Last Updated on October 8, 2023 at 1:44 pm
Financial products get mis-sold every minute of every day. Interpretations of what constitutes miss-selling depend on who you ask. They range from persuasion (bending the rules) to outright fraud (breaking them). In this case, the victim is the buyer. There is yet another form of miss-selling where both the buyer and seller are victims. In this post, let us look at what constitutes honest miss-selling and why it probably more dangerous than normal miss-selling.
Behavior gap refers to (one form of it) how an investor’s behavior results in a reward lower than what the asset class delivered. The classic example is selling when the market crashes. If you search for “behaviour gap” in Google Images, the first illustration would resemble this
This, of course, is a reproduction of Carl Richard’s napkin drawing (you can see them all at behaviourgap.com)
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
“Advisors” (often a fancy word for salesmen) are so busy pointing out the behaviour gap among investors, that they have failed to realise that they have a behaviour gap on their own. A similar picture can be drawn for advisors too.
Many in the advisor community (regardless of whether they are fee-only or commission + fee-based) have a poor understanding of asset class risk. You can get extremes here.
There are those who believe combining insurance and investment is good for the growth of the nation and there those who believe investing in equity constitutes financial literacy and one should “hold” or invest more despite market ups and down. Then there are those who think they are doing a service of some sort by promoting mutual fund awareness. lol.
This childish notion of risk and reward stems not just from a desire to sell more products (that would be good old plain mis-selling). A good chunk of it stems from an actual belief that they are helping their clients! This is what is I refer to as honest mis-selling.
It is one thing when risks are ignored for profit and quite another when they are ignored due to ignorance. Such “honest” mis-selling is more dangerous because it has found its way into the papers we read and assume are authoritative and the channels that we take seriously.
Advisors are victims too because no one, especially the product manufacturers and degree manufacturers are interested in educating them better. Common financial planning degrees do not have enough coverage on investment risk necessary to manage an investment portfolio. Well, if it did, fewer people will pass!
SEBI is not an exception. They have kept one of the bars (qualifying exams) to become a registered investment advisor pretty low.
When I ask, Are You a Victim of “Honest” Mis-selling?!, I am not referring to both investors and advisors.
Investors, especially new mutual-fund-converts have a naive (therefore clear) demarcation on what constitutes financial literacy and what does not. It is such pity when someone who has started an equity fund SIP for 5000 a month, considers himself holier than thou than someone with an endowment policy for 1L a year. Well, there is more to investing than obtaining real returns.
This amusingly simplistic notion that starting equity fund investments and “holding on to them for the long term” as a wealth building solution is the result of widespread honest, or shall we call it, naive miss-selling (or is it mis-buying!).
This, in turn, is an effect of mis-training (= a lack of rigour). Some product manufacturer and their stockholders are laughing all the way to the bank.
As an investor, I believe that true financial literacy is to realise that financial literacy should not be spread. Only diseases spread. If one can define right vs wrong, then it must be free of products or even asset classes. Let people evolve in their own style or at their own pace.
As for advisors (who can think beyond commissions), true financial literacy is a better understanding of risk and reward. This can only come from an unbiased and rigorous education. Experience may help, but it comes with the baggage of biases.
Honest mis-selling is worse than good old regular mis-selling because it is harder to spot. Because:
If everyone is thinking alike, then somebody isn’t thinking. – George S. Patton
_________________________
Thank you for the wonderful reviews of GameChanger!
You can check out the others reviews via this link
My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want, co-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no kindle necessary).
You can Be Rich Too with Goal-Based Investing
is my first book with PV Subramanyam. It helps you ask the risk questions about money, seek simple solutions and find your own personalized answers with nine online calculator modules.
The book is available at:
Amazon Hardcover Rs. 279. 30% OFF
Infibeam Now just Rs. 270 32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!
Flipkart Rs. 279. 30% off
Kindle at Amazon.in (Rs. 90.74 74% OFF) Read with free app
Google PlayRs. 90.74 Read on your PC/Tablet/Mobile
Now in Hindi!
Pre-order the Hindi version via this link
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)