Don’t become the product sellers make money from

Understand your rights and responsibilities so that you are not taken for a ride by clever salesmen
Uma Shashikant

My friend has some blockages in the arteries that supply blood to the heart. He smokes and drinks, holds a stressful job and can’t stick to a workout regime. The doctor smiles at him and says he will be fine.

Where are the strictures, words of disapproval and stern warnings, I ask myself. And then it strikes me hard. My friend is not a patient alone, he is also the doctor’s customer. The doctor has to deal with him in such a manner that he feels good and provides him with continued business. This sales orientation is all pervasive, and has harmed us so much and we are still figuring it out.


Enter a bank branch to transact any business, and a relationship manager will persuade you to buy a product. If you phoned a call centre for help, you will sense the persuasive talk to sell you the next holiday package, the newest financial product, or the installment plans for a new scheme.

It is the curse of the modern world we live in, where we are consumers and clients first, and the survival of several businesses depend on their ability to sell to us and thus grow in size and volume. How does this affect our financial lives and what can we do about it?

When we buy an insurance product, we are asking the insurance company to stand in for us should there be an unexpected setback, even as we are building assets for our family to lean on. It is critical to understand that building assets for the family is our responsibility. How much, how soon, and how well we will do this depends on our own capability. When we seek insurance, we protect against the possibility that we may not complete that task as intended.

Now imagine the behaviour of the typical consumer of insurance products. The questions that are commonly asked are: how long should I pay the premium? How much will I get? What is the assurance that I will get it? How much will my money grow? How much tax will I save?

Recognize the one-sided and poorly informed nature of these questions: The premium is what one can afford to pay, and therefore has to be as small as possible; the money I get from the policy should make me and my family rich, and if I get nothing it is a bad policy; if there is no assurance of how my money will grow, I won’t invest; and if it saves taxes today it is a good start.

Little wonder that the market is filled with ill-defined products. The prevalence of persuasive sellers who will lie or highlight only those portions of the product that appeal to you, is encouraged by your unwillingness to take responsibility.

Second, be clear that your need is the primary driver of your decisions. Marketers pride themselves as being able to define needs that you did not know existed. When and how did you allow someone else treat you like hapless victims?

If you are not saving enough every month, you need products that will enable you to draw from them as needed. If you are earning enough, you don’t need products that will generate income for you. If your investment is expected to grow only if given time, you won’t be able to draw on it easily. There are simple ways to define what you need before you step in to shop. Knowing what you need is a responsibility you have to take on .

Third, don’t be gullible about what a product will do for you. Mutual fund schemes are tools to expose you to the capital market and will not come with guarantees. A bank, NBFC, or a company’s ability to pay interest depends on the quality of its assets. That has nothing to do with its name, ownership, or familiarity of the manager selling the product. For every multi-bagger share, there are abysmal failures and you cannot tell them apart. An informed buyer is the only foil to an incentivised seller.

Sellers have their own interest firmly in mind. Your interest can be protected only when you take charge. Before taking that free quiz online, or forwarding mindless stuff to your contacts, consider that when something is free, the product being sold may very well be you.

Keep things simple to make money

Simplicity leads you to the right portfolio. Should things go wrong, you will know what you need to do, says Dhirendra Kumar
For close to two decades, as technology companies took over the world and started eating up practically every industry, the world’s greatest investors ignored it. For all practical purposes, Warren Buffett and Charlie Munger missed the technology bus. They started to invest in Apple and IBM only recently, after the former transformed itself into a consumer durables company and the latter into a business services company. Why did they avoid technology? More importantly, is there anything that us mere mortals can learn from this?

In the years before that, Buffett and Munger often said that they did not invest in the stocks of companies whose businesses they did not understand. A simplistic response would be that they missed out on a lot of great investments because of that. Despite always having had billions of dollars of investible surplus, they never made a dime out of stocks like Google and Amazon, which delivered more than 20X for investors over these years.


Yet, the duo is pretty sanguine about the opportunity lost. The reason for that is that they were still the most successful investors in the world at that scale. They were successful because they invested in businesses they understood. In hindsight it’s easy to say that they missed out on Amazon and Google. However, they also missed out on Pets.com, Webvan, Myspace and other expensive failures. Since they did not understand the business, they were just as likely to invest in these duds as they were to invest in Amazon and Google. After all, the great media moghul, Rupert Murdoch, did buy Myspace for $ 580 million and then sell it four years later for $ 35 million. To avoid this 94% loss, all Murdoch had to do was to learn from Buffett and Munger and not touch investments that he did not understand. And that’s exactly what we should do too.

No matter what product or service we’re buying, nothing impresses us more than features, jargon and complexity. Perhaps our modern technological world has mentally trained us to accept that most of the new wonders of the world are too complex to be understood by most people, and therefore, anything that is complex must be good. Unfortunately, in personal finance, this idea is fatally wrong. In the case of personal finance products, simplicity is not just something useful or helpful, it’s absolutely necessary. The reason is simple. If an investor does not fully understand a financial product or service, then he or she has no way of telling whether it is even minimally suitable, regardless of how good its seller may claim it is.

How can you ensure that you understand everything? The easiest way of doing so is to keep things simple. Unfortunately, the message that we hear is the opposite. When I look at the market for savings and investment products today, and see the resulting investment portfolios that people are collecting, it’s clear that there’s a strong need for a self-aware and aggressive minimalism. The impact of marketing messages is to promote the idea that your investment needs are best met by portioning out little bits of your savings into a large number of investments. If you would like to be part of the minority of sensible investors, then you should stick to a minimalist approach. Simplicity is needed not just in the types of investments that you use, but in your investment portfolio as a whole. Assume someone has—and this is very common—an investment portfolio that has 20 different investments of varying amounts and periodicities. In such a situation, even if those investments are simple, the whole situation is complex and hard to understand.

I would say that 99 savers out of 100 need to do nothing but have a basic menu of a certain amount of emergency money, a hefty term insurance policy, and no more than three to four mutual funds, one for which can be a tax-saver. Such a combination is simple, to the point that anyone can understand everything about it and track it to the extent required. Simplicity serves your purpose best, because you always know what is happening and why. When it’s successful, you can extend that success, and when it isn’t, then you can understand why it did not.