Banks asked to disclose to customer’s fees, commissions received from mutual funds

Positive:

Mutual funds has been best source of investment and the industry in India has been growing very fast, but as always any fast growth will have side effect and we have seen intermediaries benefit more by mis-selling products promising high return as these have been long term investment many investor had their own dreams about the investment and when real situation was entirely different. ULIPS is where many investors were mis-guided and now IRDA, SEBI and RBI have done their best to protect investor interest and it is time we as investor also read more about the schemes before we invest.

Negative:

Many private Banks fee based income was based on selling and cross selling many products and this proposal would be temporary setback. Fee based income in Private banks are more than interest income.

Speed-breaker

A senior official with a public sector bank said henceforth, banks cannot recklessly push financial products which earn them higher commissions without bothering whether the product is beneficial to the customer or not.

http://www.thehindubusinessline.com/2009/11/17/stories/2009111752070100.htm

In a move to curb mis-selling of financial products and ensure transparency, the Reserve Bank of India on Monday asked banks to disclose to their customers details of the commissions and other fees received by them while selling mutual funds and insurance policies.

From now customers will know how much banks are earning from every mutual fund or insurance product that is sold to them.

In a circular issued to banks, RBI said. “…it is likely that banks may be marketing/referring, several competing products of various mutual fund/insurance/financial companies to their customers. Keeping in view the need for transparency in the interest of the customers to whom the products are being marketed/referred, it has since been decided that banks should disclose to the customers, details of all the commissions/other fees (in any form) received, if any, from the various mutual fund/insurance/other financial companies for marketing/referring their products.”

In addition, RBI said that banks will have to disclose commission details while offering referral services for financial products, non-discretionary investment advisory services and portfolio management services through their subsidiaries. A senior official with a public sector bank said henceforth, banks cannot recklessly push financial products which earn them higher commissions without bothering whether the product is beneficial to the customer or not.

This move will empower the customer as he will be in a position to know which product is fetching how much commission for the bank.

According to mutual fund industry officials, around 40 per cent of total mutual fund sales come through banks.

Currently, banks are allowed to market policies of multiple mutual funds. However, they are allowed to sell policies of only one life insurer and one general insurer.

Incidentally, IRDA is considering allowing banks to sell policies of multiple insurance companies. However, some insurers have raised concerns about the possible mis-selling by banks.

Insurance brokers had even met the RBI Governor to express their concerns on this proposed move to allow banks to market products of multiple insurance companies. The RBI move would alleviate these concerns.