Education Or Advertising? —A checklist for picking an unbiased financial wellness program

TLDR: Most employee financial wellness programs today are run by distributors of financial products. This inherently creates a conflict of interest. Such programs neither educate their participants about commission-free products, nor about other, better, financial services. The program’s goal isn’t to provide quality, unbiased education, but to act as a customer acquisition channel.

Products in the personal finance investment space — whether they’re insurance, mutual funds or loans are bullet riddled with commissions. The more commissions the product maker provides, the more is a salesman’s incentive to sell that product.

This swiftly results in mis-sellig. What’s worse is that one way or the other, these commissions are paid out of investor’s wealth.

The problem is rampant. And that’s putting it mildly.

• Harvard Business School conducted a study of the Indian insurance market and concluded that insurance products are, and have been extensively mis-sold. You’ll find that study here. And there are some news snapshots here.
• In 2018–19 alone, mutual fund middlemen(distributors/ financial advisors/financial planners) made about 8500 Crores in commissions. More about that here.
• In an unprecedented move, in 2018, SEBI went to extent of warning mutual fund companies about excessive commissions being paid to distributors.
• The largest receivers of mutual fund commissions for the past two years have been banks — institutes which many first time investors tend to trust blindly.

The erosion of wealth due to leakages in commissions is staggering. Worst yet, such leaks are easy to avoid.

But here’s where the lure of commissions gets far worse

Just about every employee financial wellness program provider in India today is a financial distributor.

They either:

• Sell/distribute loan, or insurance products.
• Distribute/advise on mutual funds — via a free-to-use portal, or offline.
• Provide free or fee-based financial advisory

All these channels above provide bring them income in the form of commissions. And since financial literacy in India remains rather low, L&D and HR departments of several organisations fall for the pitch rather easily. This leads employers to drive their entire organisation’s workforce towards a distributor’s sales funnel. So while the goal was to sign up for employee education, they instead end up signing everyone up, for advertising.

Here’s a 4-point checklist to ensure you onboard an unbiased financial wellness program

1. The program should teach its participants about the impact of commissions on wealth.
2. The program should teach about zero-commission, or low overhead products — direct mutual funds, term life insurance policies, index funds to name a few.
3. It should educate its participants about competing platforms — whether privately run or by an independent consortium.
4. The program and its providers should not be affiliated to any private financial organisations.

The knowledge of essential finances can do wonders to an organisation, and its workforce. Sticking to this checklist will ensure organisations keep their employees out of the propaganda trap.

Happy Moneyplanting.