What Customer Relationship Managers Won't Tell You About Investments

5 secrets your bank’s customer relationship managers won’t tell you 

Devangshu Datta Updated: Nov 1, 2018 16:50:04 IST
What Customer Relationship Managers Won't Tell You About Investments Indiapicture

Let’s say, you are an earner with a reasonable saving habit. You want to invest and gain better returns than what you get from fixed deposits. You have little idea how to do this, and your work leaves you with even less time to learn.

One day, you receive a polite phone call from your bank’s client or customer relationship manager (CRM). The bank has noticed you have cash to spare and they’d like to help you make investments. A friendly young person smoothly talks you through some options and presents you with a list of suggestions. Simply sign a few forms and your investment needs will be taken care of, quickly and painlessly, they suggest.

This fills a genuine need for hassle-free financial advice to those who are keen to invest but are either overwhelmed by the paperwork and financial rigmarole, or apprehensive about fine-print minutiae and hidden costs. However, a CRM’s advice could lend itself to what is known as a principal–agent conflict: The objectives of the principal (you) are not perfectly aligned to that of the agent (the bank, often represented by the CRM).

Don’t get me wrong. Customer relationship managers often give good advice. But that’s incidental to their interests. Investments are a long-term process where you may have to take periods of underperformance in your stride. So, even if you suspect a principal–agent conflict, once you’ve committed, you are in for the long haul.

Now, you might think that paying an extra, say, one per cent in fees is a reasonable cost for the time and trouble it saves you. But remember, that same one per cent could have compounded to a much larger sum over time. Here’s an easy example---compare your earnings from investing Rs 1 lakh for 10 years at a 10 per cent rate of return (compounded annually) (this is Rs 2,59,374) versus investing Rs 99,000 for 10 years (Rs 2,56,780). The ‘missing’ Rs 1,000 in the invested amount would have grown to Rs 2,590. Many financial schemes charge much higher fees, which means the bank earns fat commissions, and there is less of your capital working for you.

In order to ensure you get the best mileage out of your CRM, keep the following things in mind:


What’s in it for you

If the bank can earn a good return for you, while charging its fees, great. But that’s not the agent’s primary concern. You are interested in a decent return; the bank wants to put your money into schemes where it earns the highest fees; the CRM is interested in meeting their financial targets and earning commissions. In fact, you may have noticed CRMs being particularly insistent that you sign off on investments around the time the financial calendar ends, since they are under high pressure to meet their targets.

The bank’s takeaway

Find out how much the bank makes for signing you up for each of the investments it is suggesting. Also, ask if there are termination fees or other hidden costs and lock-in periods. These are very important questions so do not be embarrassed to ask. If the charges seem high, dig deeper. In fact, don’t be afraid to ask any questions that occur to you, no matter how silly they may seem. It’s your money---you have a right to know.

Take your time

Don’t sign up immediately. Go online and look up the returns for any suggestions made by the bank. If these are standard mutual fund schemes, you will have a fair picture of return history and the types of portfolios held. Companies are required by law to provide this information to potential investors. If these are not standard schemes, follow up with your CRM by asking questions about returns, portfolio make-up and investment strategy. Also, using online sources to educate yourself about financial terms (equity, debt, mid- or large-cap, actuals, NAV and SIP to name a few) and investment gambits will ensure you are more confident while dealing with professionals. Senior citizens and young earners can be particularly vulnerable to erroneous investment choices, so hold back from making decisions or signing anything until you’ve done your homework.

Consider multiple options

We all go window-shopping, both offline and online, before we buy things like a mobile phone. We’ll choose, say, the online purchase option only after carefully checking prices, features and discounts available at retail stores. Treat your investments the same way. You can, for example, subscribe directly to a mutual fund and save some cash, rather than buy through the bank.

Consult trusted sources

Ask the CRM if they can refer you to other clients. If you want to weaponize this approach, start a social media page and ask your friends for feedback. Chances are your friends have financial profiles similar to yours, and may have useful experiences to share as well. If possible, hire a financial advisor. Give them a clear brief regarding your specific investment goals, parameters and constraints (if any), and they can advise you on everything from portfolio management to asset allocations.

Yes, all this does involve spending a few extra hours. But a bit of due diligence is much better than trying to rescue a poor portfolio, and this can make a vital difference to your returns over the long term.       


Devangshu Datta is a financial journalist and columnist with over 25 years of published work. He has written extensively on personal finance, mutual funds and equity investments in Business Standard, Value Research, Asia Times and Outlook.

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