F(r)eedom from loads
Posted on April 16, 2010 | View 447 | Comment : 16
Charge Fees On Financial Products
We welcome finance minister Pranab Mukherjee’s suggestion to make all financial products load-free and adopt a fee-based model. A load-free regime will bring mutual funds, pension and insurance plans on an equal footing, allowing these products to compete purely on their intrinsic merit, based on individual investor needs. A fee-based model will enable an investor to negotiate charges directly with her agent. Ideally, this is the way financial products such as unitlinked insurance plans (Ulips) should be sold. Ulips are like mutual funds, with an added life cover. A lenient regulatory regime, however, allows insurance agents to charge hefty upfront commissions on Ulips. This is unfair to investors as they are often in the dark about how much of their premium goes towards insurance. Insurance companies should phase out commissions and finally transit to a fee-based model, as proposed by a government committee on investor awareness and protection. An agent who offers a service to the investor should charge a fee that is mutually agreed upon, and not solely fixed by the seller of the insurance product. Sure, this would make the task of agents more difficult, but they should reconcile to that correction.
Sebi has done well to scrap the entry load for mutual funds. The pension fund regulator has done even better, adopting a load-free model. Although this runs the risk of slow offtake of pension products, buyers will go by the product’s features rather than the immediate commission. Globally, incentive models for financial products vary. In the US, financial products carry loads, while in the UK, they will be load-free from 2012. India can set the trend for others to follow. But that would require more coordination among regulators. Investors need choice and better disclosures in financial products to make informed decisions. In a country where many don’t understand the difference between term insurance and investment-linked insurance, the regulator should go all out to improve financial literacy.
Comment
Comments (16)
- Its indeed an assertive and bold move by SEBI to scarp the entry loads on MF's first and now Insurance products. I think this is a very positive move to safe guard the investors interest. The Bank's and agents would not be very happy though with this decision. Lot of adviser's use to push this products down the investors throat to get handsome commission's being paid out to them. This trend is surely going to reverse now as brokers will not insist the investors to stay invested longer as they would survive now only on the trail commissions. Now with no entry loads for ULIP's as well brokers will now have no incentives to push this product and hopefully their will be a need based advisory now. Fee based structure is the most ideal model as advisers will be incentivised only it they do any ...See More
Posted by swapnil Patil , Director at Soul Spaces Property Solutions | 18 Apr, 2010
- I agree ,A rule should be free to acess,Risk,Commission ,Ommission,mortgage of Insurance or a plann as colotoral security or a paid of money amount.and it is whose risk an responsibilty to keep alive the Insurance products by Bankers/ Insurers,
May ask this for another demerits which are being played by thye Bankers..
Posted by Narendra Kumar Dash , secretary,Kanka Education Foundation at Kanak education Foundation(regd) | 17 Apr, 2010
- Yes, in the absence of transferancy as to how much is going to investment and how much going towards insurance
premium, the ULIP product is misleading the investors. Since asizeable amout is being offered as commissions to the agents, it is truly unfair on the part of the Insurance companies. In order to obviate this problem fee based concept is a welcome move by the Finanace ministry.
Posted by Krishna Prasad V S S , Chief Manager at Vijaya Bank | 17 Apr, 2010
- Most of the insurance companies do not reveal the charges that are deducted from the premium paid. They give the certificate for the full amount received as premium received, which is submitted IT Dept for Tax concession. I wonder how the full amount (premium) can be claimed for Tax relief. when it is not added to the policy fully !!.The fine print charges will derail our Finance Minister’s Suggestion.
Posted by Narayan swamy Krishnan,|17 Apr, 2010
- I don\'t think that a fee-based model will do better in our financial market, bcz the policy maker do not know the actual ground level situation of our financial market. The concept is good, but it is very much unfortunate for us, most of our Investors are investment wise illeterate, so they can not give the proper fees of financila advisor and do not the value.
