“The first step in avoiding a trap is knowing it exists.” – Frank Herbert
Some years ago, a client showed me a portfolio his bank relationship manager had built for him. It had 14 products: 4 ULIPs, 2 endowment policies, 3 mutual fund NFOs from the same AMC, a structured product, two insurance-linked savings plans, and an FD. Every single one of these products had generated a commission for someone at the bank.
Not one of them had been chosen based on what my client actually needed.
This is not an isolated story. It is the standard experience of millions of Indian investors who receive financial advice from people whose income depends on what they sell, not on what helps the client.
⚡ Quick Answer
Bank relationship managers and many wealth managers are primarily product salespeople, not financial advisors. The products they recommend are heavily influenced by commission structures, sales targets, and product pushes from manufacturers. The five most common products that are pushed for commissions rather than client benefit are ULIPs, traditional endowment policies, NFOs from partner AMCs, structured products, and high-TER regular funds over direct or index options. Understanding how to identify mis-selling and what questions to ask protects your wealth far more than any product selection decision.
Why Bank “Wealth Management” Has a Structural Conflict
The bank relationship manager (RM) calling you is not independent. He or she works for the bank, is evaluated on sales targets, receives incentives tied to specific products, and has limited ability to recommend anything the bank does not distribute. The bank itself earns distribution income from insurance companies, AMCs, and other product manufacturers. When the RM recommends a product, it is worth asking: is this the best available product for my need, or the most available product in the bank’s distribution system?
This is not an accusation of dishonesty. Most RMs genuinely believe in the products they sell. The problem is structural: their training comes from the same sources that benefit from the products being sold, their performance metrics are tied to sales volumes, and they rarely have the time or mandate to do comprehensive financial planning. The advice you receive is shaped by these constraints, not by your goals.
SEBI has taken significant steps to address this. The SEBI Investment Adviser Regulations require advisers to either be fee-only or to clearly disclose the distribution-based model. But many people who present themselves as “wealth managers” or “investment advisers” at banks are not SEBI-registered advisers – they are distribution agents operating under AMFI and IRDAI licenses where the commission structure still significantly influences recommendations.
The Five Products Most Commonly Pushed for the Wrong Reasons
ULIPs. Unit Linked Insurance Plans combine insurance and investment in a single product. The pitch is usually: “one product for both.” The reality: the insurance component is typically far more expensive than a comparable term plan, and the investment component underperforms equivalent mutual funds after accounting for charges. The first-year commission on a ULIP can be 25-40% of the premium. This creates a very strong incentive to sell them. Assess any ULIP by separating the insurance cost from the investment return and comparing each component independently to standalone alternatives.
Traditional endowment and money-back policies. These provide guaranteed returns, but the effective return – accounting for the long lock-in, the insurance charges, and the premium payments – is typically 4-5% per annum. For someone in a 30% tax bracket, this is barely above post-tax FD rates. They are sold as “tax-free” (which is true for maturities under certain conditions) but the tax efficiency does not compensate for the poor underlying return. The commission on traditional life insurance products is the highest in the industry.
NFOs from partner AMCs. Every mutual fund family launches NFOs when market conditions make collection easy. Banks often push NFOs from their own AMC affiliates or from partner AMCs with preferential commission arrangements. The pitch – “NAV is only Rs 10, it is cheap” – is false. NAV says nothing about whether a fund is cheap or expensive. An existing fund with a 10-year track record at NAV Rs 400 is a better starting point than an NFO at Rs 10 with zero track record.
Structured products. These are complex instruments that package equity exposure with capital protection or enhanced return features. The complexity makes them very difficult to evaluate, which makes them very easy to mis-sell. The costs embedded in structured products are often opaque and significant. They are generally appropriate only for sophisticated investors with a specific view on market conditions – not as a “safe equity alternative” for someone building a retirement corpus.
Regular mutual fund plans instead of direct plans. Since 2013, investors can directly purchase mutual funds from AMCs without going through a distributor, eliminating the distributor commission (typically 0.5-1% per annum). Most banks and wealth managers recommend regular plans, which include this commission. On a Rs 50 lakh portfolio, the difference compounds to lakhs over a decade. This is not illegal – regular plan distribution is a legitimate business. But investors who are not receiving active advice and service should be aware of the cost difference.
Knowing who benefits from a product recommendation is not cynicism. It is due diligence.
RetireWise is a SEBI-registered investment adviser (INA100001927). We charge advisory fees and work with clients to build financial plans – not to sell products for commissions.
Four Questions That Protect You From Mis-Selling
“What is the total cost of this product, including all charges, over 10 years?” For ULIPs and traditional insurance products, the true cost is embedded in multiple charge layers (premium allocation charge, policy administration charge, fund management charge, mortality charge). Ask for a single number: if I pay Rs X per year for 10 years, how much will I receive net of all charges, and what is the internal rate of return? Compare that to an equivalent mutual fund investment plus a term plan.
“What is your compensation if I buy this product?” This is a direct question that good advisers answer without discomfort. If the answer is evasive or framed as “the AMC/insurer pays us, not you,” follow up with: “How much does the AMC/insurer pay you, and does that vary across different products?” Commission disclosure is now mandated by SEBI, but it helps to ask directly.
“Can you show me two or three alternatives and explain why this one is better than the others?” A genuine adviser will have compared alternatives. A product salesperson will typically only know the product they are pitching. If no alternatives are presented, that is itself informative.
“How does this fit into my overall financial plan?” If the person recommending the product cannot map it to a specific financial goal you have identified, with a specific time horizon and a specific role in your asset allocation, the recommendation is product-first, not planning-first.
Read: The Real Role of a Financial Advisor: What Most Indians Never Get to Experience
The wealth management industry in India has people who genuinely help their clients – and people who are product salespeople dressed in the language of advisory. The difference is not always obvious from the outside. But it is discoverable, with the right questions and a basic understanding of how incentives work.
Ask who benefits. Then ask the right questions. Then decide.
Have you ever looked at your existing portfolio and wondered how it was built?
A RetireWise portfolio review examines what you hold, what it costs, and whether it is actually serving your retirement goals – independent of any product manufacturer or distributor relationship.
Your Turn
Have you been sold a product by a bank RM or wealth manager that later turned out not to serve your actual financial needs? What product was it, and what did you learn from it? These real stories help other readers recognise the same situation when they encounter it.
