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The one-page guide

What mis-selling is, and how to check whether it happened to you

Most mis-selling is not a lie told at the counter. It is a half-truth passed down from a training room. Here is how it works, and the questions and tools that let you check whether it happened to you.

By 37xBetter · a banker's view

How mis-selling actually works

The usual story is that a bank employee lies to you to earn a commission. That is not what happens most of the time. What happens is subtler, and the person selling you the product usually believes what they are telling you.

1. Bank staff pass the insurance and mutual fund exams that the rules require. Passing these exams does not make anyone an expert on a product or on personal finance.
2. A representative from the insurance company or the mutual fund company trains the staff on a product. The representative gives the selling points and leaves out the parts that would make a customer stop and think.
3. The staff believe what they are told, because they have little financial training of their own. Then they pass it on to you in good faith.
4. You are the last person in the line. By the time the product reaches you, the person recommending it is not lying. They were sold it first.

The full story is in this essay: The person who mis-sold you was mis-sold first.

Three questions that stop most mis-sales

Ask these out loud, in the room, before you sign anything. If the person cannot answer them, that silence is your answer.

1. What is the real return after all costs and taxes, not the headline maturity figure?
2. What am I giving up to buy this, compared with a simpler product bought on its own?
3. What happens if I need the money before the term ends?

Check it now

The fastest way to see mis-selling is to put your own product into a calculator and read the real number.

• Endowment returns. Put in your premium and maturity, and you see the real return. For most guaranteed plans the yearly return (IRR) comes out close to 5 percent, and after inflation it is close to zero or below, well short of what the brochure leads you to expect. Open the calculator →
• Term cover. See how much more life cover the same money buys as a pure term plan. Open the calculator →

Read the full picture

If you want the argument and not just the number, start with these.

• The person who mis-sold you was mis-sold first
• "Guaranteed" is the most expensive word in Indian finance
• 3 questions before you sign a policy

Check your whole money picture

To check your whole money picture and not just one product, take the Money Checkup. It is thirteen questions, and at the end you get a plain read on what to fix first, how many years of financial freedom you have earned, where you stand, and the one move that matters now.

Here, asking too many questions is the point.