After reading the headline, you must be thinking that the writer is Anti-bank, but it is not because I myself do my banking with various Private and Nationalized banks. Without a bank account, it’s practically not possible to manage your day-to-day transactions.

In order to serve its customers in a better way and to become the one-stop solution, all the banks these days offer various investment products ranging from Life Insurance, Health insurance, wealth management, Gold bonds and so on and so forth. Now, it is up to us that whether we want to limit our banking relationship to transactional purposes or extend it further by availing investment advisory as well.

If we look at the basic function of the bank, then it’s taking deposits and lending to the borrowers at an agreed rate of interest. This is the function that differentiates a banking entity from an NBFC because the latter ones are not allowed to take the deposits (as per RBI guidelines).

Then why banks have moved ahead in providing or selling various other investment solutions? It could be answered in two ways:

1. To become one-stop solution provider by offering various investment products.
2. To earn income in the form of commissions from the investment partner companies.

And there’s nothing wrong with making profits by offering products which are beneficial to their customer as well.

Why not invest through a bank then?

Let’s understand this with the below-mentioned arguments:

1. Biased advisory

In order to maximize the profits or revenue, the bank gets biased towards the products which help them earn more, by the way of commissions. This biased advisory is very harmful from the investment planning point of view and as an investor, you tend to incur high opportunity costs and high investment risks.

At some point, the banks keep aside the interest of the consumers and promote the high revenue-generating products irrespective of their Risk-Return profile e.g., ULIP (Unit Linked Insurance Policies), Equity Mutual Funds, Alternate Investment Products (AIFs), Structured Products like Portfolio Management Services (PMS) etc.

On the contrary, there are a plethora of investment products available in the market like Corporate deposits, Government bonds, Debt Mutual Funds which are equally beneficial and comparatively safer investment products for the investors but are not being suggested by banking entities because of lesser margins or commercials.

2. Increasing trends of Mis-selling

When we open our bank account the sole purpose is to save the hard-earned money for the future apart from the ease of transactions. Additionally, we get benefitted by earning the interest income on the amount lying in our savings bank account.

Now, just imagine that what will you do if your life savings get compromised by the wrong advice of a bank employee/agent because of the mammoth business pressure of selling those products to earn revenue for the bank and to earn incentives for themselves?

In the greed of earning high incentives and to ease out the huge pressure of sales, they often sell either a misfit product to the consumer without looking at their Risk-Return profile or simply sell without highlighting the important facts and figures about an investing product.

Another reason for increasing trends of mis-selling in banks is, that the employee doesn’t have any permanent liability to take ownership of that product being sold because either they get transferred to another branch or they switch their jobs and move onto another banking organization.

So, what they are more concerned about is, their incentives and promotions without looking at the situation of the consumer that How she has managed to earn that kind of income? What sacrifices she has made to save that money? Who that money has been saved for?

3. Lack of accountability

In case of loss in an investment sold by a bank’s employee, no one takes the ownership or held accountable for such loss.

Bank will pass on the ball in the employee’s court that it’s the employee’s fault that they have done such a thing because as a Bank we never ask our employees to follow such practices and support this argument with various ethical guidelines which generally are present only in paper and not in the culture of its employees. (Although by the way of illogical business pressure they force the employees to commit such malpractices).

And employee who has sold that investment will not be found anywhere.

So, whom you will held accountable for the losses which you incurred because of that wrong advice?

4. Increased turnover of the Relationship Manager

Considering the increasing employee turnover in the banking institutions (resignation of employees), you may witness a change in your advisor/Relationship manager at least twice a year or more in some cases.

When we invest, we generally do it for a longer period of time i.e., between 3-5 years (if not less). All these investment decisions are based on facts and figures and with some forecast about the maturity amount at the time when we need it. All these forecastings are done by the advisor/relationship manager as per their investment approach.

Because of the increased employee turnover, you will never get financially planned advice because the new advisor/Relationship Manager, first of all, will replace the previous investments with his own recommendations. However, there is nothing wrong with the portfolio churning, if that is the need of the hour or if the previous ones are not matching the customer’s Risk-Return profile, but unfortunately, that churning occurs in order to address the business pressures and greed of earning the incentives.

With this frequent turnover of your relationship managers, you will lose most of the interest amount which could have been earned on the deposits or might end up incurring losses because of such shifting in the portfolio or even erode your capital because of a piece of bad advice by any of those advisors.

5. Lack of expertise

Although the employees who are involved in selling investment products are well certified with IRDA and AMFI certifications but that doesn’t guarantee a piece of expert advice coming from them.

Certifications are in place because of mandatory job requirements and they are being acquired for the sake of it.

Majority of the employees who are involved in selling those investment products can’t even answer the basic questions of investments. In order to check this argument, you can conduct a small test yourself by asking these basic questions from the employees of any of the bank branches.

1. Which instruments qualify for Income tax rebate u/s 80EE?
2. Inquire about the exit loads of any of the Mutual fund scheme?
3. What is the difference between XIRR and Absolute Return?
4. What is the beta of an investment?
5. What is an expense ratio of any of the mutual fund scheme?
6. What is modified duration in case of debt funds?
7. Very basic one, just ask them to provide you the exact calculation of Fixed deposit interest on Rs. 10 Lakhs along with TDS deductions?

and so on…

These questions are so basic that you may even get their answers on the internet as well but unfortunately, hardly 1% of the bank employees will be able to answer these for you. Just imagine, if they are not in a position to answer these very basic questions, then how one can rely upon them in handing over their whole life earnings/savings? What will be the kind of authentic advice they would be giving?

Conclusion

We keep our hard-earned money in the bank account for our day-to-day transactions and to earn some interest on it and there is nothing wrong if we can get a piece of good advice from the professionals for maximizing our returns but provided that, that advice is unbiased, genuine, supported with correct facts and figures and matches our risk-return expectations.

If the bank employees are not equipped with sound knowledge of the financial ecosystem and there is no one who can take the accountability of that advisory then think twice before starting your investments with a bank.