How to protect yourself from unreliable investments

Question: Many friends in the Gulf and in India have burnt their fingers by making investments based on advice received very often from banks who sell financial products.

- HP Ranina

Investors are made to sign on the dotted line by banks which they rely upon when investors make a loss. Is there any mechanism to protect the interest of investors?

ANSWER: Banks and insurers have followed a buyer-beware approach and relied on signed fact sheets to defend themselves in disputes in cases involving complex investment or insurance products.

To protect the interest of investors, the Reserve Bank of India has drafted directions whereby the term ‘mis-selling’ has been defined to mean the sale of a product or service that is inappropriate for a customer's profile -income level, risk appetite or age.

These directions state that customer consent does not legalise an unsuitable transaction. The regulator has held banks accountable for the appropriateness of products they distribute as banks and insurers are not just commission earning intermediaries.

The draft rules prohibit compulsory bundling, making it clear that loan approvals cannot be linked to the purchase of insurance or other financial products. The rules have tightened oversight of third party agents, requiring banks to display updated lists of all direct selling agents on their websites and ensuring that agents operating from branches of banks are clearly distinguishable from bank employees.