Banks these days have relationship managers to take care of the investment needs of their customers. But these relationship managers do not always act in the best interests of their customers.
Their primary interest is in meeting the high targets set for them and once they have done that only then do they come around to think what is right for their customers.
Here is a list of four things you need to know and your relationship manager will not tell you:
1. Relationship managers size up their customers
Most relationship managers have a clear cut idea on how 'investment savvy' their customer is. The first thing relationship managers do while sizing up their customers, is to take a look at the amount of money that is lying idle in the savings account that the customer has with the bank.
Banks pay an interest of 3.5% per year on their savings account. The next thing they take a look at is the amount of money which has been invested in fixed deposits.
If the customer has a lot of money lying around idle in his savings account or invested in fixed deposits, the conclusion that can be drawn in most cases is that the customer doesn't have much idea of what to do with his money.
Such customers, who do not have much idea of what do with their money, are the easiest to handle. They can be made to invest in a product of the relationship manager's choice. And this may not always be the best investment for the customer.
2. Relationship managers prefer new mutual fund schemes to older ones
Having sized up the customer, the next thing to do is to make the customer aware of the various investment options available in the market. This typically leads to the relationship manager getting the investor to invest in a new mutual fund scheme whose new fund offer is on.
This is done primarily because the commission they can hope to earn on a new scheme can be as high as 4% of the amount they get invested into the scheme. In an old scheme the commission is around 2%.
Hence by getting an investor to invest in a new scheme, they can hope to meet their targets faster. This obviously does not work in the best interest of the customer because a new scheme does not have any track record in the market.
3. Relationship managers prefer Ulips MF schemes
Lately relationship managers have realised that it makes more sense to sell Unit-Linked Insurance Plans (Ulips) to their customers than mutual funds. This is primarily because the commission they can hope to earn on a Ulip can go to as much as 40% of the amount that is invested.
This obviously helps them reach their targets faster. Also in a Ulip, the investor has to invest for a minimum of three years hence it helps them to lock in a commission for the next two years as well.
4. Relationship managers get you to churn investments
No broker has ever made money by the investor sitting still on his investment. If the investors keep buying and selling only then a broker makes money. Relationship managers are no different.
If a customer keeps holding on to his mutual fund investments, the bank the relationship manager works for, earns a trail commission of around 1% of the amount that has been invested.
Also customers who approach them have a limited amount of money. Within that amount, the relationship managers have to make more and more commission. So the easiest thing to do in such a case, it to get a customer to exit one mutual fund and get him to invest in another mutual fund.
When the customer invests in another mutual fund, the bank the relationship manager works for gets a commission which is much greater than the trail commission of 1% and this commission helps the relationship manager achieve his annual targets.
Most thinking of these relationship managers happens on a short term, and by the time customers figure out what has been happening, the relationship manager has moved onto his next job, hoping to find a new set of customers to work with.
