White collar crooks (aka Wealth managers)

Watch out for the so called wealth management services offered by the banks. Your relationship manager from the bank will offer to do this for you. I often wonder how qualified these guys really are, they do seem to be smart guys and girls with MBA degrees, so I would assume they do understand what wealth management means.

I have obliged plenty of these wealth managers during my last 3 years of experience in dealing with banks and researching information about investments in general. But, not one of them has come close to helping me "manage" my "wealth". All that they are interested in is peddling schemes and offers that result in big fat commissions for them. And they don't hesitate in brazenly lying about the "features" of the scheme that they are selling. These are your white-collar crooks. I am amazed at how they twist facts with a straight face.

Here's one example that I have overheard plenty of times. A new fund offer (NFO) from a mutual fund company is a good buy because the NAV at lauch is only Rs 10. Anyone with a little understanding of mutual funds would know that NAV of a mutual fund means nothing. The only purpose of NAV is to determine the number of units that you own and track the relative performance of the fund over time. Whether the NAV of a NFO is Rs 10, or Rs 100, or Rs 3.1416 is hardly relevant. In fact, common sense tells me that it is generally not a good idea to invest in a mutual fund of an NFO becuase they will probably be incurring much more initial costs (advertising, initial setup etc), which will come from the money that you are going to invest in it. Moreover, unlike an existing fund, there is no past data to judge how well the fund could perform. So, for all you know it may turn out to be a dud. Compare that with a mutual fund that has been around for 5 years, and has consistently delivered superior returns year-on-year. Why on earth would you prefer the NFO over the existing established fund (unless of course, the NFO has completely different goals which you believe in, and there is no existing fund doing that)?

But, the wealth managers will still pitch you every NFO that comes out for the simple reason that they have incentives to sell that which they don't have with the existing mutual funds. With the entry loads abolished, selling existing mutual funds is not lucrative at all.

Another common misleading pitch is about the ULIPs. They will tell you that the policies come with a lock-in period of only 3 years, and you can get your money after that. They very conveniently fail to mention the penalties incurred if you do that instead of continuing the policy for the full term of 10 or 15 years. Also, they very conveniently gloss over the fact that the fees charged in the first 3 years are much higher and the average fees charged comes even close to reasonable only if you at the entire policy period of 10-15 years. Moreover, they will tell you that you can easily get returns of 15% because these are linked to equities, without sharing with you the inherent risks of investing in equities over short periods of time. ULIPs may be reasonable investment avenues for at least a 10 year horizon (even though the fees are high, and should be rationalized further), but to pitch them as 3 year instruments is a crime.

One such rogue convinced my father to convert a fixed deposit (prematurely) into a ULIP policy. How can a ULIP be a replacement for a 1 year FD as an investment goal? I think such guys should be hanged to set an example. While-collar crooks!!!