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)
“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
How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Use our Robo-advisory Excel Template for a start-to-finish financial plan!
Join our courses in exclusive Facebook Groups!
- 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). 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 how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2125+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author

About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel

Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)