What about neutrality in financial services too

Freedom of connection with any application to any party is the fundamental social basis of the internet. And now, is the basis of the society built on the internet.

Tim Berners-Lee

In the past few weeks, we’ve seen a public outrage over the infringement to net neutrality. So, basically as a layman, what I understand of net neutrality as a concept is that the consumer should get unrestricted and barrier-free access to every bit of content over the internet, and some sources of content should not get preferential treatment over the others. There have been news items that TRAI has received 10 lac+ emails from internet users in India enraged over the Airtel zero and internet.org that dilute net neutrality.

In this context, I have a question for readers. In India still now, financial products are sold not bought. And when it comes to which financial product to be sold, though every regulatory norm in very flowery words say that there should be a proper needs analysis of consumer but in reality and on the ground level, saara game commission ka hai!!!

At the ground level, product manufacturing companies develop a broad level target on what all has to be the sales mix for the year keeping in mind their top line and bottom line projections. Then, a commission/ incentive structure is drawn up in line with the broad idea to help push the desired financial products through the sales channels to the end consumers.

In this whole process, sales people are given more commissions to sell certain specific products: most recent example has been the sale of closed ended mutual funds where an upfront commission of upto a whopping 6% was paid out to push those products down the consumer’s throats. The sad part of the whole process is that while the product manufactures to the sales people make money and go, the consumer is stranded with useless financial products that act as a drain on his/her wealth. This is how YOU, the consumer, end up with traditional plans, ULIP plans, closed ended mutual funds, NCDs and company FDs of shady companies etc.etc.

Almost every regulation imposes an obligation to the product seller to DISCLOSE the commission earned by him/her in not only the product sold but all the products of that category. The funny part is, I have never seen an agent following such a disclosure norms. And why would he/she do? There is no incentive for him in doing so, and the consumer is anyways so lousy that he/she does not want to know about it.

Even there, my personal view is that DISCLOSURE is not enough. Why the commission structure of a term plan is is different than the endowment plan or a ULIP plan? Why are closed ended funds given more upfront commission than open ended funds which are in better interest of consumers? Why cannot be uniformity in commission structure? This I agree is far-fetched thought and people with vested interests will come up with n number of reasons (read: excuses) to allow this to happen.

Countries such as UK, Australia have or in the process of moving to zero commissions. I am just thinking aloud: Can we have neutrality in the way financial products are sold in India – where there is no bhed bhav in terms of product sold on the basis of quantum of commission? Can we have an India where there are zero commissions on sale of financial products? I believe the day we do it; we will have what can be said as “neutrality” in financial services.

And as a consumer, you and me have to wake up and voice our opinion on it like we did on net neutrality!!