When we are not well, we visit a doctor. The doctor prescribes medicines based on the ailments and symptoms thereof. We then visit the pharmacy and buy the prescribed medicines for our cure. This well established model in healthcare needs to be emulated by the financial services industry for preventing mis-selling and unfair practices. Today in the absence of financial planners, the financial products and services are sold by the manufacturers through their agents or distributors. This obvious conflict of interest leads to the distributor who is an agent of the manufacturer selling products and services without adequate care regarding the interests of the customers. Imagine a situation when we are not well and for curing ourselves we need to buy medicines from representatives of pharmaceutical companies, instead of visiting doctors. This is exactly what is happening today in case of the financial services industry in the absence of financial planning and planners.
Financial planners are like doctors. They are expected to analyse the specific situation and the needs of a customer before prescribing the customized solutions, just like what a doctor would do for a patient. The process of selling financial products and providing financial advice are two completely separate activities and any overlap always leads to “conflict of interest” situation resulting in a compromise of the interest of the customer.
In spite of its rapid growth over the last couple of decades, Indian financial services industry has still a long way to go in terms of growth. Mutual Fund, Insurance, Broking (equity, commodity, currency) industries have significant growth potential as we are just scratching the surface in terms of this. As a country, we are poised to grow between 8 to 0% during the next 5-10 years. This growth will ensure that the demand for financial products and services grow exponentially.
To cater to this growth in an orderly manner, it is imperative that the delivery arm of the financial services industry, like healthcare, develops two distinct branches i.e. financial planning and financial distribution. It must be understood that both the above components are critical for effective dissemination of financial services across the length and breadth of the country in a transparent and acceptable manner. Service providers in both these segments need to be remunerated for their efforts. Since the financial planners are expected to be the custodians of customers’ interest and are providing services to the customers, they need to be remunerated by the customers. On the other hand, the distributors represent the interests of the product, manufacturers and thus should be remunerated by them. It is critical for all of us, including regulators to understand and appreciate the criticality of both these roles and the need for financial compensation for both these service providers.
While the financial services industry has been working on creating, remunerating and nurturing a vibrant distribution network for the last couple of decades, more needs to be done to ensure further spread of their products and services. On the other hand, financial planning industry is at its infancy in the country and requires nurturing by the Industry Bodies (as opposed to individual manufacturer), Regulators and the Government, to ensure protection of customers’ interest, prevention of mis-selling and creation of a vibrant financial market. FPSB has been working continuously for creating a financial planning community and it needs support from all quarters to make this a reality.
Just like we cannot imagine a Healthcare industry without the Medical Professionals and the Doctors, a well functioning of financial services industry cannot flourish without Financial Planning and Financial Planners.
