva Freedom Life Advantage with a premium of Rs 50,000 and sum assured of Rs 10.5 lakhs.
- Two ICICI Pru Crisis Covers, one each for husband and wife, approx premium being Rs 20,000 total.
- ICICI Pru Health Saver with a premium of Rs 35,000 per annum and annual limit of Rs 5 lakhs for the family.
Can you see the ULIPs, vow ! And look at the premium amounts.
They total to around Rs 3 lakh per annum or Rs 25,000 per month. Suman has a take home salary of Rs 70,000 per month and he is suddenly loaded with products that he could have easily done without. Since he is paying some EMIs and spending money on daily living expenses, he is now finding is difficult to service these policies.
Obviously, the CA recommended these products as these generate a lot of commissions for sellers. Little did he have the investor’s good financial health in mind; he was concentrating on how fat his wallet could get ! Sale of these products along with an advise to stop the mutual funds just goes to show that this CA was ill equipped to be a holistic financial planner. His job was best to take care of tax planning which is what he should have stuck to.
The impact
While the Crisis Cover is something which is still a good product to have, the others need to be weeded out. But the problem is not so simple. They are running into their third years and the surrender policies are such that only a pittance will be left in almost all products.
The worst part is that now that the money is locked in these ULIPs, Suman does not have much of leeway to invest for his financial aspirations in life. He is having to compromise on some of the goals because he will now start a bit late to invest for them when the lock in period of these expire. I have work to do on this case !
The biggest lesson one should learn from this is that you should only buy what you know. We keep hearing this from stock market gurus that one should thoroughly research a company before buying its stocks. The same applies to any financial product in life. If you don’t, products will be mis-sold to you. You will always be at the receiving end of product sellers who are looking to make a quick buck without having your well being in mind.
And yes, not all CAs are on the run to fleece investors; nor are all CAs financial planners and nor are all financial planners perfect to the core. The industry at all sides is filled with people who want to make quick money – as an investor, you need to be armed to judge who is right and who is wrong.
All the best !
Thanks for sharing this incident, it is an eye opener!
I fully support the suggestion of buying products only after understanding them and buy only from people you can trust.
“His ask is that you have to keep a cheque ready for investments and then only will he come to your house.” – This statement itself is telling what an illiterate financial planner this person is. How can you tell where to invest without even studying client’s financial health?
I pity your client but somewhere the client is at fault as well. One should be alarmed at such whacky suggestions of investment.
I agree that it is the client’s fault to a great extent.
The client cannot pass the back to others saying he was mis sold. He did sign on the dotted line so the fault lies with him as well.
The CA might have misled the investor to make a few quick bucks, but yes, largely, blame the investor here.
If you want to believe that fire is cold, then don’t blame me for selling it to you in a icebox. Afterall, i cater to your stupidity.
Well said Karthik.
Feel sorry for the investor but not surprised, i knew CA’s do this. Infact when they come to my organization to file IT returns they also come with few brochure of ULIPS/health plans and try to sell it.
How do you ward them off ?
Its just not CAs doing this, its everyone who can lay their hands on your wallet !!!
Financial literacy and awareness is the key!
Just ignore them and say not interested. I still keep getting calls from my RM @ HDFC Bank on new products, i politely say that i am not interested and if he keeps insisting to meet me in person and explain this plan i either say that i am out of station or that my financial planner advised not to buy this plan.
And Kotak chaps are meeting me to sell PMS, another live example huh !
Good! Please help them understand that their product is useless. 🙂
Hmm…really eye opener.
But TWW should be prepared for BFA’s respone..
We have shot back and forth !
TWW
I am horrified to hear about this story. It is indeed a tell tale sign that you need to watch out for financial advisors (though not for CAs as your article was reflecting). I am on the verge of completing an article on Danger Signs to watch out for while choosing a financial advisor… where i am not trying to blame a particular community of financial planners.
While your article has the necessary caveats that it is not meant for the generic CA community, however, I would be looking out for how people would take it when they read it. The second comment on your blog already has some conclusions on the incompetence of a CA.
I don’t want to appear as a fighter cock out here – but I hope you are getting my strong messages that the issue is not that a CA did this.. The issue is that a financial planner did this.. And to infer it to the full CA community, I would believe that you are in for a rocky road 🙂
BFA, if you look at my last para, it clearly says that not all CAs are mis selling. This was one instance and I was aware of a few others also, hence the article.
In the finance space, you will always meet people who are life advisors, health advisors, CAs, CFPs and what not who are incompetent. That does not make all of them incompetent. It is useless to dsicuss that.
However, I do not agree that a financial planenr did this, it is still a CA. A CA is a CA first and a planner later; in the same way a CFP is a CFP first and a tax consultant later.
A person who has done both CFP and CA is one which he thinks he has core skills at.
This is not an intent to sully the image of CAs in any way please.
My response to your article is http://insight.banyanfa.com/?p=908.
Ah, you win mate 🙂
Poor Guy…….. Six such products, it’s really too much. I think people should earn commissions though it shoudn’t be like this. The advisor (fact here is it was a CA) didn’t think about this guy’s investment is ok for a moment, the thing is he has spoiled it fully. That shouldn’t be done being human.
Ya obviously, it was client’s mistake first. Again I remember my fav examples here – doctor and lawyer. So atleast client should think before choice. What treatment should be done by which doctor.
Anyway the client is back in safe hands :).
I liked BFA’s article http://insight.banyanfa.com/?p=908, speciall the last three points (8, 9 and 10).
Just a food for thought .. How about IRDA making it mandatory to include the name ‘ULIP’ in the policy name itself ??.. Because what i am observing these days is that people now-a-days are understanding that they should avoid buying ULIP, but many of them still end up buying it because they are unaware that they have been mis-sold a ULIP under a fancy name.
Including ULIP in the policy name will clear out all confusions ..