Posted by Sougata Das | 17 Apr, 2010
- When we invest money in any financial product, the aggregator or the fund manager pays us the return on the investment after accounting for all the administrative and transaction costs, from the profit arising out of the operations.This includes the accounting for the hefty wage bills.But when it is coming to our financial products in India,as they are related to the income tax saving, the investors really do not have much choice.Load is a charge on the investor for investment, which is illogical.Fee based transactions may definitely lead to better performance of the finacial products in the long run.At the same time, there is a dire need for investor education.There are many innovative ways to do it.The suggestion of the FM is to put the things in their right perspective and I expect ...See More
Posted by MVR | 17 Apr, 2010
- Yes it is a welcome initiative, it will be more lucrative if principal protection is coupled with assured minimum increase so that investors inclined to invest at their own in these produces rather than the tailor made Bank FDs. The regulators should ensure these aspect and above all transparency must be there and the seller should be Certified Advisor/Agent for the product who can sell better way. The ultimate aim for all these investments are protection of investors capital, good returns. Ideal money in the hands of public must be useful for the nation\'s development.
Posted by Sitaramayya, Manager-SBI.17/4/2010
Posted by A.SITARAMAYYA , BRANCH MANAGER at STATE BANK OF INDIA | 17 Apr, 2010
- The concept of Certified Financial Planner has to be made a mandatory gate criterea for sale of any financial product with a fee attached with the type of service being offered. The entry loads or comission structures should be removed from all financial products. This will help missell of financial products particularly insurance. I have seen many a people paying insurance premiums as high as 5-10 Lacs per year and with a life cover of just 5 times this amount. From the financial planning perspective, a term plan is the first step with a sum assurred of an amount that if invested in a bank FD by the family of the deceased yields an interest income equal to the salary/monthly income that the deceased earning member brought home when alive.
Posted by Vivek Bimbrahw , Regional Manager - North at Pvt | 16 Apr, 2010
- Be it Loadfree or with Genuin Fee, the thing is that the Investor should be the ultimate gainer. This debate has come to this point only because the companies have been charging a hefty amount from the premium but never provided the service for which they charged such high amount. The true sufrer was the investor who was the victim of the undisclosed counts of charges which are not shown in any paper and are mostly hidden. Give the Investor the service and take back your genuin commission. Performance based commission.
Posted by Mandeep , BM at PVT | 16 Apr, 2010
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In India no one want become Insurance Agent .the awareness level for insurance is very poor . For our country Insurance Industry serving an excellent role for employment by way Insurance Agent ..
ULIP has given edge to all insurance company to stable them self in country very saving attitude in financial institution is poor . The clash between these two Bodies IRDA and SEBI . is discouraging for the industry .
...See More
Posted by Manish Sahay | 16 Apr, 2010
- Even otherwise there is no logical reasoning in Mutual Funds charging the investor a load for subscribing to their schemes. They are on the one hand imploring people to subscribe to their units in a scheme and on the other hand burdening the investor with charging of a load, saying "well, if you wanna enter our scheme, you gotta pay us this much". This is nothing but economically behaving irrationally, directly putting up a disincentive before the willing investor. Sebi's banning of entry load is very apt and most investor protective, ridding as it does of an obnoxious factor associated with investing in mutual funds . And now, why stay put with the exit load, better get rid of all irrational charges. The FM's being on the side of the investor by suggesting a load free investment regime, ...See More
Posted by SOORAJ KUMAR P M | 16 Apr, 2010
- the Govt & The regulatory auythorities must understand what they are doing will not help in short or long run. this will bring insecurity among the Distributors & will lead to increase wrongselling......
Posted by amit bhardwaj | 16 Apr, 2010
- Yes, There should be fee based Model which result an need based Investment & which is also log term besides Speculation & curning. These change effects a lot in shirt run but gain a lot lot in long run
Posted by vipin sehgal | 16 Apr, 2010
- Yes, there should be no Entry Load or Exit Load. It's investors money and he can enter or exit at any time without paying any entry or exit load.Becaus e whatever the return investor will get will be according to the duration of the money invested in.
Posted by santosh karlekar , Sr. Adm executive at Microbrain Info | 16 Apr, 2010
- This is not good. Anything , profit or loss has to come from your operations after netting expenses. If you charge fees, it is lack of confidence in your own judgements. Anything named entryfee or exitfee is not proper. Even Banks charging process fees etc must go as the intt. has to be worked out keeping this in mind. You also need customers! By getting fees initially, your customer does not become a pure one?
Posted by paresh m dave | 16 Apr, 2010
- Yes, I agree with loadfree financial products, as it allows the investor to judge better for his investment and there will be transperancy in fee based structure regarding charges leived on the services provided by the company.
Posted by Saurin , Branch Head at Sahara India Pariwar | 16 Apr, 2010
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